USA Trends and Developments Contributed by: David Sewell, Alison Hashmall and Nariné Atamian, Freshfields
ler’s guidelines on recovery planning for large national banks, federal savings associations and federal branches. If finalised as drafted, this proposal would dra - matically broaden the scope of banks required to comply with the OCC’s recovery planning expectations; today, only banks with an aver - age of over USD250 billion in total consolidated assets (over four quarters) are covered, whereas the proposal would apply the recovery planning guidelines to banks with an average of USD100 billion or more in total consolidated assets. Under the proposed guidelines, all covered banks would be required to test their overall recovery plans, and each component of their plans, at least once a year. Furthermore, recov - ery plans would be expected to conduct assess - ments of both financial as well as non-financial risk factors (eg, operational and strategic risk), in a reflection of the OCC’s perspective that non- financial risks may impact a bank’s financial strength and viability as well as financial ones. Other Topics of Note Focus on AI in financial services continues to ramp up Although AI has been a regulatory focus of the federal banking agencies for several years, there has been a notable uptick in focus as AI has soared into the public consciousness, and with it, concerns related to the risks it may pose on operational resiliency and risk management at financial institutions. For example, the OCC identified AI as an “emerging risk” in its winter 2023 semi-annual risk perspective risk report – the first time AI had featured in the report. The trend continued with the Treasury Department releasing a report in March 2024 on “Managing Artificial Intelligence-
Specific Cybersecurity Risks in the Financial Services Sector.” In June 2024, the Financial Stability Oversight Council (FSOC) co-sponsored a conference on AI and financial stability with the Brookings Insti - tution, which the Treasury Department used as an occasion to release a request for information on the “Uses, Opportunities, and Risk of Artificial Intelligence (AI) in the Financial Services Sector” (the “AI RFI”) – its most comprehensive effort yet to understand how AI is being used in the financial industry. The AI RFI seeks “a broad range of perspectives” on the topics and questions broached in the AI RFI and is “particularly interested in understand - ing how AI innovations can help promote a finan - cial system that delivers inclusive and equitable access to financial services.” It is not yet clear how the Treasury will use responses to the AI RFI, but it is safe to assume the agency will at a minimum continue tracking developments in the months and years to come. Climate and DEI landscape creates compliance challenges Following the federal banking agencies’ 2023 release of principles for climate-related financial risk management for large financial institutions, the agencies have taken limited steps in connec - tion with furthering the regulation and supervi - sion of climate-related risks posed by financial institutions. The landscape is complicated by the ongoing legislative tug-of-war, as competing pro- and anti-ESG legislatives and lawsuits across US states and in Congress continue. California remains at the legislative forefront of pro-climate and ESG rulemakings; financial services provid - ers will continue to adapt their business and
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