Our Take: financial services regulatory update – February 27, 2026

February 27, 2026

Change remains a constant in financial services regulation

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

OCC releases GENIUS Act implementation proposal

What happened? On February 25^th, the OCC released a proposal to implement the GENIUS Act.

What is the GENIUS Act? Passed by Congress in July 2025, the GENIUS Act establishes a regulatory framework for “payment stablecoins,” digital assets that (1) are designed to be used for payment or settlement; (2) are convertible to a fixed amount of monetary value; and (3) do not pay yield or interest. For more information, see our paper Regulatory clarity for digital assets: GENIUS and CLARITY set the path forward.

What does the proposal contain? The proposal would set forth an application process and regulatory expectations for establishment and operation of permitted stablecoin issuers subject to the OCC’s jurisdiction, which include subsidiaries of national banks, federal branches of foreign banks, nonbank issuers and certain state stablecoin issuers. The expectations span the following areas:

Permitted activities. Stablecoin issuers would be able to issue and redeem stablecoins, manage stablecoin reserves, provide related custodial services, act as a principal or agent with respect to permissible activities and undertake any other activities that support permissible activities. Notably, the proposal sets forth a presumption that any payment of yield or interest, including through third party arrangements, violate the GENIUS Act. Issuers would be able to rebut this presumption by “providing sufficient evidence to the contrary.”
Reserve requirements. Issuers would be required to maintain reserve assets that have a fair value that meets or exceeds the issuance value of outstanding stablecoins at all times. The proposal outlines acceptable reserve assets, which include US dollars, Treasuries with a remaining maturity of 93 days or less, certain Treasury-collateralized repurchase agreements and certain money market funds. It also specifies that reserves must be segregated from other issuer assets and contains diversification requirements to be tailored to institutions based on their risk. Reserves would have to be audited by a public accounting firm and certified on a monthly basis, and excess reserves may only be withdrawn following the monthly audit and certification.
Risk management. Under the proposal, stablecoin issuers would be expected to have risk management and controls programs appropriate for their size and complexity. The proposal also requires that issuers manage interest rate risk, avoid “excessive” insider and affiliate transactions, conduct due diligence on third party service providers, and implement an information security framework that includes secure handling of digital assets.
Reporting. Issuers would be required to report on a weekly basis information regarding issuance and redemption, trading volume, and reserve assets. They would also submit quarterly reports with detailed financial statements and compliance metrics.
Anti-money laundering. The proposal would require that within 180 days following the approval of an application, stablecoin issuers must submit a Board certification that the firm has implemented an AML and sanctions program that is reasonably designed to prevent money laundering and terrorist financing.
Capital and operational backstop. The OCC would set a minimal capital amount tailored to the issuer’s projections, expenses, strategy and risk profile. The proposal contains a formal $5 million floor for a three-year “de novo period” following application approval. It also would require that issuers have a certain amount of highly liquid assets that could cover six to twelve months of operational expenses. Bank subsidiaries would be deconsolidated for capital purposes.
Requests for comment. The proposal includes 211 questions covering a very broad range of subjects including what factors the OCC should consider in licensing decisions, what information should be required in disclosures, whether the OCC should specify more specific risk management requirements (rather than high level risk-based expectations), and whether additional consumer protection and data privacy requirements should be included in a final rule.

What’s next? The comment period will be open for 60 days following publication in the Federal Register.

Our Take

High guardrails for stablecoin issuers

Comptroller Jonathan Gould has been a vocal proponent of supporting digital asset innovation, and this proposal demonstrates that this support comes along with a high standard of regulatory expectations. For many firms, meeting this standard will be a very significant undertaking. Setting up a reporting function that can generate weekly reports will be a particular challenge for most firms, and the proposed tight 180-day timeline to implement an AML and sanctions function and receive Board approval will be daunting for firms both large and small. The assessment and monthly certification that the fair value of reserves meet or exceed outstanding issuances will also be complex.

Questions remain, comments to come

The GENIUS Act passed in Congress last summer notwithstanding controversy and open questions over several key provisions. Most notably, industry groups and policymakers have called for more explicit prohibitions on interest or yield to close potential loopholes such as indirectly offering interest through third party exchanges. While the proposal attempts to close this loophole, we expect to see comments seeking clarity on issues such as whether “rewards” are considered interest and what type of information would rebut the presumption that payments or rewards violate the GENIUS Act.

Among other areas, we also expect to see comments calling for stricter limitations or greater clarity around which products and services stablecoin issuers can offer and whether the OCC should require risk-based or leverage ratios.

What should firms do now?

Expect the final rule to remain directionally consistent with the proposal. Stablecoin issuers (and firms considering becoming stablecoin issuers) should act now to begin setting up a risk-based AML and sanctions program to meet the tight 180-day timeline. This program should include blockchain analytics to detect suspicious transactions or the use of on-chain obfuscation methods such as mixers and geolocation tools to avoid inadvertently transacting with sanctioned jurisdictions. They should also assess their readiness to comply with weekly reporting, reserve assessment and certification requirements. Especially for small firms, building risk management and compliance programs to comply with the OCC’s expectations will be a significant lift, and those firms should consider building their programs now rather than waiting for a final rule to emerge.

