Our Take: financial services regulatory update – November 7, 2025

November 07, 2025

Change remains a constant in financial services regulation

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

Fed finalizes LFI ratings changes

What happened? On November 5^th, the Fed finalized changes to its Large Financial Institution (LFI) Rating System and the Insurance Supervisory Framework.

What will change? The final rule will:

Redefine “well managed” definition: Currently, an LFI is not considered “well managed” if it receives a Deficient-1 rating for any of the three supervisory components - (1) capital planning and positions, (2) liquidity risk management and positions, and (3) governance and controls. The proposal would change this so that a firm would be considered “well managed” if it receives:
- At least two component ratings of Broadly Meets or Conditionally Meets Expectations;
- No more than one component rated Deficient-1; and
- No component rated Deficient-2.
Remove enforcement presumption for Deficient-1 ratings: The rule eliminates the default assumption that a firm rated Deficient-1 in any component will be subject to an informal or formal enforcement action. Supervisory action would instead be determined case by case.
Allow for reconsideration of past ratings: The rule clarifies that a firm may receive a Conditionally Meets Expectations even if it was previously rated Deficient-1 – including firms currently subject to an enforcement action – if remediation and mitigation efforts are sufficiently advanced. In these cases, examiners may determine that a firm’s prospects for remaining safe and sound are no longer at significant risk, despite unresolved supervisory issues.

What changed from the proposal? The final rule adopts the proposal largely as issued in July 2025, with two additional updates:

Reference to reputational risk removed: The final rule removes a reference to reputational risk in the Insurance Supervisory Framework. This change was not included in the original proposal but was finalized in response to broader supervisory developments.
Clarifies that no composite rating will be introduced: The Fed received feedback on whether a composite rating should be added but chose not to adopt one. The three existing component ratings remain unchanged and equally weighted.
Fewer firms projected to benefit than originally estimated: At the time of the proposal, the Fed estimated that eight holding companies not currently considered “well managed” would newly qualify under the revised definition. In the final rule, that estimate was reduced to seven. One insurance firm – previously not expected to be affected – will now newly qualify as “well managed” under the Insurance Supervisory Framework.

What’s next? The rule will be effective 60 days after it is published in the Federal Register.

Our Take

Small adjustment, larger message

The Fed’s update to the “well managed” definition marks a notable shift in how its supervisory framework is constructed, even if it will not immediately change most ratings. This is another step to further Fed Vice Chair for Supervision Michelle Bowman’s agenda to increase the transparency and consistency of supervision and focus on material risks to safety and soundness. In the near future, we expect the Fed to adjust guidance on what circumstances can result in examination findings and enforcement actions along the lines of the OCC and FDIC’s recent proposal (see Our Take here) and potentially coordinate with the other banking agencies to reduce subjectivity of the “Management” component of the CAMELS bank rating framework. Together with these expected changes, the revised LFI ratings framework underscores a broader shift in supervisory philosophy — one that places greater weight on financial condition and material risk, and less on subjective governance and controls assessments.

What’s the bottom line?

The rule is a step toward having supervisory labels reflect risk to safety and soundness, not compliance and procedural issues alone.

Comptroller Gould speaks on OCC priorities

What happened? This week, Comptroller of the Currency Jonathan Gould participated in two public events outlining his regulatory approach: a fireside chat at The Clearing House’s annual conference and a policy luncheon hosted by Women in Housing & Finance.

What did he say? His remarks focused on the OCC’s chartering authority, supervisory reform, and regulatory priorities related to third-party risk, preemption and stablecoins:

Chartering: Gould defended the OCC’s use of national trust bank charters to bring fintech and crypto firms into the regulatory perimeter. Acknowledging industry concerns about competitive imbalance, he emphasized that trust applicants are subject to rigorous oversight and must demonstrate that they can operate safely and soundly under OCC expectations.
Preemption: Gould highlighted growing political challenges to the legal doctrine that allows federal bank rules to override conflicting state laws. He stressed that national banks depend on consistent regulatory treatment across states and warned that erosion of this framework could fragment compliance expectations. While reaffirming support for preemption, he acknowledged that its durability relies on continued political consensus, not just legal precedent.
Supervision: Referring to the recent OCC and FDIC proposal to codify the definition of “unsafe and unsound practice” and place limitations on the issuance of supervisory findings, Gould said the scope of bank examinations had become too broad, with examiners citing minor issues out of fear of missing something more serious. He said the agencies’ intent is to focus supervision on material financial risks — like credit, interest rate, and liquidity risks — and reduce noise from less consequential findings. He also pointed to the need for clearer regulations to support supervisory judgments, particularly in light of shifting judicial standards around agency authority.
Third-party risk: Gould said the OCC will soon issue updated guidance on managing third-party risk, with a focus on critical technology vendors that provide core banking services. He expressed concern about the growing dependence of banks on a small number of providers and signaled that the agency may differentiate expectations based on a vendor’s size, scope, and potential impact on bank operations.
Stablecoins: Gould said the OCC is preparing to propose new rules for stablecoin issuers under the recently passed GENIUS Act. He noted that the rules will include liquidity and operational risk standards and emphasized the importance of industry input.

Our Take

Modernizing the perimeter, refining the core

Comptroller Gould is now putting into action the key themes he shared with Senators at his confirmation hearing eight months ago. Consistent with the recent proposal on the definition of “safety and soundness,” he has refocused supervision on what he believes matter most related to bank resiliency such as material financial and concentrated third-party risks. At the same time, his defense of trust charters and preview of stablecoin rulemaking reflect a broader willingness to engage with innovation through regulation, not avoidance. The renewed attention to third-party risk and the political fragility of federal preemption show that the OCC is tracking structural risks that go beyond individual institutions. Gould has already made a big impact in implementing his agenda in just a short period following his confirmation, and we expect to see continued steps to (1) ease regulatory burden; (2) finalize Basel III capital rules; and (3) support innovation (e.g., through advancing special purpose charters and implementing the GENIUS Act).

What’s the bottom line?

Gould is signalling that the OCC’s supervision will be more deliberate and innovation will be met with structure, not skepticism.

On our radar

These notable developments hit our radar recently:

SEC grants temporary relief on certain Regulation NMS compliance dates. On October 31st, the SEC issued an order providing temporary exemptive relief from several upcoming compliance dates under its Regulation NMS amendments on minimum pricing increments, access fees, and transparency of better priced orders. The relief extends the compliance deadlines for the amended tick-size and access-fee rules until November 2026 and for exchange-fee determinability requirements until February 2026.

Senators support Fed action on Basel III Endgame rule. On November 6th, Senate Banking Committee Chairman Tim Scott (R-S.C.) and Senator Mike Rounds (R-S.D.) led 11 Republican colleagues in a letter to Fed Chair Jerome Powell and Vice Chair for Supervision Michelle Bowman supporting the Board’s efforts to finalize a revised Basel III Endgame rulemaking. The senators urged the Fed to take a holistic view of capital requirements and use pre-pandemic levels as the baseline, warning that relying on current elevated capital ratios could “institutionalize excessive requirements” and restrict access to credit for consumers and small businesses.

CSBS urges coordinated guidance on stablecoins and tokenized deposits. On November 4th, the Conference of State Bank Supervisors (CSBS) sent two separate letters to the Treasury Department and federal banking agencies urging that stablecoin and tokenized deposit rules be developed in tandem. In the letter to Treasury, CSBS urged the department to implement the GENIUS Act through a state-federal framework that sets a federal floor while preserving state flexibility, allowing issuers to choose the structure best suited to their business model, and ensuring strict adherence to the Act’s capital, activity, and yield limitations for payment stablecoin issuers. In the letter to the FDIC, Fed, and OCC, CSBS called for clear, coordinated guidance on tokenized deposit activities at traditional banks, urging federal regulators to align with state supervisory frameworks and ensure consistent oversight of blockchain-based banking innovations across the dual banking system.