Gibson Dunn

From the Derivatives Practice Group: This week, the CFTC announced Stephen D. Andrews as deputy general counsel for regulation and M. Jordan Minot as deputy general counsel for litigation.

New Developments

CFTC Chairman Selig Announces Deputy General Counsel Appointments. On April 3, the CFTC announced Stephen D. Andrews and M. Jordan Minot have been named deputy general counsel for regulation and litigation, respectively. Andrews joins the CFTC from the United States Senate, where he served as general counsel to Senator Josh Hawley. Minot comes to the CFTC from the Virginia Attorney General’s Office, where he served as an assistant solicitor general and senior assistant attorney general. [NEW]

CFTC Sues Trio of States to Reaffirm its Exclusive Jurisdiction Over Prediction Markets. On April 2, the CFTC filed lawsuits challenging the actions of Arizona, Connecticut, and Illinois against CFTC-registered designated contract markets. The CFTC stated that, despite its clear and longstanding exclusive jurisdiction to regulate event contracts under the Commodity Exchange Act, various states have attempted to outlaw, regulate, or otherwise restrain the activities of DCMs that facilitate trading in lawful event contracts. [NEW]

Chairman Selig Announces Formation of New Innovation Task Force. On March 24, CFTC Chairman Michael S. Selig launched the Innovation Task Force, which is dedicated to advancing clear rules of the road for American innovators building novel products and technologies within U.S. derivatives markets. The Innovation Task Force, in partnership with the Innovation Advisory Committee, will work with the Commission to develop a clear regulatory framework for innovators focused on: (i) crypto assets and blockchain technologies; (ii) artificial intelligence and autonomous systems; and (iii) prediction markets and event contracts.

CFTC Staff Amends Brexit-Related No-Action Positions for Additional UK Trading Facilities. On March 24, the CFTC’s Division of Market Oversight (DMO) announced it is amending no-action positions in connection with the withdrawal of the United Kingdom from the European Union, known as Brexit. Specifically, DMO is amending Appendix A to CFTC Staff Letter 24-11 to include OptAxe Limited and Capitolis UK Limited as additional eligible U.K. trading facilities covered by the no-action positions in that staff letter.

CFTC Staff Issues FAQs Concerning Registrant and Registered Entity Activities Relating to Crypto Assets and Blockchain Technologies. On March 20, the CFTC’s Market Participants Division and Division of Clearing and Risk published responses to frequently asked questions concerning registrant and registered entity activities relating to crypto assets and blockchain technologies. The responses provide further clarity to market participants on topics addressed in CFTC Staff Letter 25-39 (Tokenized Collateral Guidance) and CFTC Staff Letter 26-05 (Staff No-Action Position Regarding Digital Assets Accepted as Margin Collateral).

New Developments Outside the U.S.

ESMA Clarifies Expectations in the Run-up to the Launch of EU’s Consolidated Tapes. On April 1, ESMA published Q&As on the onboarding of data contributors to the EU’s Consolidated Tapes (CTs), and on the operational rules for the Consolidated Tape Providers (CTPs). According to ESMA, the goal is to increase certainty for all market participants in anticipation of the go-live of the EU’s CTs for bonds and for equities. In this context, ESMA expects the relevant data contributors to engage with the selected CTPs ahead of their formal authorization, to ensure that the data transmission setup is in place before the CTs’ go‑live. [NEW]

ESAs Spring Risk Update Highlights Geopolitical Pressures and Rising Private Finance Risks. On March 27, the European Supervisory Authorities (EBA, EIOPA and ESMA, known together as the ESAs) published their spring 2026 Joint Committee update on risks and vulnerabilities in the EU financial system. The update focuses on the challenges arising from ongoing geopolitical tensions and developments in private finance. [NEW]

SEC Confirms Exemption for Directors and Officers of EEA Foreign Private Issuers Market Abuse Post Trading. On March 18, the SEC decided to exempt directors and officers of European Economic Area (EEA) foreign private issuers (FPIs) from the reporting requirements under Section 16(a) of the US Securities Exchange Act of 1934. The SEC’s decision means that directors and officers of EEA FPIs will not be required to comply with specific US reporting obligations.

