OCC and FDIC Propose Rules to Define Unsafe Practices: Streamlining Oversight for Fintechs

On October 7, 2025, the OCC and FDIC issued a joint notice of proposed rulemaking to define "unsafe or unsound" practices, narrowing focus to material financial risks while excluding non-core issues like reputation risk unless linked to safety and soundness. This follows their withdrawal of broader climate risk guidance and aims to clarify supervision under Executive Order 14331, promoting fair banking access.

For sponsor banks and fintech partners in neobanks, payments, and marketplace lending, this could ease burdens on innovation, reducing vague citations that have deterred BaaS models. The proposal limits matters requiring attention (MRAs) to practices causing or likely to cause measurable financial harm, with enforcement tied to quantifiable losses. Comments are due 60 days post-Federal Register publication. Meanwhile, the OCC terminated two consent orders in early October 2025—one from 2023 on capital and BSA/AML issues, another from 2020 on credit and risk management—indicating progress in resolving legacy enforcements.

Fintech service providers should audit partnerships for alignment, strengthening vendor oversight and risk assessments. AI-based lending firms may see less drag on models if not posing direct threats. This shift fosters a balanced environment, but expect targeted exams—integrate into monitoring to avoid escalations.