Between September and November 2025, the OCC made a series of changes to how it supervises community banks. No single announcement made national headlines. Taken together, they represent the most significant recalibration of community bank supervision in over a decade.
The agency eliminated reputation risk as an examination category. It published simplified BSA/AML examination procedures designed specifically for community banks. It discontinued the Money Laundering Risk data collection system. It removed fixed examination requirements in favor of risk-based scoping. And it joined the FDIC in formally proposing to strike reputation risk from supervisory regulations entirely.
Community bank compliance officers need to understand what actually changed, what didn’t, and what it means for the next examination cycle.
Reputation Risk Is Gone. The Underlying Concerns Aren’t.
The OCC’s decision to eliminate reputation risk from its supervisory framework was the most visible change. Acting Comptroller Rodney Hood announced in the summer of 2025 that the agency would no longer conduct examinations focused on reputation risk, and that references to the category would be removed from the Comptroller’s Handbook and related guidance. In October, the OCC and FDIC issued a joint notice of proposed rulemaking to codify the change in regulation.
This was a direct response to concerns, amplified by Executive Order 14331, that reputation risk had been used as a subjective tool to pressure banks into de-risking certain customer categories, particularly those in legal but politically disfavored industries. The criticism was not unfounded. Banks had cited reputation risk as the rationale for exiting relationships with firearms dealers, cryptocurrency businesses, and other lawful enterprises, often at the implicit or explicit encouragement of examiners.
Removing the label doesn’t remove the underlying supervisory interest in how a bank manages its public-facing risk. Compliance risk, operational risk, and strategic risk still encompass the scenarios that reputation risk was used to address. An examiner who previously would have flagged a reputational concern will now frame it as an operational or compliance issue. The framing changed. The scrutiny may not.
Simplified BSA Procedures: What’s Actually Different
The OCC published new community bank BSA/AML examination procedures in November 2025, effective for examinations beginning February 1, 2026. These procedures are designed to scale examination expectations to the risk profile of the institution rather than applying minimum procedural requirements uniformly.
In practice, this means examiners at community banks with lower money laundering and terrorist financing risk will be able to rely more heavily on independent audit testing from third parties, reduce duplicative reviews of internal controls, and scale back transaction-level file reviews when the bank’s risk profile warrants it. The agency also discontinued the Money Laundering Risk system, a longstanding data collection tool that community banks had been required to support, eliminating a reporting burden that produced limited supervisory value for lower-risk institutions.
This is real relief. Community banks with well-documented, risk-based BSA programs will see shorter, more focused examinations. But the relief is conditional. The simplified procedures apply when a bank’s risk profile supports them. A community bank that has added fintech partnerships, expanded into higher-risk customer segments, or launched new digital products may not qualify for the streamlined approach. The OCC was explicit: the procedures are tailored to banks with “generally low levels of money laundering and terrorist financing risk.” If your institution’s risk profile has changed since your last examination, the simplified procedures may not apply to you.
Risk-Based Examination Scoping
Separate from the BSA changes, the OCC also announced that it is eliminating mandatory examination activities for community banks that are not required by statute or regulation. Going forward, examination scope and frequency will be determined by the bank’s risk profile rather than a fixed checklist of minimum requirements.
This is a philosophical shift in how the OCC approaches community bank supervision. Under the prior framework, every community bank examination included a baseline set of required activities regardless of the bank’s risk level. The new approach gives examiners more discretion to focus on the areas that matter most for a given institution.
For community banks, the upside is clear: less time and fewer resources spent responding to examination requirements that don’t match your actual risk. The downside is that risk-based scoping requires you to have a credible, current risk assessment that can withstand examiner review. If your institution’s risk assessment hasn’t been updated to reflect current products, services, and customer base, the examiner’s risk-based scoping may produce a different result than you expected – and not in your favor.
What Community Banks Should Prioritize
Three things will determine whether these changes work in your institution’s favor or against it.
First, update your BSA/AML risk assessment before your next examination cycle. The simplified procedures are only available to institutions with risk profiles that support them. A current, well-documented risk assessment is the single most important factor in whether your bank qualifies for the streamlined approach. If the risk assessment is stale or doesn’t account for new products and customer segments, fix that now.
Second, audit the quality of your third-party BSA testing. The new procedures allow examiners to rely more on independent audit results. That only works if your independent testing is actually rigorous. If your third-party BSA audit is a check-the-box exercise that hasn’t produced a meaningful finding in three years, examiners won’t rely on it, and you’ll get the full examination treatment regardless of the new framework.
Third, don’t confuse reduced burden with reduced expectations. The OCC is not lowering the standard for BSA/AML compliance. It’s adjusting how it verifies compliance at institutions where the risk is genuinely low. The substantive obligations – customer identification, transaction monitoring, suspicious activity reporting, CDD – are unchanged. What’s changing is the depth of examination review at banks that can demonstrate they’re meeting those obligations effectively.
The OCC’s 2025 changes are good news for community banks that have invested in risk-based compliance programs. For those that haven’t, the changes are a reason to start. Simplified examination procedures reward institutions that can show their work. The time to make sure you can show yours is before the examiner asks.
Sources
OCC Announces Actions to Reduce Regulatory Burden for Community Banks | OCC (Sept. 2025)
OCC Announces Additional Actions to Support Community Banks | OCC (Oct. 2025)
Community Bank Minimum BSA/AML Examination Procedures | OCC Bulletin 2025-37 (Nov. 2025)
OCC Eases Community Bank BSA Rules | ABA Banking Journal (Nov. 2025)
2025 Wrap-Up of Supervisory Changes at Federal Banking Agencies | Davis Wright Tremaine (Nov. 2025)
