Our Take: financial services regulatory update – January 9, 2026

January 09, 2026

Change remains a constant in financial services regulation

Read "our take" on the latest developments and what they mean.

OCC increases threshold for heightened standards

What happened? On December 23rd, the OCC issued a proposal to raise the applicability threshold for its heightened standards guidelines from $50 billion to $700 billion in average total consolidated assets. The proposal states that this change would reduce the number of covered banks from 38 to eight.

What are the OCC’s heightened standards? The OCC’s heightened standards, which were formally published as Appendix D to 12 CFR Part 30 in 2014, impose a number of risk management requirements on covered banks including a formal risk governance framework, defined roles for the three lines of defense, active board oversight, risk appetite statements, and compensation standards (see Appendix A for more details).

What does the proposal say? It:

Increases the applicability threshold for heightened standards from banks with $50 billion in assets to only those with over $700 billion, but allows the OCC to apply them to excluded institutions (those below $700 billion) in extraordinary circumstances;
Emphasizes that the proposal “would not authorize excluded institutions to neglect their risk management or compliance responsibilities, or to operate their firms in an unsafe or unsound manner;”
Removes outdated compliance dates and clarifies an 18-month transition period for banks that cross the threshold after the effective date;
Requests comment on whether the guidelines should be fully rescinded or converted to principles-based guidance;
Seeks input on tailoring standards for excluded institutions, revising prescriptive roles for front line units, independent risk management, and internal audit, and adjusting board requirements such as independence thresholds and succession planning; and
Asks whether the threshold should be indexed for inflation or GDP growth and whether additional factors such as capital and management ratings should influence the definition of a covered bank.

What’s next? Comments on the proposal are due by March 2^nd, 2026.

Our Take

A dramatic threshold increase brings greater flexibility but core risk management expectations remain

The OCC’s proposal reflects a fundamental shift in regulatory philosophy: moving away from prescriptive requirements applied uniformly across a wide range of large banks toward a more tailored approach that provides more flexibility to all but the largest and most complex banks. While the threshold increase is dramatic, the proposal makes clear that fundamental expectations for banks to maintain strong governance and risk management remain unchanged. Many of the banks excluded from heightened standards will still be subject to other supervisory frameworks, including the expectations laid out in the OCC’s risk governance manual and the Fed’s Enhanced Prudential Standards (EPS)¹ – at least for now. That said, there is likely further change ahead to tailor EPS requirements to size and complexity, although the exact scope and mechanics of that tailoring are yet to be determined. The OCC’s detailed consultation questions – covering nearly every aspect of the heightened standards – show that the agency is willing to work with the industry to find the right balance between being prescriptive and providing latitude for banks to establish risk management frameworks and practices that reflect their size, complexity, and strategic priorities.

Responsible growth in a less prescriptive environment

If banks are freed from prescriptive OCC mandates they will have greater ability to self-direct technology investments and streamline risk management processes. However, this flexibility puts the onus on banks to determine appropriate staffing, governance protocols, and limits to manage their business safely. Cutting too deeply into risk management functions may deliver short-term cost savings, but it could also sow the seeds for losses that far exceed those savings if risks materialize. With fewer prescriptive expectations to follow, banks will increasingly look to peers and industry forums to understand the range of effective risk management practices and to avoid gaps that could leave them exposed to risks others are mitigating. In addition, less specific feedback from supervisors means that the second and third lines of defense have the opportunity to design and scale their risk oversight without reverting to rigid standards that replicate the heightened standards framework. The challenge will be to maintain strong oversight and credible challenge while allowing the first line to operate efficiently and focus on managing risk in line with business objectives.

Vice Chair Bowman speaks on the future of supervision and regulation

What happened? On January 7^th, Fed Vice Chair for Supervision Michelle Bowman spoke on modernizing the supervisory and regulatory framework to reduce unnecessary burden and improve transparency while maintaining safety and soundness.

