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Nutter Bank Report: February 2026
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- Final Rule Clarifies Authority of National Trust Banks to Offer Non-Fiduciary Services
- FinCEN Issues Guidance to Streamline Customer Due Diligence Requirements
- OCC Proposes Regulations Implementing the GENIUS Act for Payment Stablecoin Issuers
- Federal Court Ruling Denies Officers of Failed Bank Business Judgment Rule Protections
- Other Developments: Reputation Risk and Supervisory Appeals
1. Final Rule Clarifies Authority of National Trust Banks to Offer Non-Fiduciary Services
The OCC has issued a final rule to amend the requirements for chartering of national banks to clarify the authority of national banks limited to the operations of trust companies (national trust banks) to permit them to perform non-fiduciary activities in addition to their fiduciary activities. The OCC’s final rule released on February 27 changes references in its rule related to chartering of national trust banks from “fiduciary activities” to “operations of a trust company and activities related thereto.” According to the OCC, the final rule is not intended to either expand or contract the authorized activities of national trust banks. The OCC explained that it is amending the existing chartering rule because it could be mistakenly read to impose limits on the activities of national trust banks that are different than those articulated in the OCC’s statutory authorization. The OCC pointed out that under longstanding interpretation of its authority, the agency has chartered national trust banks that engage in activities that are not fiduciary. The final rule will become effective on April 1, 2026. Click for a copy of the final rule.
Nutter Notes: The OCC proposed these amendments to its rules for chartering of national trust banks on January 8, 2026. In its notice of the final rule, the OCC reiterated that custody and safekeeping activities are examples of the types of non-fiduciary activities authorized both for national banks and for national trust banks. The OCC’s clarification that national trust banks, which are not permitted to take deposits, may offer custody and safekeeping services for digital assets are likely to make the national trust bank charter more attractive to cryptocurrency firms and fintech companies seeking to expand their products and services. The OCC specifically declined to define the scope of non-fiduciary or other activities that are permissible for national trust bank under the final rule. The final rule also does not address whether a national trust bank must perform some minimum fiduciary activity.
2. FinCEN Issues Guidance to Streamline Customer Due Diligence Requirements
The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has issued an order to reduce regulatory burden for covered financial institutions, including banks, under the agency’s Customer Due Diligence Requirements for Financial Institutions rule (the “CDD Rule”). The February 13 order excepts covered financial institutions from the requirement to identify and verify the beneficial owners of a legal entity customer each time the customer opens a new account. Under the order, a covered financial institution is required to identify and verify the beneficial owners of a legal entity customer in only the following three circumstances: (1) when the legal entity first opens an account with the institution; (2) when the institution has knowledge of facts that reasonably call into question the reliability of previously obtained beneficial ownership information; and (3) as otherwise needed based on the institution’s risk-based procedures for ongoing customer due diligence. According to FinCEN, relieving covered financial institutions of the obligation to identify and verify a legal entity customer’s beneficial owners at each new account opening is unlikely to undermine the risk-based framework under the Bank Secrecy Act. Click for a copy of the order.
Nutter Notes: FinCEN notes in the order that covered financial institutions are still required to establish and maintain written policies and procedures reasonably designed to identify and verify beneficial owners of legal entity customers and to include such policies and procedures in their anti-money laundering compliance program. Such programs must include appropriate risk-based procedures to maintain and update customer information, including beneficial ownership information, for ongoing due diligence of legal entity customers. FinCEN explained in the order that this may include the need to collect and verify beneficial ownership information for existing legal entity customers upon certain risk-related triggers or events. FinCEN also noted that the order is not meant to “discourage covered financial institutions from exceeding minimum compliance requirements should doing so align with their risk profile and tolerance.”
3. OCC Proposes Regulations Implementing the GENIUS Act for Payment Stablecoin Issuers
The OCC has issued a proposed rule that would establish requirements for permitted payment stablecoin issuers and foreign payment stablecoin issuers under the OCC’s jurisdiction, including national banks, federal savings associations and their subsidiaries, as well as certain custody activities conducted by OCC-supervised institutions under the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act). The proposed rule released on February 25 would implement the GENIUS Act’s prohibition on paying interest or yield by, among other things, barring stablecoin issuers from entering into white-label relationships for the issuance of white-label payment stablecoins that offer rewards to stablecoin holders. The OCC has requested comments from the public on a number of aspects of the proposed rule, including whether the rule should be broader to prevent issuers from directly or indirectly paying interest or yield to payment stablecoin holders. Comments on the proposed rule will be due 60 days after it is published in the Federal Register, which is expected shortly. Click for a copy of the proposed rule.