New Industry-Led Developments

ISDA Publishes Paper on Managing Liquidity Risk. On April 1, ISDA published a report on about the opportunities and challenges for Australian superannuation funds. ISDA argued that funds should consider a range of strategies and tools to effectively manage liquidity demands and the associated risks. According to ISDA, strategies and tools may include arranging repo and committed liquidity facilities, building cash buffers, negotiating broader collateral eligibility where possible, deploying triparty infrastructure, optimizing FX hedging profiles and adopting risk-sensitive margin models. [NEW]

IOSCO Announces 3rd IMF-IOSCO Conference. On April 1, IOSCO and the IMF announced their third joint conference on Market-Based Finance in Washington, DC, USA. The conference will feature a fireside chat between IOSCO Board Chair Jean-Paul Servais and SEC Chairman Paul Atkins, and high-level panels on digital assets and on the retailization of illiquid assets. [NEW]

ISDA Responds to EC Call for Evidence on Tax Omnibus. On March 30, ISDA, the International Securities Lending Association and the Association for Financial Markets in Europe responded to the European Commission’s call for evidence on the tax omnibus. The associations argued that inconsistent interpretation of “beneficial ownership” among member states creates significant tax uncertainty for dividends and interest in securities lending and derivatives, a problem that will worsen with the move to T+1 settlement. [NEW]

ISDA CEO Offers Informal Remarks on Next Steps on Basel III Endgame. On March 30, ISDA CEO Scott O’Malia offered informal comments on important OTC derivatives issues. According to O’Malia, publication of the revised Basel III endgame proposal earlier this month marked an important step towards completion of the global capital reforms, and gave banks much-needed clarity on the likely calibration of the rules in the US. O’Malia also stated that the new proposal is a major improvement on the original and includes a number of important changes that ISDA had advocated for. [NEW]

ISDA Publishes Paper on FRTB Rules in Brazil. On March 24, ISDA submitted a paper to the Banco Central do Brazil on its implementation of the revised market risk framework under the Fundamental Review of the Trading Book (FRTB). According to ISDA, this paper identifies specific aspects of the Brazilian FRTB implementation where refinements could support a more effective and sustainable framework. These include the treatment of alternative sensitivities and curvature risk, calendar and tenor conventions, foreign exchange shock calibration and several other technical and drafting issues.

ISDA Responds to FCA CP26/8 on CFI Codes for Derivatives Transparency. On March 19, ISDA responded to Chapter 3 of the UK Financial Conduct Authority’s (FCA) Quarterly Consultation CP26/8 on transparency requirements for financial instruments under Market Conduct Sourcebook (MAR) 11. According to ISDA, Sections 3.11-3.13 of the consultation paper explain a discrepancy between the over-the-counter derivatives in scope of public transparency and the Classification of Financial Instruments codes permissible when making trades transparent, and propose a change to Note 1 of Annex 1 of MAR 11 to resolve that discrepancy.

IOSCO Publishes Consultation Report on Good Practices Concerning Over-the-counter Commodities Derivatives Markets. On March 19, IOSCO published a Consultation Report on Good Practices concerning over-the-counter Commodity Derivatives Markets. This report invites comments on proposed good practices intended to support the effective implementation of IOSCO’s Principles for the Regulation and Supervision of Commodity Derivatives Markets, with a particular focus on strengthening the implementation of Principles 12, 15, and 161 in the context of related OTC markets.

The following Gibson Dunn attorneys assisted in preparing this update: Jeffrey Steiner, Adam Lapidus, Karin Thrasher, and Alice Wang.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Derivatives practice group, or the following practice leaders and authors:

Jeffrey L. Steiner, Washington, D.C. (202.887.3632, jsteiner@gibsondunn.com)

Michael D. Bopp, Washington, D.C. (202.955.8256, mbopp@gibsondunn.com)

Michelle M. Kirschner, London (+44 (0)20 7071.4212, mkirschner@gibsondunn.com)

Darius Mehraban, New York (212.351.2428, dmehraban@gibsondunn.com)

Jason J. Cabral, New York (212.351.6267, jcabral@gibsondunn.com)