What did Vice Chair Bowman say? She outlined several actions the Fed has already taken and previewed upcoming proposals in the following areas:

Tailoring: Speaking on the Fed’s tiered supervision approach, which sets thresholds for supervisory activities (such as $10 billion for community banks and $100 billion for large banks) she described the levels as outdated. She also noted that the Fed will work with Congress to update supervisory thresholds contained in legislation (for example that impose on larger firms enhanced requirements for managing liquidity, capital, and resolution planning), potentially by indexing thresholds to nominal GDP or using multi-factor approaches. On the day of Vice Chair Bowman’s speech, House Financial Services Committee Chairman French Hill (R-AR) introduced a bill that would raise numerous regulatory asset and liability thresholds, including increasing the automatic application of EPS from $250 to $370 billion and systematic indexing of EPS thresholds to nominal GDP.
Supervision: She referenced the Fed’s recently published supervisory operating principles that direct examiners to focus on material financial risks and said that the Fed will soon issue a proposal defining what constitutes “unsafe and unsound” practices for supervision and enforcement, noting these changes will align with similar proposals from the OCC and FDIC. She also discussed refinements to supervisory ratings and said “in the coming days and weeks, the Board will announce additional regulatory changes to improve the fairness, transparency, and prioritization of the supervisory process.”
Transparency: Referencing the recent publication of the supervisory operating manual for the largest and most complex banks, she reiterated that the Fed will release additional manuals in the coming weeks and update the previously released document to align with changes in supervisory principles.
Reputation risk: She confirmed that reputational risk has already been removed from the Fed’s supervisory guidance and said it will soon issue a proposal to formalize the removal in line with similar proposals from the FDIC and OCC.
Reporting and applications: She said the Fed is working to streamline reporting requirements, including reviewing data collections to ensure they remain relevant and necessary. She also highlighted plans to improve the application process for business activities and mergers, addressing delays and uncertainty that have created operational challenges for banks.
Capital and stress testing: She referenced efforts to recalibrate the community bank leverage ratio to the statutory minimum and modify the enhanced supplementary leverage ratio to restore its role as a backstop to risk-based capital requirements. She also noted that the Fed is revising stress testing to reduce volatility, improve model reliability, and increase transparency.

Our Take

An ambitious agenda for 2026 – the season of giving continues

In her first speech of the year, VCS Bowman laid out an ambitious agenda to transform supervision and regulation from the ground up and swing the pendulum back from the prescriptive approach that has characterized recent years. Many of the changes have been foreshadowed and even put into practice, already conferring meaningful relief. In the near term, defining “unsafe and unsound” practices will be a critical step to codify changes in supervisory practice and make them more difficult to reverse, although an open question remains as to how the Fed’s proposal will align with any final rule issued by the FDIC and OCC. As the new supervisory principles continue to be implemented through training and updated examiner guidance, transparency initiatives will make oversight more predictable. In parallel, adjustments to capital and stress testing frameworks are expected to ease volatility and free up resources for lending, giving banks more flexibility to deploy capital where it matters most. This will be supported by streamlined application and merger processes that will facilitate bank expansion strategies. Reporting relief could also deliver significant benefits to firms by removing duplicative or low-value data collections. Tailoring will likely be present across all of these actions, and the industry will be keen to understand how the Fed will more comprehensively adjust thresholds through GDP indexing and additional factors beyond asset size, as well as how thresholds will align with different requirements.

Taken together, these changes point to a supervisory framework that prioritizes substance over form, reduces unnecessary burden, and gives banks the flexibility to innovate.

OCC issues preemption proposals

What happened? On December 23^rd, the OCC issued two proposals related to real estate lending by national banks and federal savings associations.

