The banking industry has rapidly shifted toward a stringent regulatory environment in recent years. According to a Forrester, 98% of financial institutions experienced a rise in financial crime compliance costs alone in 2023, driven primarily by skyrocketing labor and technology expenses. Penalties for noncompliance have increased just as fast.

However, the pendulum may be swinging once again. With the second Trump administration taking office and new leaders taking over the Consumer Financial Protection Bureau (CFPB), Office of the Comptroller of the Currency (OCC), and other agencies, deregulation is expected. Yet upcoming policies are expected to create more nuanced outcomes than a straightforward regulatory rollback.

This article will analyze the expected areas for deregulation and continued scrutiny—and how executives can prepare for the future of bank compliance demands.

Is Deregulation Occurring in the Banking Industry?

The return of the Trump administration has sparked a flurry of deregulation initiatives, with many experts anticipating an environment more conducive to bank and fintech growth. Notably, financial leaders expect a significant decrease in:

• Mergers and acquisitions (M&A) scrutiny
• Cryptocurrency activity limitations
• Environmental, social, and governance (ESG) reporting and disclosures
• Capital requirements for banks

Similarly, the most recent CFPB rules initiated under Biden—including an open banking rule that would require financial institutions to “unlock” consumers’ financial data upon request—are likely to be overturned via the Congressional Review Act.

However, all this deregulation isn’t a sign for banks to let loose and instantly cut compliance expenses. Scrutiny is still rising in areas with bipartisan support.

Why Scrutiny Continues to Rise

Even amid regulatory rollbacks, executive leaders continue to face growing bank compliance challenges. The American Bankers Association (ABA) explains it best:

“Issues such as consumer protection and fraud prevention are popular goals no matter who is in the White House or leading regulatory agencies.”

Essentially, while the Trump administration may limit government oversight to reduce the burden on banks, there’s bipartisan agreement that strict rules are beneficial in select areas. For example, the OCC’s new acting head expressed support for cybersecurity regulations—only diverging from his predecessor in his recommendation for compliance requirements to be tailored based on bank size. Similarly, new AI compliance needs may arise, even as the federal government increasingly backs artificial intelligence-fueled innovation.

Our research further shows that the government could:

• Maintain large penalties for regulatory violations
• Increase vendor risk management requirements
• Set national standards for data privacy

Don’t want to take action on maybes? Keep in mind that federal rollbacks could drive a rise in state regulations. Often, consumer protection cases naturally rise amid deregulation, urging regional governments to step in and issue new bank compliance requirements.

Even if no further regulations are enacted by federal or state policymakers this year, there are new final rules that could come into play. For instance, six agencies had jointly issued quality control standards for financial institutions using automated valuation models in July 2024—earlier than the Congressional Review Act lookback period can typically reach. These standards are expected to take effect in October 2025.

How to Prepare for the Future of Bank Compliance Demands

So, what will it take for financial institutions to thrive amid regulatory uncertainty? Organizations need flexible, forward-looking approaches to optimally balance profitability against changing bank compliance demands. Here are a few effective strategies:

1. Build Modular Compliance Frameworks

Adaptable compliance frameworks can be quickly adjusted as regulations change. In particular, a modular approach allows banks to adjust specific components, such as reporting structures and risk assessment models, without overhauling the entire system. To achieve this flexibility, bank leaders can embrace solutions like:

• Scalable technology infrastructure: Use cloud-based and API-driven compliance solutions that integrate seamlessly with the latest regulatory tools and are reliably up to date with current reporting requirements—even at the state or municipal level.
• Configurable internal processes: Design policies and procedures with flexible parameters that can be updated based on regulatory shifts without disrupting core operations.
• Automated rule engines: Implement AI-driven rule engines to streamline decision-making while ensuring compliance logic can be quickly updated as regulations change.
• Interoperable data management: Structure compliance data in a standardized format that can be easily adapted for different reporting requirements or jurisdictions.

2. Maintain Strong Regulatory Relationships

Even in periods of deregulation, cultivating and nurturing strong relationships with regulatory agencies remains crucial. These connections provide valuable intelligence on regulatory priorities—offering early insight into proposed rule changes or upcoming initiatives—while creating channels for clarifying expectations.

Engaging with regulators can also equip bank leaders with a platform to advocate for regulatory approaches that align with business needs.

3. Develop a Culture of Compliance

Bank compliance should not be treated as a box-checking exercise or the sole responsibility of the legal, risk, and cybersecurity teams. Even amid regulatory rollbacks, the cost of noncompliance remains too high for gaps in your governance approach. Derisking financial institutions starts with ingraining compliance in organizational culture, ensuring every employee understands their role in maintaining regulatory integrity.

To proactively mitigate risks, bank executives can prioritize:

• Ongoing employee training covering regulatory updates, data protection practices, anti-fraud prevention, and other critical issues.
• The integration of compliance checkpoints in employee workflows across the organization.
• Leadership commitment and accountability, which sets the tone for prioritizing compliance in strategic decisions.

4. Conduct Regular Scenario Planning

When faced with uncertainty, financial institutions must be prepared to adapt quickly. Engaging in regular scenario planning exercises not only helps banks anticipate and respond to regulatory changes but also increases the visibility of unforeseen risks. For instance, even if AI regulations remain loose, scenario planning ensures the visibility of potential security vulnerabilities, as well as reputational issues around nonethical usage.

The Value of Risk and Compliance Leaders Amid Regulatory Uncertainty

Key priorities, actions, and leadership appointments set by the federal government offer mixed signals on the future of bank compliance. However, one thing remains clear: risk and compliance executives are more essential than ever. Senior leaders who can interpret shifting mandates, anticipate risks, and implement adaptive strategies are invaluable to the long-term profitability of banks nationwide.

At AJ Consultants, our executive search firm is well-versed in the complex regulatory challenges facing financial institutions. Our unique understanding of the banking industry—including regulations at the state level—allows us to match you with proven compliance leaders who meet your exact needs and culture. It’s why 85% of the professionals we’ve placed over the past 16 years are still with our clients today.

Strengthen your bank compliance with high-performing executive placements. Work with AJ Consultants.