Amid the current digital transformation of the financial services industry, controlling risk should be a fundamental part of banks’ innovation strategies��a point that has been underscored by the Comptroller’s Office.

“Banks are understandably motivated to seek out and implement operational efficiencies and pursue innovations to grow income,” according to an October 2017 OCC bulletin, 2017-43, pointing to the expanded use of artificial intelligence, machine learning, algorithms, and cloud data storage.

“Given the breadth and speed of change, bank management and boards of directors should understand the impact of new activities on banks’ financial performance, strategic planning process, risk profiles, traditional banking models, and ability to remain competitive,” OCC wrote.

The bulletin listed principles it expects banks to follow “to prudently manage the risks associated with offering new, modified, or expanded products and services.”

While many of the concepts that OCC outlines are not new, its bulletin should serve as a clear reminder that the industry’s new activities are no exception to regulatory standards for risk management.

Given the nature of digital technology and fintech partnerships, in fact, risk could be even higher.

Risk and control self-assessments—RCSAs—are a crucial tool for effectively managing risk in new as well as established bank products and services. This article provides a framework for applying RCSAs.

Read the full article in Banking Exchange