What would the proposals do? The proposals would:

Codify national banks’ and federal savings associations’ powers to maintain real estate lending escrow accounts and to use their business judgment to determine whether to offer compensation to customers or impose any fees; and
Set forth a determination that federal law preempts state laws that eliminate national banks’ and federal savings associations’ flexibility to (1) pay interest or other compensation on funds placed in escrow accounts; or (2) assess fees in connection with such accounts. The determination explains that real estate lending “has been core to the business of national banks for over 100 years,” escrow accounts are a crucial risk mitigation tool to support safe and sound real estate lending, and the state laws could cause banks to raise prices or reduce their real estate lending.

What is the context of the proposals? Twelve states, including New York, have laws requiring that mortgage lenders pay interest on funds held in escrow accounts. Some of the laws also restrict lenders from imposing fees associated with the accounts. In May 2024, the Supreme Court declined to weigh in on whether the New York law is subject to preemption, instructing the appeals court instead to determine whether the law “prevents or significantly interferes with the exercise by the national bank of its powers.”

What’s next? Comments are due on January 29^th, 2026.

Our Take

One preemption battle after another

The OCC’s proposals provide a careful legal interpretation that will be used by the agency and national banks as they fight existing battles over real estate lending preemption and gear up for more to come. Comptroller Jonathan Gould, formerly the OCC’s general counsel, has stated that he will lay the legal groundwork to defend preemption and submit amicus curiae briefs to courts reviewing preemption cases. The proposed determination provides a preview into what the briefs will look like and will be cited by firms opposing state real estate escrow laws.

Following the Supreme Court’s remand of the issue in 2024, appellate courts have split on the application of preemption authority to state laws on escrow accounts. While the proposals will provide the preemption argument with stronger legal footing, we still expect to see varying decisions from appellate courts. In the meantime, banks are still faced with the immediate problem of maintaining compliance with a patchwork of laws. As a result, expect continuing challenges within the federal courts and a continued variety of state level requirements unless Congress or the Supreme Court more clearly weigh in.

Sanctions update: Venezuela

What happened? On January 3^rd, the US conducted a military operation to extract President Nicolas Maduro and his wife Cilia Flores. Following the operation, President Trump stated that the United States will “run the country until such time as we can do a safe, proper, and judicious transition.” The Administration later added that the US plans to influence the transition of power through enforcement of an existing blockade of all “sanctioned oil tankers” into Venezuela.

Following the military operation, on January 7^th the Department of Energy (DOE) issued a statement that the US is “selectively rolling back sanctions to enable the transport and sale of Venezuelan crude and oil products to global markets.”

Our Take

Venezuela remains a heavily-sanctioned, high-risk jurisdiction – for now

While the DOE statement portends lifting certain sanctions in the near future, for now current US sanctions against Venezuela – including its national oil company as well as sectoral sanctions on the oil, gold, financial, and defense sectors – remain in effect. Any material change in US policy, including whether to ease sanctions, issue licenses, or retain/expand restrictions, will require explicit action by the Treasury Department’s Office of Foreign Assets Control.

As nothing has changed for now, sanctions compliance teams should:

Maintain a conservative risk appetite. Firms should continue to treat interactions with Venezuelan government entities and the Venezuelan energy sector as high‑risk (and in most cases prohibited) until regulatory changes emerge. Venezuela remains a high-risk jurisdiction with respect to financial crime: the Financial Action Task Force (FATF) maintains Venezuela on its “grey list” for its AML/CTF deficiencies, narco-trafficking remains a threat as demonstrated through OFAC’s recent listings of Venezuela-based cartels as foreign terrorist organizations, and Venezuela-originated oil continues to be shipped to sanctioned parties and jurisdictions.
As the relationship with the Venezuelan government evolves, firms should vigilantly monitor authorizations provided by OFAC that may enable limited types of activity.
Tighten enhanced due diligence (EDD). Firms may see an uptick in Venezuela-related transactions or attempts by clients to conduct such transactions, so it is important to continue or implement EDD on counterparties with any nexus to Venezuela, including by scrutinizing ownership chains, beneficial owners, agents, and payment flows. US entities may interpret changes in the Venezuelan government to be an opportunity to raise their risk tolerance and forge new partnerships with the government and Venezuelan businesses. Regardless of the impetus for new transactions, compliance teams must stay vigilant as the regulatory landscape will likely move slower than opportunistic ventures.
Develop FAQs to address anticipated questions and communicate with your business lines that your internal policy remains unchanged. As in other episodes of potential sanctions unwinding (e.g., Syria), business lines will often proactively reach out to compliance seeking guidance as to what is permissible. Proactively developing this guidance and communicating it broadly will assist the business in understanding what remains prohibited and reduce the burden of addressing multiple guidance requests.

