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Nutter Bank Report: April 2026
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- Federal Banking Agencies Release Principles-Based Guidance on Model Risk Management
- Banking Agencies Issue Proposals for New AML/CFT Program Rules
- OCC Issues Two Interim Final Actions Clarifying Federal Preemption of State Law
- Federal Banking Agencies Lower the CBLR and Extend the Compliance Grace Period
- Other Developments: Payment Stablecoins, Reputation Risk, and NSF Fees
1. Federal Banking Agencies Release Principles-Based Guidance on Model Risk Management
The federal banking agencies have issued revised model risk management guidance that replaces earlier guidance issued by the OCC and Federal Reserve in 2011, by the FDIC in 2017, as well as the agencies’ model risk management guidance for systems supporting BSA/AML compliance in 2021. The revised guidance published on April 17 applies to any “complex quantitative method, system, or approach that applies statistical, economic, or financial theories to process input data into quantitative estimates,” but specifically excludes generative and agentic artificial intelligence (AI) models, and excludes simple arithmetic calculations, such as those found within spreadsheets. The revised guidance clarifies model risk management principles, and sets forth a risk-based approach to model risk management, including guidelines for model development, validation and monitoring, and governance and controls. The revised guidance also cautions banking organizations that the model risk management principles apply to models supplied by third party vendors, and recommends that banking organizations develop an understanding of any vendor model, including its conceptual soundness, design, development data, and performance. Click for a copy of the revised guidance.
Nutter Notes: The revised model risk management guidance takes a principles-based approach, eschewing requirements for the specific manner in which a banking organization should perform model risk management appearing in the earlier guidance that it replaces. The revised guidance explicitly states that it does not impose enforceable standards and that “non-compliance with this guidance will not result in supervisory criticism against a banking organization,” though supervisory criticism may arise from any violations of law or unsafe or unsound practices resulting from insufficient management of model risk. According to the agencies, the revised guidance is expected to be most relevant to banking organizations with over $30 billion in total assets. However, the agencies explained that the revised guidance may be relevant to smaller banking organizations “that have significant exposure to model risk because of the prevalence and complexity of their models or because of activities outside the scope of traditional community banking.” While generative AI and agentic AI models are outside the scope of the revised guidance because they are “novel and rapidly evolving,” the revised guidance recommends that each banking organization’s “risk management and governance practices should guide the determination of appropriate governance and controls for any” generative AI and agentic AI, or any other tools, processes, or systems not covered.
2. Banking Agencies Issue Proposals for New AML/CFT Program Rules
The FDIC, OCC, and NCUA have jointly proposed a rule that would revise the anti-money laundering and countering the financing of terrorism (AML/CFT) programs designed to identify, assess, and mitigate risks of illicit finance. The jointly proposed rule released on April 7 is intended to align each agency’s AML/CFT regulations with a proposed rule concurrently released by FinCEN that would implement a risk-based approach to AML/CFT regulatory and supervisory framework. The proposed rules would reflect statutory changes made by the Anti-Money Laundering Act of 2020, which directed FinCEN and the federal depository institution regulatory agencies to modernize and strengthen the AML/CFT regulatory framework “to encourage more effective outcomes for financial institutions, regulators, law enforcement, and national security agencies.” Among other changes, the jointly proposed rule would describe the requirements for a bank to establish an AML/CFT program, and explicitly incorporate FinCEN’s existing customer due diligence requirements. Public comments on the proposed rules are due by June 9, 2026. Click for a copy of the jointly proposed rule by the FDIC, OCC, and NCUA and click for a copy of FinCEN’s proposed rule.
Nutter Notes: The jointly proposed rule would require that banks establish AML/CFT programs reasonably designed to identify, assess, and mitigate risks of illicit finance through: a risk-based set of policies, procedures, and controls; independent testing; a U.S.-based officer responsible for establishing and implementing the program; and an employee training program The jointly proposed rule also would clarify that only significant or systemic failures to implement a properly established program would warrant an “AML/CFT enforcement action” or a “significant AML/CFT supervisory action” by a bank’s federal supervisory agency. According to the agencies, the proposed rule is intended to promote a risk-based approach to a bank’s AML/CFT program, including ensuring that banks “direct more attention and resources toward higher-risk customers and activities, consistent with the risk profile of the institution, rather than toward lower-risk customers and activities.” The jointly proposed rule would establish a new consultation framework between FinCEN and the federal depository institution regulatory agencies for certain supervisory and enforcement actions, and would clarify that banks may share any information with FinCEN related to certain AML/CFT supervisory and enforcement actions.
3. OCC Issues Two Interim Final Actions Clarifying Federal Preemption of State Law
The OCC has issued an interim final order finding that federal law preempts the application of the Illinois Interchange Fee Prohibition Act (IFPA) to national banks and savings associations. The preemption determination released on April 24 was accompanied by the OCC’s issuance of an interim final rule to clarify that the authority of national banks and federal savings associations to charge non-interest charges and fees “includes the power to assess, collect, impose, levy, receive, reserve, take, or otherwise obtain non-interest charges and fees, including interchange fees from credit and debit card operations.” The interim final rule also explains that national banks and federal savings associations may charge non-interest charges or fees, even when such charges and fees are set by or in consultation with third parties. The IFPA, set to become effective on July 1, 2026, would prohibit card issuer banks, card networks, acquirer banks, and other payment card transaction participants from receiving or charging a merchant an interchange fee on the tax or gratuity amount of a payment card transaction. The interim final order and the interim final rule will become effective on June 30, 2026. Public comments on the interim final order or the interim final rule will be due 60 days after they are published in the Federal Register, which is expected shortly. Click for a copy of the interim final order and click for a copy of the interim final rule.
