As the new administration settles in, it has begun to catalyze significant changes in the bank supervisory and regulatory environment. The FDIC is the first mover in this effort. Longtime director and sometime Chairman Martin Gruenberg resigned as a director over the weekend prior to the January 20 inauguration. He was succeeded by then Vice Chair, Travis Hill, who is now Acting Chair. If one were to accept reductive descriptions of their respective policy inclinations, former Chairman Gruenberg would best be described as having favored very strong regulation and as skeptical of innovation in the banking system. Acting Chair Hill, by contrast, appears to favor substantially lighter regulation and to trust the banking system with greater scope for innovation.
Within a day of his appointment, Acting Chairman Hill published a list of ambitious goals for the agency. If implemented, these goals would temper or reverse several of the measures that the Gruenberg-led FDIC considered standout achievements. Implementation of these measures would generally require approval by a majority of the FDIC board, and in some cases might also require agreement of other bank regulators. The President should be able to assure a Republican majority of the five-member board, but the board approval process, any necessary agreement among the banking agencies, and, where applicable, the public notice-and-comment process could well draw out the timing of change and result in final actions that differ from the proposals.
This note summarizes and comments on the Acting Chairman’s goals as published on January 21:
On January 10, 2025, the Maryland Office of Financial Regulation issued emergency regulations revised to clarify that “passive trusts” holding residential mortgage loans must obtain a Mortgage Lender License and if the trusts hold installment loans (described below), then they may also need to obtain an Installment Lender License. The emergency regulations were issued on an emergency basis to codify precedent established in case law in Summer 2024.
Please see below for a brief discussion of the loans and trusts that are affected by these regulations.
If the trust (whether it is a new trust or existing trust) holds residential mortgage loans (i.e., loans securing “owner-occupied property having a dwelling on it designated principally as a residence with accommodations for not more than 4 families”), then that trust must obtain a Mortgage Lender license in Maryland.
In addition, if the trust (whether it is a new trust or existing trust) holds unsecured consumer loans or business-purpose loans made to individuals (i.e., “installment loans”), then that trust may also need to obtain an Installment Lender license in Maryland. While the emergency regulations do not specifically call out the need for an Installment Lender license, reasonable interpretation of the language leads to the conclusion that passive trusts holding installment loans would also need to be licensed.
Please note that for purposes of this analysis, these conclusions apply regardless of whether the loans in question are open-end or closed-end loans.
For lenders that originate business-purpose loans to individuals, please reach out to us for further information on potential licensing requirements for passive trusts holding such loans.
The UK’s Prudential Regulation Authority ("PRA") has recently published various statements regarding its current approach to its regulation of banking in the UK, including delaying implementation of Basel 3.1 rules.
Delay to UK Basel 3.1 implementation
On 17 January 2025, the PRA published a press release announcing that it has decided to delay the UK implementation of the Basel 3.1 reforms at least until 1 January 2027, mainly to allow more time for greater clarity to emerge about plans for, and timing of, the U.S. implementation. The PRA also announced:
Advancing UK competitiveness and growth agenda
On 20 January 2025, the PRA published a reply to a letter from the Prime Minister (dated December 2024) regarding the Government’s approach to financial services regulation in the UK.
The PRA sets out the actions it has taken recently to advance competitiveness and growth:
The PRA then sets out further actions that it intends to take:
Banking supervisory priorities
On 21 January, the PRA published two “Dear CEO” letters, setting out its thematic priorities in relation to the supervision of international banks and UK deposit takers, respectively (noting that these thematic priorities are not exhaustive and are intended to complement both its core assurance work and any firm-specific feedback from periodic summary meetings):
Regulation (EU) 2022/2554 on digital operational resilience for the financial sector (“DORA”), which establishes a uniform set of requirements relating to the security of network and information systems supporting financial system participants’ business processes, is now live as of 17 January 2025, without any transitional provision.
A wide range of rules applicable for managing ICT risks, including risks linked to ICT third-party service providers, is now in force. DORA applies to nearly all financial entities regulated in the EU, with very few exemptions for smaller institutions. For the first time, it also covers major unregulated ICT third-party service providers; a significant shift in European financial regulation.
In particular, DORA requires financial firms to:
DORA also lays down rules for the establishment and conduct of a new oversight framework for critical ICT third-party service providers (which includes many of the large technology companies) when they provide services to the firm.
Cadwalader counsel Bilal Sayyed has recently authored two Client &Friends Memos discussing notable shifts in antitrust enforcement from the Federal Trade Commission and Department of Justice.
The Department of Justice and the Federal Trade Commission have been active recently in identifying and achieving remediation of interlocks that may violate Section 8 of the Clayton Act and/or Section 5 of the Federal Trade Commission Act. In a recent joint DOJ and FTC “statement of interest,” the agencies argue that the prohibitions of Section 8 and Section 5 apply to board observers and not only officers and directors.
Two working days before the inauguration of President Trump, the federal antitrust agencies have withdrawn the Antitrust Guidance for Human Resource Professionals (2016) (“Guidance Document”), and issued Antitrust Guidelines for Business Activities Affecting Workers (2025) (“Guidelines”).
Cadwalader partner Peter Malyshev authored an article, “CFTC Under Trump Will Focus More on Existing Laws: Legal Insight,” published by Bloomberg Law on January 16.
The Commodity Futures Trading Commission (“CFTC”) is expected to focus more on fraud and manipulation and less on regulation by enforcement during the incoming Trump administration. In this article, Peter discusses the specific changes and shifting priorities coming to the CFTC under new leadership.
Read the full article here (subscription required).
Please join Cadwalader Financial Services partner, Mercedes Tunstall for a live webinar discussing how to approach, evaluate and address the risks of artificial intelligence tools.
AI and Bank Operations
Wednesday, January 29
4:00 PM - 5:00 PM
Register here.