Adam Lapidus, New York (212.351.3869, alapidus@gibsondunn.com )

Stephanie L. Brooker, Washington, D.C. (202.887.3502, sbrooker@gibsondunn.com)

William R. Hallatt, Hong Kong (+852 2214 3836, whallatt@gibsondunn.com )

David P. Burns, Washington, D.C. (202.887.3786, dburns@gibsondunn.com)

Marc Aaron Takagaki, New York (212.351.4028, mtakagaki@gibsondunn.com )

Karin Thrasher, Washington, D.C. (202.887.3712, kthrasher@gibsondunn.com)

Alice Yiqian Wang, Washington, D.C. (202.777.9587, awang@gibsondunn.com)

Attorney Advertising: These materials were prepared for general informational purposes only based on information available at the time of publication and are not intended as, do not constitute, and should not be relied upon as, legal advice or a legal opinion on any specific facts or circumstances. Gibson Dunn (and its affiliates, attorneys, and employees) shall not have any liability in connection with any use of these materials. The sharing of these materials does not establish an attorney-client relationship with the recipient and should not be relied upon as an alternative for advice from qualified counsel. Please note that facts and circumstances may vary, and prior results do not guarantee a similar outcome.

Gibson Dunn represented L Squared Capital Partners in connection with the formation of LSCP BTX CV, a single asset continuation fund for BTX Precision, a leading high-precision manufacturer of mission-critical components and assemblies. The continuation fund was led by HarbourVest Partners with participation from a syndicate of global investors and a new commitment from L Squared Fund IV. Evercore served as exclusive financial advisor to L Squared.

The firm’s team included Kate Timmerman, Edward Sopher, Candice Choh, Evan M. Gusler, Kevin Lafferty, Jeff Xu, Colleen Bazak, Tim Dragonette, Jennifer A. Fitzgerald, Brian T. Smith, Juliana R. Stone, Chelsea Werner, Fiona Xin, and Jason Zhang.

On April 1, Gibson Dunn partners Reed Brodsky and Amer S. Ahmed scored a total defense victory in the Southern District of New York, putting an end to a billion-dollar civil RICO claim launched over eight years ago by major real estate developers with the blessing of the U.S. government.

In 2017, plaintiffs—18 joint venture entities between the U.S. Army and Air Force, on the one hand, and private real estate developers, on the other—filed suit seeking approximately $1 billion in damages and attorney fees from Danny Ray and his co-defendants, Jefferies, Ambac Assurance Corporation, and a former Ambac employee, Chetan Marfatia. Between 2002 and 2012, the plaintiff entities had negotiated and obtained multi-hundred-million dollar commercial loans from Mr. Ray’s former employers to redevelop military housing bases nationwide pursuant to the Military Housing Privatization Initiative Act of 1996 (MHPI). Mr. Ray, a former U.S. Army Captain turned mortgage banker, led the lenders’ teams in bidding for the opportunity to provide financing for these privatization projects, competing with major Wall Street players like Goldman Sachs and Bank of America. Although these deals were negotiated by highly sophisticated advisers on both sides and exhaustively memorialized in fully disclosed loan documents, plaintiffs alleged a decade later that the defendants engaged in a RICO conspiracy to extract “hidden” profits from the commercial deals through inflated interest rates on the loans, overstated pricing for credit insurance, and undisclosed fees.

In a 79-page opinion, Judge Paul G. Gardephe granted in full the motions for summary judgment filed by Gibson Dunn client Danny Ray and his former employer, Jefferies, bringing to a close nearly a decade of scorched-earth litigation over alleged fraud in the loans used to privatize military housing. Drawing on millions of documents and the testimony of over 70 witnesses, the Court ruled that the developers’ allegations of fraud failed on statute-of-limitations grounds because they have long known about what they had claimed was concealed from them. The court’s published decision reinforces the strength of statute-of-limitations defenses in civil RICO cases post-discovery and provides a clear framework for establishing “actual or inquiry notice” in the Second Circuit.

The Gibson Dunn team that represented Mr. Ray was led by Reed Brodsky and Amer S. Ahmed and included Joseph Rose, Nathan Strauss, Hannah Kirshner, Cullinan Williams, and Carson Whitehurst, as well as Anne Champion and Nicholas Pulakos.