Nutter Notes: The GENIUS Act’s prohibition on paying interest or yield has been a topic of much contention between the banking industry and the crypto industry since its passage into law and the OCC should expect significant commentary on this topic from industry groups. The prohibition on interest and yield effectively differentiates stablecoin holders from traditional bank depositors who are eligible to receive interest on their deposits. While this proposed rule appears to be consistent with the statutory prohibition, the banking industry has been actively engaging in lobbying efforts to tighten the prohibition to prevent certain workarounds and loopholes, such as stablecoin issuers contracting with third parties who offer “rewards” as an alternative to interest or yield. The GENIUS Act generally prohibits any person other than a permitted payment stablecoin issuer from issuing a payment stablecoin in the United States. The OCC will have regulatory or enforcement authority over certain permitted payment stablecoin issuers, including subsidiaries of national banks or federal savings associations, federal qualified payment stablecoin issuers, and state qualified payment stablecoin issuers subject to the OCC’s regulatory or enforcement authority under the GENIUS Act. The other federal banking agencies are required to issue regulations to implement the GENIUS Act by July 18, 2026. The FDIC issued its proposed rule to establish application procedures for FDIC-supervised banks that seek approval to issue payment stablecoins through a subsidiary under the GENIUS Act on December 16, 2025.
4. Federal Court Ruling Denies Officers of Failed Bank Business Judgment Rule Protections
A federal trial court in California has ruled that the former officers of a failed bank and its parent company are not protected from liability under the business judgment rule, which generally shields a director of a corporation from liability under certain circumstances when the director is sued for violation of the fiduciary duty of care. The February 23 ruling by the U.S. District Court for the Northern District of California arises from a dispute between the FDIC, as receiver for the failed bank, and a trust representing the failed bank’s former holding company. In the lawsuit, the FDIC asserted that certain claims made by the trust against the FDIC were barred because they were set off by claims for the holding company’s mismanagement of the failed bank’s investment decisions. In connection with the FDIC’s argument, the FDIC sought a ruling from the court that the failed bank’s officers (many of whom were also officers of the holding company) are not protected by the business judgment rule. The court agreed that the officers are not shielded by the business judgment rule as codified under California state law. Click for a copy of the court’s ruling.
Nutter Notes: While the court’s ruling only applies to businesses subject to California’s business judgment rule statute, the decision may influence courts in other jurisdictions when faced with similar arguments about the extent and limits of the business judgment rule’s protections. As a result of the court’s ruling, the conduct of former officers of the failed bank and its holding company are subject to evaluation under the lower standard of ordinary negligence rather than the higher standard of gross negligence. The FDIC has asserted in the case that the harms to the failed bank were primarily caused by the bank’s officers. The case involves an attempt by the trust representing the interests of the former holding company attempting to recover from the FDIC of about $1.7 billion of the holding company’s deposits in the failed bank.
5. Other Developments: Reputation Risk and Supervisory Appeals
- Proposal Would Remove Reputation Risk from Federal Reserve Supervision of Banks
The Federal Reserve on February 23 requested comment on a proposal to codify the removal of reputation risk from its supervision of state member banks. The proposal reiterates the Federal Reserve’s policy against penalizing or prohibiting a bank from serving a customer engaged in legal activity. Comments on the proposed rule are due by April 27, 2026. Click for a copy of the proposed rule.
Nutter Notes: The proposal would prohibit the Federal Reserve from encouraging or compelling banks it supervises 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.
- OCC Seeks Input on Proposed Changes to Appeals Process for Material Supervisory Determinations
The OCC on February 17 issued a proposal that would establish revised procedures and policies for appeals by national banks and federal savings associations of material supervisory determinations. Comments on the proposed rule will be due 60 days after it is published in the Federal Register, which is expected shortly. Click for a copy of the proposed rule.
Nutter Notes: According to the OCC, the purpose of the proposed rule would be to ensure that the OCC’s process for appeals of material supervisory determinations provides a meaningful opportunity for OCC supervised institutions to challenge the agency’s decisions and actions. Among other changes, the proposed rule would replace the role currently played by the OCC’s Ombudsman with an Appeals Board consisting of the Chief National Bank Examiner and two term appointees.
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 |
This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.
