The upcoming transition in White House leadership has raised questions about the regulatory landscape for banks, particularly regarding high-focus areas like environmental, social, and corporate governance (ESG) initiatives, bank-fintech agreements, and Banking-as-a-Service (BaaS) partnerships.
The incoming Trump administration has signaled a deregulatory approach. Still, implementation and rollbacks will take time. Banks should prepare for potential policy shifts while maintaining compliance with current frameworks during this transition period. Banks will have to pay close attention to see exactly when and where any regulatory changes come to fruition.
Predicted Change of Pace
Federal administrators face numerous hurdles when implementing new regulatory approaches. Common challenges include installing new agency heads, establishing new policy frameworks, rolling back existing paperwork, and navigating more concrete regulatory structures while implementing the administration’s directives where possible. Additionally, banking regulators have already announced, by way of the House Financial Services Committee, that they are putting new rulemaking on ice until the new administration arrives.1
This combination of complexity and inertia means that, for banks, it’s a matter of wait and see. While this presents a hazy picture at best, it does give banks and financial institutions valuable time to adjust their strategies and compliance frameworks as needed over a longer timeframe.
ESG Outlook
The incoming administration will likely work to roll back or eliminate ESG disclosure initiatives and other related efforts over the next several years. However, banks should resist the urge to dramatically alter their existing efforts regarding ESG disclosures, sustainable finance initiatives, and other efforts that can help business clients reduce enterprise risks and navigate regulations, such as disclosure requirements in California and Europe. Various forms of risk, public relations, and investor scrutiny will likely continue to drive businesses to pay attention to ESG and sustainability and gain momentum.
Bank-Fintech Partnerships in Focus
The landscape for bank-fintech partnerships and BaaS arrangements may see more nuanced changes. The general trend toward deregulation might suggest a reduction in BaaS enforcement from regulators, but the complexity of bank-fintech relationships means that core regulatory concerns and approaches will likely persist. Even if regulators focused intensely on reducing enforcement on bank-fintech partnerships, it would take time to take shape.
Experts in the space agree, with one anonymous BaaS banker in an article from American Banker saying, “I don’t anticipate immediate change as it will take some time for the reshuffle of personnel at the leadership level to take place. Consequently, we may have a short-term quiet period on enforcement actions. Everything moves slowly in actual practice and enforcement.2
Banks should continue to prioritize robust compliance frameworks for their fintech partnerships and BaaS arrangements, even in anticipation of potential regulatory rollbacks. The fundamental risks associated with third-party fintech relationships, ranging from API security and data protections to fraud, cybersecurity, and BSA/AML requirements, will remain mostly unchanged regardless of the regulatory climate.
The Path Forward for Banks
Financial institutions should consider several key approaches during this transition:
- Maintain current compliance frameworks while preparing for potential changes: Banks have no pressing reason to move away from ensuring robust compliance and risk management within their organizations. Avoid increasing risk exposure when not necessary.
- Continue conversations with clients regarding their concerns, preparedness, and general interest in ESG- and sustainability-based requirements and products: Federal funding from the Biden administration for sustainability initiatives will continue rolling out for years to come, making sustainable finance an area worthy of heightened attention. Strategic investments in these areas should align with client demands.
- Keep a close watch on early policy signals while avoiding hasty strategic shifts: Stay informed of emerging regulatory and policy developments while maintaining strategic stability, avoiding reactive changes that could prove premature or costly. This balanced approach enables adaptation to requirements as they evolve.
Banks can use this transition period to evaluate their compliance programs, identifying areas where they can create competitive advantages while maintaining regulatory readiness. As the new administration’s regulatory approach becomes clearer, banks that balance core compliance with strategic adaptation will be best positioned to thrive amid changing regulatory landscapes.
For more information on the latest trends in regtech and compliance affecting banks, register now for the Datos Insights webinar, Top Trends in Commercial Banking 2025, taking place on January 15, 2025.
- “Regulators Tell House Committee They’ll Pause New Banking Rules,” PYMNTS, November 20, 2024, accessed December 4, 2024, https://www.pymnts.com/bank-regulation/2024/regulators-tell-house-committee-theyll-pause-new-banking-rules/. ↩︎
- Penny Crosman, “Trump win unlikely to stop the crackdown on BaaS and fintech,” American Banker, November 8, 2024, accessed December 4, 2024, https://www.americanbanker.com/news/trump-win-unlikely-to-stop-the-crackdown-on-baas-and-fintech. ↩︎