On March 30, 2026, Gibson Dunn secured a major victory on behalf of client Meta Platforms, Inc., convincing Judge P. Casey Pitts of the Northern District of California to deny class certification in a data-privacy class action against Meta relating to third-party websites’ use of its free Pixel code, which allows websites to send data to Meta and receive analytics about their users. Meta’s terms preclude those websites from sending any sensitive information through the Pixel.

The plaintiffs in this case alleged that the Pixel was installed by various tax-filing websites, including H&R Block and TaxAct, and that those websites sent users’ tax-filing information to Meta, in violation of Meta’s terms. But discovery revealed that Meta received no tax-filing information about any of the plaintiffs. Plaintiffs then pivoted, seeking to certify far broader classes of all people who ever visited the tax sites.

Gibson Dunn convinced Judge Pitts to deny class certification. Judge Pitts accepted Meta’s argument that plaintiffs could not broaden the class definition beyond the class proposed in the complaint, reasoning that class members outside the original definition lacked timely claims and could not benefit from tolling. He also ruled that to the extent Meta had received any tax-filing information about any putative class members, identifying those people would require burdensome individualized inquiries that would predominate over common questions.

Gibson Dunn partner Lauren Goldman argued the case for Meta; the firm’s winning team includes partners Elizabeth K. McCloskey, Darcy C. Harris, Abbey A. Barrera, and Trenton J. Van Oss.

In a recent OpEd in the Houston Chronicle (subscription required), Trey Cox, Co-Chair of Gibson Dunn’s global Litigation Practice Group and Co-Partner in Charge of the firm’s Dallas office, and Robert Ahdieh, Dean of the Texas A&M School of Law, explain why companies want to incorporate in Texas: the state “has been reforming its … corporate laws to strike a better balance between accountability and value creation.”

At the heart of the Texas reform effort, the authors write, are the creation of the Texas Business Court — a dedicated court for business issues — and changes to the Texas corporate law designed to enhance predictability — specifically, the codification of the business judgment rule, “a foundational doctrine in corporate law that presumes directors and officers are acting in good faith and in a company’s best interest.”

“The developing ecosystem in Texas has already produced striking results,” the authors add: between 2015 and 2025, the number of businesses registered in Texas more than doubled, and some 200 companies have relocated to the state since 2020, including Fortune 500 companies and iconic American brands like Chevron, Oracle, and Caterpillar.

Writing about “Texas Corporate Developments: What Officers and Directors Need to Know” [PDF] in the Harvard Law School Forum on Corporate Governance, partners Hillary Holmes, Gerry Spedale, Gregg Costa and Ronald Mueller note that Texas has recently “attracted headline‑making redomestications, launched multiple nationally significant stock exchanges, and expanded the reach and influence of the Texas Business Court” — developments that “reflect Texas’s accelerating rise as a premier jurisdiction for corporate governance, capital formation, and high‑stakes commercial dispute resolution” and that signal the state’s emergence as an alternative to traditional corporate jurisdictions.

Associates Jack DiSorbo and Muriel Hague also contributed to the article.

We are pleased to provide you with the March edition of Gibson Dunn’s monthly U.S. bank regulatory update. Please feel free to reach out to us to discuss any of the below topics further.

