Our Take: financial services regulatory update – September 5, 2025

September 05, 2025

Change remains a constant in financial services regulation

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

Fed issues large bank capital requirements

What happened? On August 29^th, the Fed announced the final individual capital requirements for large banks based on their stress capital buffers (SCBs)¹ resulting from this year’s stress tests. The Fed also confirmed that it is continuing to review feedback on a proposed rule issued in April 2025 that would average stress test results over two years to reduce year-to-year volatility in the SCB.

How have SCBs changed? This year’s SCBs ranged from the 2.5% floor up to 11.1%, with the highest total CET1 capital requirement at 16%. Most firms saw modest declines or no change in their SCBs compared to 2024, while a smaller group experienced increases. Several firms remained at the 2.5% floor, and fewer received buffers above 6% than in the prior cycle. In 2024, SCBs ranged from 2.5% to 13.9%, with a higher number of firms clustered at the upper end of the distribution. Overall, this year’s results showed less dispersion, fewer double-digit CET1 requirements, and a lower peak requirement than the previous year.

What’s next? The SCBs are set to take effect on October 1^st. The Fed did not finalize Morgan Stanley’s capital requirement, noting that the firm submitted a reconsideration request following the stress test. The Fed stated that a final requirement will be released by September 30th.

Our Take

SCB volatility underscores importance of proposed averaging rule

The 2025 SCB outcomes illustrate why a shift to averaging may be more than just a technical adjustment. Year-over-year swings continue to introduce uncertainty into capital planning and raise questions about the predictability of payout expectations. Averaging would offer a more durable buffer design by reducing mechanical volatility, particularly for firms with trading and model-driven sensitivity, and by better aligning capital with through-the-cycle risk. It would also support more consistent distribution planning and reduce procyclical capital impacts. That said, even if finalized this year, the rule’s proposed implementation timeline leaves open the possibility that SCB averaging will not take effect until after the 2026 stress test. Firms should prepare for this uncertainty and assess how different implementation timeframes may interact with 2026 capital targets, SCB forecasting methods, and external disclosure practices.

What’s the bottom line? Volatility in SCB outcomes remains a planning challenge. The proposed averaging rule would bring needed consistency, but firms must continue to plan under today’s framework until it takes effect.

DOJ to focus on trade fraud

What happened? On August 29^th, the DOJ and DHS announced the creation of the Task Force on Combatting Trade Fraud, a cross-agency initiative led by the DOJ’s Criminal Division.

What does the announcement say? It explains that the Task Force will focus on criminal and civil enforcement of customs and trade violations, including undervaluation, misclassification, transshipment, and evasion of tariffs. The announcement also encourages firms to self-disclose any unlawful behavior and highlights the DOJ’s whistleblower program.

How does the announcement fit in with recent Administration actions? The formation of the Task Force follows the DOJ’s release of its priorities in May that highlighted “trade, tariffs and customs fraud” as a key enforcement priority. The same report explains that firms that voluntarily self-disclose misconduct in a timely manner, cooperate, remediate the misconduct and have no aggravating circumstances will receive no adverse consequences.

Our Take

Trade enforcement to step up

With trade, tariffs and customs fraud now prioritized across multiple agencies and paired with an emboldened DOJ, any underpaid duty, inconsistent declaration, or sourcing gap could become the basis for significant monetary penalties. As financial institutions are often unwitting participants – including through processing payments and offering trade finance to fraudulent transactions – this may put know-your-customer and transaction monitoring capabilities to the test.

What’s the bottom line? Trade, tariff and customs enforcement is becoming a key Administration priority. Financial services firms should ensure they have the right expertise and controls in place to prevent unintentional involvement in illicit activity.

NAIC holds summer meeting

What happened? In August, the National Association of Insurance Commissioners (NAIC) convened its Summer 2025 National Meeting, bringing together state regulators, insurers, and industry stakeholders.

What was discussed? The summer 2025 meeting covered a variety of topics, including:

Strengthening capital standards and solvency governance. The Risk-Based Capital (RBC) Model Governance Task Force continued work on modernizing the RBC framework — the system regulators use to assess insurer solvency by comparing capital levels to underlying risk. While RBC has historically served as a minimum capital adequacy standard, some commenters urged the Task Force to broaden its focus to include impacts on consumer access and market competitiveness. However, regulators generally signaled a preference to preserve RBC’s solvency-first role and instead focus reform efforts on enhancing consistency, transparency, and governance across sectors.
Evaluating AI in insurance. The Big Data and Artificial Intelligence Working Group held hearings on whether to develop a model law to govern AI use in insurance. Stakeholders were divided — some supported a model law to ensure consistency across states and protect consumers, while others preferred guidance over legislation, citing the pace of innovation. The Working Group also introduced the AI Systems Evaluation Tool, which outlines how regulators might assess insurers’ AI systems, including governance, testing, data sources, and risk management.
An updated framework for long-term care insurance rate reviews. The Health Insurance and Managed Care Committee adopted a standardized methodology for conducting multi-state rate reviews of long-term care (LTC) insurance. The methodology seeks to bring greater consistency to how states evaluate insurer requests to raise long-term care premiums and aims to reduce extreme increases for consumers by requiring insurers to absorb a larger share of costs once cumulative increases reach higher thresholds.
Expanding holding company oversight to reciprocal exchanges. The Financial Condition Committee established a new Reciprocal Exchanges Working Group and approved a request to amend the Insurance Holding Company System Regulatory Act and Model Regulation. The amendments would apply “fair and reasonable” standards to transactions between reciprocal exchanges — insurance structures where policyholders band together to insure one another, often managed by an affiliated company — and their affiliates.
Advancing catastrophe and climate risk oversight. The Climate and Resiliency Task Force reviewed progress on the Disaster Preparedness Handbook, which will provide states with a common reference point for evaluating insurers’ planning, response, and public communication before and after major disasters. The Task Force also highlighted the expanding use of the NAIC’s Climate Risk Disclosure Dashboard, now adopted in 29 states and covering approximately 85% of the U.S. market. The Property and Casualty Risk-based Capital Working Group introduced a Catastrophe Modeling Primer with the goal of promoting consistency and improving risk oversight of catastrophe models.

