Recommendations for New England Banks and Credit Unions to Enhance Risk Management

In light of the recent assessment by the Office of the Comptroller of the Currency (OCC), which highlights significant deficiencies in the operational risk management of many large banks, it is crucial for New England banks and credit unions to take proactive steps to strengthen their risk management frameworks. The following recommendations can help these financial institutions enhance their resilience against various risks, including cyberattacks and operational errors:

1. Enhance Cybersecurity Measures
 

• Conduct Regular Risk Assessments: Regularly evaluate cybersecurity risks to identify vulnerabilities and potential threats.
• Implement Advanced Security Protocols: Adopt multi-factor authentication, encryption, and intrusion detection systems to protect sensitive data.
• Employee Training: Regularly train employees on cybersecurity best practices to prevent phishing attacks and other cyber threats.
• Incident Response Plan: Develop and routinely update an incident response plan to ensure a swift and effective response to cybersecurity incidents.
   

2. Strengthen Operational Risk Management
 

• Comprehensive Risk Management Framework: Implement a robust risk management framework that includes risk identification, assessment, mitigation, and monitoring.
• Internal Controls: Enhance internal controls to minimize the risk of human errors and fraud. This includes regular audits and checks.
• Business Continuity Planning: Ensure business continuity plans are in place and regularly tested to handle disruptions such as IT outages.
   

3. Improve IT Infrastructure Resilience
 

• Diversify IT Resources: Reduce reliance on centralized cloud services by diversifying IT infrastructure, including hybrid or multi-cloud environments.
• Regular Updates and Maintenance: Keep systems up to date with the latest security patches and perform regular maintenance to prevent outages.
• Collaboration with Security Experts: Partner with cybersecurity firms to stay updated on the latest threats and mitigation strategies.
   

4. Enhance Regulatory Compliance
 

• Stay Informed: Keep abreast of regulatory changes and ensure compliance with all applicable laws and guidelines.
• Focus: Improve the elements addressed in the CAMELS rating system, which is based upon an evaluation of six critical elements of a credit union’s operations: Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk.
• Audit Preparedness: Regularly prepare for audits by maintaining thorough documentation and ensuring all processes meet regulatory standards.
   

5. Develop a Balanced Risk Approach
 

• Prevention and Recovery: Shift from a purely preventive approach to a balanced strategy that includes robust response and recovery plans.
• Technology Investment: Invest in cutting-edge technology to enhance both preventive and responsive capabilities.
• Collaboration and Sharing: Collaborate with other financial institutions and industry bodies to share information on emerging threats and best practices.
   

6. Engage with Stakeholders
 

• Transparent Communication: Maintain open communication with stakeholders, including customers, employees, and regulators, about the steps being taken to manage risks.
• Customer Education: Educate customers about cybersecurity and fraud prevention to reduce the risk of breaches originating from customer actions.
   

By implementing these measures, New England banks and credit unions can significantly enhance their operational risk management, cybersecurity resilience, and overall regulatory compliance, thereby safeguarding their operations and customer trust in an increasingly challenging risk environment.