KEY TAKEAWAYS

The Board of Governors of the Federal Reserve System (Federal Reserve), Office of the Comptroller of the Currency (OCC), and Federal Deposit Insurance Corporation (FDIC) issued three interrelated proposals to modernize the regulatory capital framework for banking organizations of all sizes. The first proposal (the Expanded Risk-Based Approach Proposal) would streamline risk-based capital requirements for Category I and II banking organizations by requiring them to calculate a single set of risk-based capital ratios using a new “expanded risk-based approach,” eliminating the dual calculation requirement under the current standardized and advanced approaches. The second proposal (the Standardized Approach Proposal) would revise the standardized approach applicable to all other banking organizations to improve risk sensitivity while maintaining simplicity. The third proposal (the GSIB Surcharge Proposal) would improve the framework for determining GSIB surcharges by better aligning surcharges with systemic risk. The proposals carry distinct implications across bank categories: the Federal Reserve expects that Category I and II holding companies would see a cumulative 5.0% reduction in CET1 capital requirements (when combined with the GSIB Surcharge Proposal and October 2025 proposed stress test changes) and would no longer need to calculate two sets of risk-based capital ratios; Category III and IV firms would face new AOCI recognition requirements but benefit from a 3.0% net reduction in CET1 requirements; and smaller banking organizations would see capital requirements decrease by approximately 7.8%. Comments on all three proposals are due by June 18, 2026.
The Federal Reserve, OCC, and FDIC jointly issued answers to frequently asked questions clarifying the regulatory capital treatment of “eligible tokenized securities,” and confirming that the tokenized form of a security does not alter the capital treatment applicable to the underlying instrument.
The OCC issued a final rule rescinding its recovery planning guidelines for large national banks, federal savings associations, and federal branches, determining that the guidelines were no longer necessary given existing supervisory and resolution planning frameworks. The final rule is effective May 1, 2026.
The OCC issued two final rules to reduce the regulatory burden for community banks as part of its broader initiative “to tailor bank supervision and regulation to bank risk profile.” The final rules (i) simplify licensing requirements for corporate activities and transactions involving community banks by establishing a new definition of “covered community bank or covered community savings association” and providing such institutions with access to currently available expedited or reduced filing procedures and (ii) rescind the OCC’s Fair Housing Home Loan Data System regulation (12 CFR part 27). Both final rules are effective April 3, 2026.
FDIC Chairman Hill previewed several potential reforms to the FDIC’s supervisory and regulatory framework, including possible changes to consumer compliance supervision aimed at shifting away from a process-driven approach toward a greater focus on actual legal violations and consumer harm.
- Hill indicated that the FDIC plans to clarify that payment stablecoins would not be eligible for pass-through deposit insurance, reflecting concerns that extending such coverage would be inconsistent with statutory limits and could create confusion regarding the nature of insured deposits.
- Hill also previewed changes to the FDIC’s bank resolution framework, including efforts to broaden the pool of potential acquirers of failed banks and facilitate more rapid transactions; in connection with these efforts, the FDIC rescinded its “Statement of Policy on Qualifications for Failed Bank Acquisitions,” eliminating the 2009-era policy that imposed enhanced scrutiny on private equity investors and other private capital seeking to acquire failed banks.
The Financial Stability Oversight Council (FSOC) proposed revised interpretive guidance for nonbank financial company designations that replaces the 2023 framework and reprioritizes an activities-based approach, reinstates and formalizes a cost-benefit analysis, and provides additional procedural constraints before any entity-specific designation.

DEEPER DIVES

Federal Banking Agencies Issue Capital Proposals to Implement Final Phase of Basel III and Modernize Capital Framework. As previewed in Vice Chair for Supervision Michelle Bowman’s March 12, 2026 speech, the proposals result from a comprehensive, bottom-up review of the capital framework and aim to ensure individual requirements are appropriate and do not result in unintended effects.

Expanded Risk-Based Approach for Category I and II Banking Organizations

The Expanded Risk-Based Approach Proposal would substantially revise the risk-based capital framework applicable to Category I and II banking organizations and to firms with significant trading activity. Currently, Category I and II banking organizations calculate two sets of risk-based capital ratios—one under the standardized approach and another under the internal models-based advanced approaches—and are bound by the more restrictive of the two. The proposal would replace this dual calculation requirement with a single “expanded risk-based approach” (ERBA), which would include standardized requirements for credit risk, equity risk, operational risk, market risk, and credit valuation adjustment (CVA) risk.

