Regulatory Spotlight: FDIC & OCC Crack Down on "Unsafe or Unsound Practices"

Regulatory Spotlight: FDIC & OCC Crack Down on "Unsafe or Unsound Practices"

In early October 2025, the FDIC and OCC proposed new rules to define what counts as an "unsafe or unsound practice" and to standardize how regulators issue Matters Requiring Attention (MRAs). They also moved to limit the use of "reputation risk" as a standalone reason for supervisory criticism.

What's Changing?

For years, banks have operated under vague regulatory standards when it comes to "unsafe or unsound practices." The new proposed rules aim to bring clarity and consistency to the supervisory process:

1. Clearer Definitions of Unsafe or Unsound Practices

The FDIC and OCC are establishing concrete criteria for what constitutes an unsafe or unsound practice. This means banks will have better guidance on regulatory expectations and can more effectively manage compliance risks before issues escalate.

2. Standardized Matters Requiring Attention (MRAs)

MRAs are formal notifications that a bank needs to address specific deficiencies. The new rules standardize how these are issued, ensuring consistency across institutions and reducing ambiguity in the supervisory process.

Why This Matters

These regulatory updates represent a major shift toward transparency and predictability in bank supervision:

• Compliance Clarity: Banks will have clearer benchmarks for what practices trigger regulatory concern

• Risk Management: Financial institutions can better allocate resources to address genuine supervisory priorities

• Reduced Ambiguity: Standardization means less variation between examiners and regional offices

• Fair Treatment: Limiting reputation risk as a catch-all criticism protects banks from overly subjective enforcement

What Banks Should Do Now

As these proposed rules move through the comment and finalization process, financial institutions should:

• Review current risk management frameworks against the proposed definitions

• Prepare compliance teams for updated MRA protocols

• Document existing practices that align with the new standards

• Submit comments during the public comment period if specific provisions impact operations

The Bottom Line

The FDIC and OCC's October 2025 proposals signal a regulatory environment focused on clarity and consistency. By defining unsafe or unsound practices more precisely and limiting subjective criteria like reputation risk, regulators are creating a more predictable framework for bank supervision. Financial institutions that stay ahead of these changes will be better positioned for compliance success.