The Great Regulatory Reshuffle: What’s at Stake for Financial Institutions

After 30 years in financial services, I’ve seen the regulatory pendulum swing back and forth countless times—but the potential restructuring of regulatory oversight that is currently being discussed presents unique challenges worth discussing.

We now find ourselves facing critical questions with no clear answers:

• Should federal regulators like the OCC and FDIC consolidate?
• If the CFPB is defunded, who will assume authority over key consumer protection regulations like Regulation Z, Regulation DD, and Regulation E?
• What role should states play in this evolving structure?
• What happens to existing regulations – and those scheduled for implementation in the coming year?

50 States = 50 Frameworks?

The CFPB is increasingly encouraging—some might say pushing—states to take a more active role. This could lead to what I describe as a tangled, “spaghetti” regulatory framework, creating complexity and uncertainty for financial institutions.

Twenty-three state attorneys general have already signaled their intent to take on a greater regulatory role.

This could result in 50 different regulatory frameworks, significantly increasing the complexity of navigating varying rules across state lines. This isn’t a prediction – consumer financial protection bureaus in New York and California have already expanded, spiking compliance costs and risks.

At the same time, discussions around federal regulatory consolidation could create a “super-regulator” that might bring some consistency but could fundamentally reshape the landscape in unpredictable ways.

Congressional Considerations

Congress is actively considering legislation that could eliminate CFPB funding. If passed, this could dramatically shift regulatory power back to traditional banking regulators.

Multiple Approaches to Regulation

With multiple federal regulators in charge, the industry is already facing diverse approaches:

The CFPB is cracking down on overdraft fees, credit card late fees, and non-sufficient funds (NSF) charges. It’s also pushing for more competition in financial services by supporting open banking initiatives. Meanwhile, the OCC has been more focused on issues like fintech-bank partnerships, fair access to financial services, and prudential risk management.

These regulatory actions are already having significant implications for the industry, with several key developments worth noting:

An estimated $5 billion has already been lost in revenue for banks due to policy changes on overdraft fees alone.

The UK’s open banking increased customer switching by 25%. Its adoption in the US could threaten fee-reliant banks with customer attrition and revenue challenges.

Congress can override new regulations through the CRA or new laws. Pending litigation could also derail or alter regulations before they take full effect.

And let’s not forget all of this could change again in four years. A new administration could reverse course once again, leaving financial institutions in a perpetual state of uncertainty.

The Case for Modernization

For years, I’ve advocated for banks to modernize —and today, this transformation is more essential than ever.

The evidence is compelling. JP Morgan Chase invested $12 billion in cloud infrastructure to handle compliance seamlessly. McKinsey found banks with modern cores cut compliance costs by 40%.

A shift towards modernization enables financial institutions to:

• Adapt quickly to regulatory changes through flexible compliance solutions.
• Standardize operations across multiple regulatory jurisdictions, reducing the burden of fragmented oversight.
• Integrate with open banking frameworks to remain competitive in a digital-first market.
• Enhance compliance automation, reducing costs associated with manual regulatory updates.
• Improve data security and risk management, ensuring adherence to evolving cybersecurity and fraud prevention requirements.

The regulatory landscape will continue to shift, but uncertainty doesn’t have to mean instability.

Financial institutions that embrace technological modernization will be best positioned to weather these changes, stay compliant, and remain competitive in an evolving market.

Now is the time to future-proof your operations—before the next regulatory wave hits.