Stay tuned for our upcoming paper providing more detail on the OCC’s proposal.

Regulators on the Hill

What happened? On February 26th, the Senate Banking Committee held its semiannual oversight hearing with the federal prudential regulators, including Fed Vice Chair for Supervision Michelle Bowman, FDIC Chairman Travis Hill, Comptroller of the Currency Jonathan Gould, and NCUA Chair Kyle Hauptman.

What did the regulators say? The hearing covered a number of topics:

Basel III endgame. Vice Chair Bowman confirmed that the Fed, OCC, and FDIC have reached consensus on a Basel III endgame re-proposal and aim to issue it before the end of March. She also repeated her recent comments on potential recalibration of both mortgage servicing rights (MSRs) and mortgage risk weights in response to concern that capital requirements have constrained credit availability and accelerated the migration of mortgage activity outside the banking system.
Supervisory focus on material financial risk. The regulators reinforced the recent shift toward a more financial risk-focused supervisory model. Bowman described the review of outstanding supervisory findings to ensure alignment with material safety-and-soundness concerns, while FDIC Chair Hill referenced examiner retraining and efforts to standardize application of supervisory principles across regions.
Stablecoins. The hearing addressed implementation of the Genius Act and potential deposit migration to stablecoin issuers. Regulators stated they are monitoring deposit trends and incorporating safeguards into rulemakings but did not indicate evidence of material deposit flight to date.
Citizenship documentation proposal. Senators raised concerns about reports that the administration is considering requiring banks to collect citizenship documentation, such as passports or birth certificates, as part of account opening. Regulators stated that no such formal directive has been issued and emphasized that they would evaluate any new requirements consistent with statutory authority and safety-and-soundness considerations.
Charters and foreign investment. The Committee also questioned regulators about foreign investment in bank charter applicants and potential national security implications. OCC Acting Comptroller Gould declined to comment on specific applications but reaffirmed that charter decisions follow established licensing procedures.

Our Take

Progress on prudential reform as new policy questions surface

The hearing largely demonstrated that the prudential regulators are continuing to move steadily from preview to implementation. With the Basel III endgame re-proposal expected by the end of March and supervisory recalibration already underway, the agencies are aligned and deliberately advancing the capital and supervision agenda they have outlined over the past several months.

Where the hearing introduced a different dynamic was in the way broader policy debates are beginning to intersect with prudential oversight, in particular with regard to the potential citizenship documentation mandate. Although it may appear to be a minor administrative addition, requiring banks to collect and verify citizenship documentation would materially alter account-opening procedures, introduce operational friction, and create new compliance risk. In addition, it risks undercutting the parallel effort to address unlawful debanking by introducing a different mechanism through which lawful customers could lose access to banking services.

The questioning around foreign investment and charter applications reflected a similar pattern. The regulators emphasized adherence to established licensing standards and resisted incorporating political considerations into their statutory review process. Even so, the questions in this area underscored that certain charter decisions, particularly those involving foreign investment or connections to political figures, could be scrutinized more closely in a different oversight climate.

On our radar

FRB publishes Notice of Proposed Rulemaking Prohibiting Use of Reputation Risk for Unlawful Discrimination. On February 23rd, the FRB proposed an update to its procedures that would prohibit the FRB from encouraging or compelling FRB supervised banking organizations to deny or condition the provision of banking or other financial products or services to an individual or business based on their constitutionally protected political or religious beliefs, associations, speech, or conduct, or based on involvement by the individual or business in politically disfavored but lawful business activities perceived to present reputation risk. Comments are due April 27th, 2026.

New York State Department of Financial Services publishes new regulations governing “Buy Now Pay Later” (BNPL) loans. On February 23rd, NYSDFS published rules establishing a licensing and supervision framework for BNPL loan providers, and providing consumer protections through required disclosures, dispute resolution standards, limits on fees, and data privacy protections.

SEC Enforcement Division updates Enforcement Manual. On February 24th, the SEC’s Division of Enforcement announced its first major revisions to the Enforcement Manual since 2017 and stated there will be annual reviews going forward. The changes seek to increase fairness, transparency, and efficiency in enforcement processes, including standardized timelines for the Wells process, clearer expectations for Wells submissions and meetings, restored procedures allowing simultaneous consideration of settlement offers and related waiver requests, and updated guidance on cooperation, formal orders, internal coordination, and referrals to criminal authorities.

CFPB publishes correction to proposed Regulation B amendments. On February 25th, the CFPB published a correction to its November 2025 proposed rule amending Regulation B, clarifying that the regulatory text beginning on page 50920 should reflect the version originally submitted by the Bureau.

OCC publishes final rule on trust charters. On February 26, the OCC published a final rule replacing “fiduciary activities” with “the operations of a trust company and activities related thereto” in 12 CFR 5.20(e)(1)(i) and 5.20(l) to match the statutory language in 12 U.S.C. 27(a), the statutory provision which authorizes the OCC to charter national banks. The final rule is effective April 1, 2026.

CFTC publishes advisory on prediction markets. On February 27th, the CFTC released an advisory reminding prediction markets platforms of their duty to conduct surveillance, maintain audit trails and enforce rules against prohibited practices. The advisory explains that the reminder follows two enforcement cases involving misuse of nonpublic information and fraud in prediction markets.