Credit Risk. The ERBA would enhance risk sensitivity for credit exposures by introducing more granular risk weights that vary based on factors typically included in a bank’s underwriting process. For residential real estate, risk weights would range from 20% to 150% based on underwriting standards, loan-to-value ratios, and whether the exposure is dependent on cash flows from the property. Corporate exposures would receive risk weights ranging from 65% to 150% depending on whether they are investment grade, project finance, or subordinated debt. The Expanded Risk-Based Approach Proposal would also expand the scope of exposures eligible for the 65% risk weight for investment-grade corporate exposures.
Operational Risk. The proposal would introduce an explicit standardized operational risk capital requirement based on a banking organization’s business volume. To improve risk sensitivity, the contribution of income and expenses arising from investment management, investment services, and non-lending treasury services would be reduced by 70% to reflect their historically lower operational risk as evidenced by operational loss data.
Market Risk. The proposal would introduce a new risk-sensitive standardized measure and a revised models-based measure for market risk. The value-at-risk (VaR) based measure would be replaced with an expected shortfall-based measure to capture liquidity and tail risks. The standardized measure for market risk would serve as the default methodology, with banking organizations required to obtain supervisory approval to use the models-based approach at the trading desk level.
CVA Risk. The proposal would include a risk-sensitive framework for capturing credit valuation adjustment risk for derivative exposures. Client-facing derivative transactions in connection with client-cleared transactions would be exempt from the CVA requirement.
Mortgage Servicing Assets. The proposal would remove the requirement to deduct mortgage servicing assets (MSAs) above a threshold from regulatory capital. Instead, all MSAs would be subject to a 250% risk weight, eliminating a regulatory disincentive for residential mortgage servicing and origination.
Capital Impact. The agencies estimate that ERBA would increase aggregate CET1 capital requirements for Category I and II holding companies by approximately 1.2% on a standalone basis. This increase stems primarily from higher requirements for trading activities, mostly offset by decreased requirements for traditional lending activities.
Optional Adoption. Other banking organizations would have the option to adopt the ERBA rather than the standardized approach, though they would also be required to adopt the capital definition applicable to Category I and II firms.

Standardized Approach Proposal

The agencies concurrently issued the Standardized Approach Proposal to revise the standardized approach applicable to banking organizations that do not use the ERBA or the community bank leverage ratio framework. The proposal is intended to better calibrate capital requirements for traditional lending activities while maintaining the simplicity of the current standardized approach.

Key changes include: (1) introducing loan-to-value based risk weights for residential mortgage exposures; (2) reducing the risk weight for corporate exposures from 100% to 95%; (3) reducing the risk weight for assets not specifically assigned a different risk weight from 100% to 90%; and (4) removing the threshold-based capital deduction for MSAs for all banking organizations, including those applying the community bank leverage ratio framework.

AOCI Recognition. The proposal would require Category III and IV banking organizations to recognize most elements of AOCI in regulatory capital, consistent with the treatment applicable to Category I and II firms. A five-year transition period would allow these organizations to gradually phase in the effect of this recognition.
Capital Impact. The agencies estimate that the standardized approach proposal would decrease aggregate CET1 capital requirements for Category III and IV holding companies by 3.0% (comprising a 6.1% decrease from revised risk weights and a 3.1% increase from AOCI recognition). For smaller holding companies with less than $100 billion in assets, CET1 capital requirements are expected to decrease by 7.8%.

GSIB Surcharge Proposal

The Federal Reserve separately issued the GSIB Surcharge Proposal to revise the framework for calculating risk-based capital surcharges for global systemically important bank holding companies. The proposal would modify several elements of the method 2 surcharge calculation to better align surcharges with systemic risk.

Coefficient Adjustments. The proposal would apply a one-time downward adjustment to the fixed method 2 coefficients by a factor of 1.2 to reflect changes in the financial system and economy since the coefficients were originally calibrated. Going forward, the coefficients would be automatically indexed to nominal U.S. GDP growth to prevent surcharges from increasing due to factors unrelated to systemic risk, such as inflation and real economic growth.
Short-Term Wholesale Funding. The proposal would remove the risk-weighted assets denominator from the short-term wholesale funding indicator and recalibrate its weighting to approximately 20% of total method 2 scores, consistent with the originally intended calibration. Currently, short-term wholesale funding constitutes approximately 30% of aggregate method 2 scores across U.S. GSIBs.
Data Averaging. To reduce incentives for temporary year-end adjustments to systemic indicators, the proposal would require firms to calculate certain indicators as an annual average of daily or monthly values rather than on a point-in-time basis at year-end.
Narrower Score Bands. To reduce cliff effects and increase sensitivity to changes in a firm’s systemic risk profile, the proposal would assign surcharges in increments of 10 basis points rather than 50 basis points.
Capital Impact. The GSIB Surcharge Proposal is estimated to decrease GSIB surcharges by approximately 40 basis points, on average, relative to the baseline. The reduction is primarily attributable to the coefficient adjustments and revisions to the short-term wholesale funding score calculation.

