Reputational risk in the financial services industry has become a popular topic in Washington, D.C. in the past couple of weeks, with both a bill and an announcement from a federal regulator aimed at removing that from consideration.
Driving the news: The Office of the Comptroller of the Currency (OCC) yesterday announced it will no longer examine banks for reputational risk and has started removing references to the concept from its handbooks and guidance documents. At the same time, Senate Banking Committee Chairman Tim Scott [R-S.C.] introduced the Financial Integrity and Regulation Management (FIRM) Act, legislation that would bar all federal banking agencies from considering reputational risk in supervision or regulation.
Why it matters: For companies operating in regulated but politically sensitive industries — like firearms, crypto, or cannabis — this marks a significant shift. Banks have long cited reputational risk as a reason to avoid certain clients, sometimes under pressure from regulators. That pressure may now be easing.
Zoom in: The OCC clarified that it has never used reputational risk as a “catch-all” for enforcement actions, but acknowledged its removal could improve transparency. The OCC’s move applies to community banks and is expected to be completed in the coming weeks. Examiners have already been instructed to stop assessing reputational risk.
The big picture: The FIRM Act, supported by every Republican on the Senate Banking Committee, goes further. It would:
- Eliminate all references to reputational risk from rules, guidance, and exam manuals.
- Ban regulators from creating new supervisory policies tied to reputational risk.
- Prohibit regulators from using reputational risk to justify enforcement actions or ratings.
- Require federal agencies to report to Congress on how they’ve implemented the law.
What they’re saying:
- “Federal regulators have abused reputational risk by carrying out a political agenda against federally legal businesses,” said Sen. Scott.
- The American Bankers Association also endorsed the bill, saying it will help prevent future “Operation Choke Point”-style practices, where banks were allegedly pressured to cut ties with disfavored industries.
Between the lines: Scott’s legislation may have a clearer path forward than more sweeping proposals that would compel banks to do business with any legal customer. While Democrats have been largely silent on the measure so far, the bill’s narrower focus on regulatory restraint could draw bipartisan interest.