What's next? RBC governance revisions are expected later in 2025 and the AI Systems Evaluation Tool may be finalized in the coming months.

Our Take

Building consistency and transparency through stronger oversight

At the Summer 2025 National Meeting, the NAIC signaled a shift toward more structured and risk-aligned supervision across key priorities. RBC modernization is focused toward greater transparency and consistency across formulas, reinforcing its solvency-first purpose while holding to one side broader competitive or consumer access goals. The new standardized methodology for long-term care rate reviews will not only pressure insurers to shoulder higher shares of cumulative increases, it will also create new expectations for how rate filings are presented and defended.While participation in the process remains optional, companies that opt in will face closer scrutiny – and those that don’t may risk inconsistent outcomes and delayed approvals across states. The move to bring reciprocal exchanges under “fair and reasonable” standards signals growing attention to how these structures operate in practice. While formal requirements will depend on future model law changes and state adoption, insurers using these arrangements should anticipate closer regulatory focus on intercompany fairness and begin assessing how these transactions would stand up to greater scrutiny. Combined with the Catastrophe Modeling Primer and the expansion of the Climate Risk Disclosure Dashboard, regulators are equipping themselves with practical tools that could drive new state-level requirements on rate adequacy, intercompany fairness, and climate disclosures.

AI oversight is advancing — and insurers should prepare now.

The Big Data and AI Working Group’s progress on the draft AI Systems Evaluation Tool, coupled with continued debate over a potential model law, reflects regulators’ pivot from principles to practice Insurers should expect closer scrutiny of how AI models are governed, tested, and monitored – not only internally but also across third-party vendors. This means strengthening board-level oversight of AI strategy, implementing independent validation and documentation processes, and actively addressing risks of bias in how data is collected and applied. Insurers that act early by leveraging tools and information already available to them – such as the AI Systems Evaluation Tool – will not only be more prepared to meet regulatory expectations but also build consumer trust and position themselves as leaders in trustworthy AI.

What’s the bottom line? The regulators are focused on delivering practical and balanced oversight across a wide range of topics including solvency, AI, long-term care, and catastrophe risk. Insurers should not wait for finalized rules to act as expectations are already shifting toward stronger governance and transparency.

On our radar

These notable developments hit our radar recently:

Senate Banking holds Miran confirmation hearing. Stephen Miran, Trump’s nominee to complete the remaining four months of outgoing Fed Governor Adriana Kugler’s term, had a confirmation hearing on September 4^th. The hearing featured questions from both parties about whether Miran would maintain the Fed’s independence, given his current role as Chairman of the Council of Economic Advisers. He stated that he would take a leave of absence if confirmed and insisted he would make decisions based on his own judgment. Senators also pressed him on his views regarding interest rates, inflation, and past statements on data quality and immigration-related economic effects.

Regulators publish spring 2025 agendas. This week, each of the federal agencies released their spring 2025 unified agendas. The Fed, OCC, and FDIC include proposals regarding the enhanced supplementary leverage ratio, reputational risk, and Basel III endgame revisions. The CFPB's agenda includes a number of rule rescissions and plans to adjust the definitions of larger participants in various markets. The SEC and the CFTC agendas focus on digital asset regulation, market structure modernization, swap reporting reforms, and data transparency initiatives.

SEC and CFTC align on digital assets spot trading and more. On September 2^nd, the SEC and CFTC issued a joint statement confirming the ability of designated contract markets (DCMs), foreign boards of trade (FBOTs) and (national securities exchanges) NSEs to facilitate spot crypto trading. Three days later, the agencies on September 5^th released another joint statement highlighting future areas of coordination, including regulatory harmonization, capital and margin frameworks and innovation exemptions.

Fed to host conference on payments innovation in October. On August 21st, the Fed announced it will host a conference on payments innovation on October 21st. The event will explore developments in emerging technologies, with panels on stablecoins, AI in payments, tokenization, and the convergence of traditional and decentralized finance.

SEC launches task force to combat cross-border fraud. On September 5th, the SEC announced the formation of a new Cross-Border Task Force within the Division of Enforcement. The task force will focus on detecting and prosecuting market manipulation and fraud involving foreign-based companies, including “pump-and-dump” and “ramp-and-dump” schemes. It will also scrutinize the role of gatekeepers, such as auditors and underwriters, in helping companies from foreign jurisdictions access U.S. capital markets.

FDIC updates Consumer Compliance Examination Manual to remove disparate impact analysis. On August 29th, the FDIC announced updates to its Consumer Compliance Examination Manual, stating that examiners will now evaluate fair lending violations only through evidence of disparate treatment, not disparate impact. This includes updates to Sections 1.1, 2.1, and 4.1 under Fair Lending Laws and Regulations, as well as Section VII-1.1 on Unfair, Deceptive, and Abusive Acts or Practices (UDAAP). A redlined document that identifies the changes can be accessed here.

¹_{The SCB is a firm-specific capital requirement equivalent to the difference between a firm’s starting and minimum projected Common Equity Tier 1 (CET1) capital ratios under the severely adverse scenario in the Fed’s annual stress test, plus four quarters of planned common stock dividends. The SCB is added to the 4.5% CET1 minimum and any applicable GSIB surcharge to determine the firm’s total CET1 capital requirement for the coming year.}