Insights. The proposals collectively represent an expected, but significant, recalibration of the post-financial crisis regulatory capital framework. Banks should begin assessing the proposals’ implications for capital planning, business strategy, and competitive positioning. The proposals could benefit traditional lending activities, like residential mortgages and investment-grade corporate lending, while increasing requirements for trading activities. Institutions currently subject to the advanced approaches should evaluate the shift to standardized methodologies across credit, operational, and CVA risk. Category III and IV banking organizations should assess the impact of mandatory AOCI recognition and develop strategies to manage interest rate risk in their securities portfolios. GSIBs should evaluate how the method 2 coefficient adjustments, short-term wholesale funding recalibration, and data averaging requirements would affect their surcharge calculations and capital planning processes. The extended comment period through June 18, 2026 provides an opportunity for meaningful stakeholder engagement on calibration considerations and implementation concerns.

Federal Banking Agencies Clarify Capital Treatment of Tokenized Securities. On March 5, 2026, the Federal Reserve, OCC, and FDIC jointly issued answers to frequently asked questions (FAQs) clarifying the capital treatment of “eligible tokenized securities.” The FAQs confirm that the use of blockchain or distributed ledger technology to represent a security in tokenized form does not alter the capital treatment that would otherwise apply to the non-tokenized form of the security. Under the agencies’ FAQs, a tokenized security should be assigned the same risk weight and receive the same capital treatment as the non-tokenized version of the same or substantially similar instrument. For example, a tokenized U.S. Treasury security would receive the same zero percent risk weight applicable to direct holdings of U.S. Treasuries, and a tokenized corporate bond would be subject to the same risk weight as the non-tokenized corporate bond. The statement also clarifies that this treatment applies regardless of the specific blockchain or distributed ledger platform used for tokenization, provided the tokenized instrument retains the legal and economic characteristics of the underlying security.

Insights. The joint statement provides important clarity for institutions evaluating participation in tokenized securities markets by confirming that the form of representation—tokenized versus traditional—does not alter capital treatment. This guidance may reduce a perceived regulatory barrier to bank engagement with tokenized Treasury securities and other tokenized instruments, aligning capital treatment with economic substance rather than technological form. However, banks should note that the statement is limited to capital treatment and does not address other regulatory considerations, including custody arrangements, operational risk management, and compliance with applicable securities laws. Institutions should continue to evaluate tokenized securities activities holistically, considering not only capital requirements but also operational, legal, and supervisory risk dimensions.

OCC Issues Final Rule to Rescind Recovery Planning Guidelines. On March 31, 2026, the OCC issued a final rule rescinding its recovery planning guidelines (12 C.F.R. Part 30, Appendix E), which had applied to large insured national banks, federal savings associations, and federal branches with average total consolidated assets of $100 billion or more. In the preamble to the final rule, the OCC explained that the recovery planning guidelines, originally adopted in 2016, were designed to ensure that covered institutions maintained plans to restore financial strength and viability if the institution experienced significant financial distress. However, the OCC determined that the guidelines had become duplicative of other supervisory and regulatory requirements, including resolution planning requirements under Section 165(d) of the Dodd-Frank Act and the FDIC’s insured depository institution resolution planning requirements. The OCC further noted that recovery planning expectations can continue to be addressed through the normal supervisory process without the need for separate, standalone guidelines. The final rule is effective May 1, 2026.

Insights. The rescission of the recovery planning guidelines reinforces the trend toward reducing duplicative regulatory requirements and consolidating supervisory expectations. Institutions previously subject to the guidelines should not interpret the rescission as an elimination of supervisory focus on recovery and contingency planning; rather, such expectations will be addressed through existing capital planning, stress testing, and supervisory processes. Banks should continue to maintain robust contingency planning frameworks and ensure that internal recovery strategies are integrated with broader enterprise risk management and capital planning processes. The rescission may provide some operational relief by eliminating the need to maintain a separate recovery planning compliance infrastructure, but institutions should engage with supervisors to understand ongoing expectations.