Nutter Notes: In its preemption determination, the OCC found that the “IFPA may have a destabilizing effect on the nation’s payment card systems,” in part because the systems’ participants, including banks, may have to spend “staggering” sums to comply with the Illinois law. The OCC also found that payment card network participants may have to significantly alter their operations to comply with the IFPA, which could include banks declining payment card transactions subject to the Illinois law. Litigation challenging the IFPA is still pending in the United States Court of Appeals for the Seventh Circuit. Federal preemption of the IFPA for national banks and federal savings associations likely would extend to out-of-state state-chartered banks, leading to the possibility that the IFPA would apply only to Illinois-chartered banks.
4. Federal Banking Agencies Lower the CBLR and Extend the Compliance Grace Period
The federal banking agencies today jointly finalized a rule to modify the community bank leverage ratio (CBLR) framework, consistent with section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), lowering the CBLR from 9.0% to 8.0%. The final rule announced on April 23 is expected to provide more flexibility for community banks to opt into the CBLR framework. The final rule also extends the grace period from two consecutive quarters to four consecutive quarters for a community bank that has opted into the CBLR framework and has temporarily fallen out of compliance, subject to a limit of eight quarters in the previous five-year period. The final rule is being adopted without change from the proposed rule issued in November 2025. The agencies noted that as of the second quarter of 2025, it is estimated that 84% of community banking organizations qualified to use the CBLR framework, but only 48% of qualifying community banking organizations had adopted it. The final rule will become effective on July 1, 2026. Click for a copy of the final rule.
Nutter Notes: The CBLR framework implements section 201 of EGRRCPA, which requires the agencies to establish a CBLR requirement of not less than 8% and not more than 10% for qualifying community banking organizations. That section of EGRRCPA provides that a qualifying community banking organization that exceeds the CBLR requirement will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the agencies’ capital rules, among other benefits. In 2019, the agencies established a CBLR requirement of greater than 9% for banks and bank holding companies that have less than $10 billion in total consolidated assets. Other qualifying criteria for the CBLR framework include off-balance sheet exposures of 25% or less of total consolidated assets, and trading assets and trading liabilities of 5% or less of total consolidated assets, each as of the end of the most recent calendar year.
5. Other Developments: Payment Stablecoins, Reputation Risk, and NSF Fees
- FDIC Adopts Proposal to Implement the GENIUS Act
On April 7, the FDIC released a proposed rule to implement the GENIUS Act, which along with OCC’s companion proposal released on February 25, would establish a framework for those issuers of payment stablecoins supervised by the FDIC, including requirements related to reserve assets, redemption, capital, and risk management standards. Comments on the FDIC’s proposed rule are due by June 9, 2026 and comments on the OCC’s proposed rule are due by May 1, 2026. Click for a copy of the FDIC’s proposed rule and click for a copy of the OCC’s proposed rule.
Nutter Notes: The FDIC’s proposed rule would establish requirements and standards applicable to FDIC-supervised permitted payment stablecoin issuers and insured depository institutions that engage in payment stablecoin-related activities. It also would establish requirements for FDIC-supervised custodians providing certain custodial and safekeeping services.
- FDIC and OCC Adopt Joint Final Rule Removing Reputation Risk from Supervisory Programs
The FDIC and OCC jointly issued a final rule on April 7 that codifies the elimination of reputation risk from their supervisory programs. The rule defines “reputation risk” and prohibits the agencies from criticizing or taking adverse action against a bank on the basis of reputation risk. The final rule becomes effective on June 9. Click for a copy of the final rule.
Nutter Notes: The rule also prohibits the agencies from requiring, instructing, or encouraging a bank to close customer accounts or take other actions on the basis of a person or entity’s political, social, cultural, or religious views or beliefs, constitutionally protected speech, or solely on the basis of politically disfavored but lawful business activities perceived to present reputation risk, consistent with Executive Order 14331, Guaranteeing Fair Banking for All Americans.
- FDIC Withdraws Supervisory Guidance on Multiple Re-Presentment NSF Fees
On April 10, the FDIC rescinded its guidance contained in Financial Institution Letter FIL-32-2023, June 16, 2023, that described the agency’s supervisory approach relating to banks assessing multiple non-sufficient funds (NSF) fees arising from the re-presentment of the same unpaid transaction. The rescission became effective immediately. Click to read the FDIC’s announcement.
Nutter Notes: The FDIC concluded that the rescinded guidance was “overly broad in scope and has raised uncertainty regarding when, for instance, disclosures regarding re-presentments may result in ‘unfairness’ concerns under Section 5 of the Federal Trade Commission Act.” The FDIC recommends that banks should instead ensure that their consumer account disclosures accurately reflect their re-presentment practices and charges, and comply with applicable laws, regulations, and other legal requirements.
Nutter Bank Report
Nutter Bank Report is a monthly electronic publication of the Banking and Financial Services Group of the law firm of Nutter McClennen & Fish LLP. Chambers and Partners, the international law firm rating service, after interviewing our clients and our peers in the profession, has ranked Nutter’s Banking and Financial Services practice among the top banking practices in the nation. Visit the U.S. rankings at Chambers.com. The Nutter Bank Report is edited by Matthew D. Hanaghan. Assistance in the preparation of this issue was provided by Daniel W. Hartman and Heather F. Merton. The information in this publication is not legal advice. For further information, contact:
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Matthew D. Hanaghan Tel: (617) 439-2583 |
Daniel W. Hartman |
Michael K. Krebs Tel: (617) 439-2288 |
Kate Henry |
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