Regulatory changes are nothing new—they’ve been occurring for decades. However, with recent developments over the past year, particularly in the last few weeks, including new presidential executive orders, it’s more important than ever to understand how to navigate these shifts effectively. This discussion will focus on responding to and managing the evolving legal and regulatory landscape.
While there is no simple solution to regulatory shifts, adopting a flexible framework to manage these shifts effectively is essential.
To illustrate the ongoing regulatory shifts and their impact, here are a few notable examples:
- Executive Orders on Affirmative Action & DEI Policies
On January 20th and 21st, three executive orders were issued affecting affirmative action and diversity, equity, and inclusion (DEI) policies at the federal and federal contractor levels. Because banks hold FDIC insurance, these policy changes will also impact them. - Section 1071 of the Dodd-Frank Act
This section, related to small business loan reporting, has been in place for years but has faced a slow and inconsistent implementation process. The Consumer Financial Protection Bureau (CFPB) has repeatedly attempted to enforce it, only for it to be stayed, paused, re-examined, and reissued multiple times. - Corporate Transparency Act (CTA)
The implementation of the CTA has been highly inconsistent. FinCEN initially developed a reporting structure and database, but shortly after, a lawsuit put a stay on reporting. That stay was later overturned, followed by another lawsuit resulting in a new stay. Currently, reporting is not required, but this could change again shortly.
These examples highlight the ongoing regulatory back-and-forth, making it challenging for institutions to stay compliant. While there’s no simple solution, adopting a flexible framework to manage these shifts effectively is essential.
A FOUR-STEP APPROACH TO NAVIGATING REGULATORY SHIFTS
This isn’t a proprietary framework but a structured approach to regulatory changes.
Step One
Step one is understanding the current state of the law. This means assessing what the law currently says and how recent changes impact it. For example, with executive orders affecting affirmative action and DEI policies, it takes time to unravel their implications fully. It’s important to consider what a president can and cannot change through executive order and to analyze how existing affirmative action and DEI policies interact with new directives. Since this level of analysis requires expertise, firms may need guidance from employment attorneys and HR professionals to ensure compliance and a clear understanding of the evolving legal landscape.
Step Two
The next step is understanding where your organization currently stands in relation to these policies. Are you in compliance with the law as it was immediately before January 20th? If so, your primary task is to begin adjusting to the new regulatory landscape. However, this comes with a caveat—you may not want to discard all previous policies and procedures entirely. Given the shifting nature of regulations, there’s a reasonable chance that policies could revert in the future. Maintaining institutional knowledge is crucial, so if you are modifying policies, be sure to retain the previous versions in an accessible format for future reference.
Step Three
The next step in managing regulatory shifts is anticipating where the law might be in the coming weeks, months, or even years. As seen with the Corporate Transparency Act, compliance obligations have fluctuated significantly over a short period, creating uncertainty for organizations. If reporting is not currently required, it may still be necessary in the near future, so it’s crucial to retain relevant information and prepare for potential reporting obligations. Additionally, agencies may extend deadlines or adjust expectations, so staying informed about regulatory updates is key.
A similar pattern can be observed with affirmative action and other regulatory areas, where legal changes often follow a pendulum effect. Policies may shift dramatically in one direction under one administration, only to swing back in the opposite direction with future leadership changes. Right now, there has been a significant shift in one direction, but depending on election outcomes, the regulatory landscape could shift again. When implementing policy changes, organizations should consider whether current rules might be paused, overturned, or altered in the next election cycle.
Understanding the potential trajectory of the law has become increasingly important. In the past, regulatory shifts were more gradual, but the degree of opposition between administrations has led to more abrupt and extreme changes. Organizations should assess potential future expectations under different administrations and build flexibility into their compliance strategies to adapt to ongoing regulatory shifts.
Step Four
The final step in this framework is to have a plan of action and actively monitor for changes. After understanding the current state of the law, assessing where your institution stands in terms of compliance and processes, and anticipating where regulations might go, it’s essential to develop a plan that accounts for potential shifts and outcomes.
For example, suppose you’re adjusting policies related to affirmative action in response to current federal directives. Retaining previous policies and procedures may be wise rather than discarding them entirely, as they may become relevant again. Similarly, Section 1071 compliance has a final rule in place, but its enforcement remains uncertain, especially with the temporary suspension of the CFPB. If your organization has already invested time in preparing for compliance, keeping those materials and processes intact would be prudent rather than scrapping them altogether.
Regulations are inherently cyclical, often shifting back and forth with leadership and political priorities changes. Organizations can navigate these ongoing changes more effectively by maintaining flexibility, staying prepared, and adapting as needed.
CONCLUSION
The pace of regulatory change, particularly in the banking sector, has accelerated in recent years, making it more critical than ever to develop a proactive approach to compliance. When considering managing these shifts, it’s no longer enough to understand the current law and its immediate changes simply—you must also anticipate where regulations might move in the future. Building flexibility into your compliance strategy will help ensure that your organization can quickly adapt as new policies emerge. By staying informed, retaining institutional knowledge, and preparing for potential shifts, you can confidently navigate regulatory uncertainty.
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