On March 25, 2024, Acting Comptroller of the Currency Michael J. Hsu talked about fairness and effective compliance risk management in his remarks at the Consumer Bankers Association (CBA) LIVE event. The event was held in Washington D.C. with the theme “For the People”.
Hsu’s remarks revolved around his belief that banks can improve the effectiveness of their compliance risk management programs by developing a strong internal sense of fairness. Hsu described how complying with applicable laws and regulations can be challenging for banks during times of change and uncertainty. According to Hsu, executing well-designed and resourced compliance programs is just as important as adapting and anticipating where compliance risks are likely to emerge. To this, having a strong sense of fairness can be important.
Hsu discussed how the increasing changes in product offerings and the competitive environment presents a challenge to compliance risk managers. Balancing innovation and growth with safety, soundness, and fairness is getting harder. According to Hsu, a well-developed sense of fairness can help ensure that compliance risk management practices are effective, especially in areas that are evolving. He mentioned as an example how the accommodation of overdrafts fees led to profit-driven use of such fees and ultimately resulted in the agencies taking enforcement actions, issuing risk-management guidance, and initiating rulemaking to clarify the guardrails for overdrafts. Hsu said that having a well-developed internal sense of fairness can help a bank avoid compliance risk issues down the road, when the product has grown and consumer harms are more apparent.
Hsu also described how multiple notions of fairness can exist. In driving his point, Hsu used the concepts of disparate treatment and disparate impact where banks must mitigate both risks to fully comply with fair lending laws, not just one of them. Hsu concluded his remarks by reiterating his belief that banks can improve their ability to anticipate and adapt to emerging compliance risk issues by using fairness as an input to help guide their compliance risk management programs.
Hsu’s full remarks can be found here.