On our radar

These notable developments hit our radar recently:

House Financial Services Chair introduces community bank deregulatory reform package. On January 7^th, Chairman French Hill announced a legislative package aimed at easing requirements for community banks by expanding regulatory tailoring, removing the management component from examinations, prohibiting the use of reputational risk in supervision, modifying stress testing requirements, raising certain size thresholds, and revising the definition of brokered deposits.

OCC proposes trust charter clarification. On January 8^th, the OCC issued a proposal that would clarify the ability of national trust banks to engage in certain non-fiduciary activity. The proposal explains that national trust banks have had longstanding authority to conduct custody and safekeeping activities, which are non-fiduciary in nature. Comments are due 30 days following publication in the Federal Register.

FDIC provides transparency around marketing and sale of failed financial institutions. On December 30^th, the FDIC updated various areas of its website to reflect changes to the bidding process for failed institutions following the period of bank stress in 2023. Updates include additional information related to nonbank asset bidders and “alliance bids” when multiple bidders combine resources to bid on a failed institution.

FDIC outlines planned revisions to insured depository institution (IDI) resolution planning requirements and 2026 submission expectations. On December 31^st, the FDIC issued an update on forthcoming amendments to its IDI Rule for large banks, noting that an upcoming proposal will codify exemptions and waivers introduced in April 2025 and incorporate lessons from the most recent filing cycle. The FDIC also described adjusted 2026 submission requirements, including interim supplements for covered insured depository institutions (CIDI) subsidiaries of U.S. GSIBs and continued full submissions for other Group A and Group B CIDIs subject to existing waivers.

FinCEN delays effective date of AML program and reporting requirements for investment advisers. On December 31^st, FinCEN issued a final rule delaying the effective date of the Investment Adviser AML/CTF Rule from January 1, 2026 to January 1, 2028. The rule will require registered investment advisers and exempt reporting advisers to establish AML/CFT programs and comply with SAR filing requirements.

OCC releases CRA strategic plan proposal. On December 17^th, the OCC released a proposed simplified strategic plan for community banks to comply with the Community Reinvestment Act. The proposed plan process would (1) provide clarity on the measurable goals required by the CRA and (2) simplify the method for drafting and submitting a proposed strategic plan to the OCC for approval.

Federal Reserve Financial Services resumes acceptance of penny deposits to support circulation. On January 8^th, Federal Reserve Financial Services announced that it will begin accepting penny deposits again at commercial coin distribution locations starting January 14^th, reversing prior suspensions.

European supervisory authorities publish ESG stress testing guidelines. On January 8^th, the European Banking Authority, European Insurance and Occupational Pensions Authority, and European Securities and Markets Authority published joint guidelines on ESG stress testing. The guidelines include areas such as scenario design, materiality assessments, balance sheet assumptions, methodological considerations and governance arrangements.

¹_{EPS, established under the Dodd-Frank Act and implemented by 12 CFR Part 252, impose heightened requirements for risk management, capital and liquidity planning, stress testing, and resolution planning to reduce systemic risk. They generally apply to bank holding companies with total consolidated assets of $250 billion or more, although the Fed may apply certain elements to firms with assets above $100 billion based on risk and complexity.}