OCC and FDIC Finalize 'Unsafe or Unsound Practice' Definition
For the first time, a joint final rule from the OCC and FDIC defines "unsafe or unsound practice," requiring a connection to material financial harm for many supervisory and enforcement actions.
The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) have adopted a joint final rule, effective November 2, 2026, creating a regulatory definition of an "unsafe or unsound practice." The Federal Reserve did not join the rulemaking. The new two-part test requires conduct to be contrary to generally accepted standards of prudent operation and to have caused, or be likely to cause, material financial harm to the institution or a material risk to the Deposit Insurance Fund.
This change raises the threshold for regulators to take many supervisory actions, including those related to consumer compliance, by tying them to a materiality standard. Previously, regulators could issue findings for issues like compliance management system weaknesses without a clear link to financial harm. The FDIC has reportedly begun closing a large number of existing Matters Requiring Attention (MRAs) that do not meet this new standard. However, the agencies retain their authority to bring enforcement actions for direct violations of law, regardless of the new definition. Institutions should reassess any open MRAs and monitor a parallel OCC proposal that would distinguish between "substantive" and "technical" violations for supervisory purposes.