OCC Issues Final Rules to Reduce Regulatory Burden for Community Banks. On March 3, 2026, the OCC finalized amendments to its licensing regulations (12 CFR part 5) to simplify licensing requirements for corporate activities and transactions involving national banks and federal savings associations with less than $30 billion in total assets. The final rule establishes a new definition of “covered community bank or covered community savings association” to provide such institutions access to all currently available expedited or reduced filing procedures. Under the final rule, a national bank or federal savings association qualifies as a “covered community bank or covered community savings association” if it: (1) has less than $30 billion in total assets and is not an affiliate of a depository institution or foreign bank with $30 billion or more in total assets; (2) is “well capitalized” as defined in 12 CFR 5.3; and (3) is not subject to a cease and desist order, consent order, or formal written agreement that requires action to improve the institution’s financial condition, unless otherwise informed in writing by the OCC. The $30 billion total asset threshold is consistent with the OCC’s recently announced Community Bank group, which supervises institutions within that asset threshold.

The final rule extends existing expedited or reduced filing procedures for “eligible banks” and “eligible savings associations” to covered community banks and covered community savings associations across thirteen types of filings, including charter applications, conversions, establishment or relocation of branches, business combinations, capital changes, and applications for subordinated debt and capital distributions. The OCC explained that applications by community national banks and community federal savings associations generally present low levels of risk, comparable to those by eligible banks and eligible savings associations, and thus should also benefit from expedited or reduced filing procedures. The final rule also clarifies that the OCC considers a public comment to raise a “significant” concern—warranting extension of expedited review or removal of a filing from expedited review—only if the facts are previously unknown to the OCC and, if proven accurate, would support denying or imposing a condition on approval of the filing. The OCC concurrently finalized the rescission of its Fair Housing Home Loan Data System regulation (12 CFR part 27), determining that the regulation is obsolete and largely duplicative of Home Mortgage Disclosure Act (HMDA) requirements. Both final rules are effective April 3, 2026.

Insights. The rule aligns with the OCC’s broader tailoring initiatives and should be read alongside related guidance on examination frequency, model risk management, and supervisory practices for community banks. In that connection, the community bank licensing amendments represent a meaningful reduction in regulatory burden for qualifying institutions. Community banks that meet the eligibility criteria should evaluate whether corporate activities or transactions previously subject to full application requirements may now qualify for expedited or reduced filing procedures. The final rule’s aggregation of affiliate assets means that community banks affiliated with larger banking organizations will not benefit from the relief. Institutions should also note that the OCC retains discretion to extend expedited review periods or remove filings from expedited review where warranted, particularly in response to public comments that raise significant supervisory, CRA, or compliance concerns. The rescission of part 27 eliminates a longstanding source of regulatory asymmetry between national banks and other depository institutions. National banks engaged in residential mortgage lending should evaluate their data collection and recordkeeping practices to identify any processes that were maintained solely to comply with part 27 to determine if those practices may be discontinued or streamlined. Institutions should continue to ensure compliance with HMDA and other applicable fair lending data collection requirements, which remain in effect.

FDIC Chairman Hill Previews Reforms to Supervisory and Regulatory Framework. On March 11, 2026, FDIC Chairman Travis Hill delivered a speech titled “An Update on Reforms to the Regulatory Toolkit” at the American Bankers Association Washington Summit, previewing a series of forthcoming reforms to the FDIC’s supervisory and regulatory framework.

Consumer Compliance Supervision. Chairman Hill announced that the FDIC plans to pursue additional changes to its consumer compliance supervision program in the coming weeks and months. He noted that the current process continues to be “highly process-driven,” with significant focus on compliance management systems and considerable emphasis on policies, procedures, and training rather than on actual outcomes. The FDIC’s goal is to reorient its focus “more towards noncompliance with laws and regulations, and actual harm to consumers, as opposed to policies and procedures, training, and other process-related considerations.” Hill also indicated that the FDIC plans to address the breadth of compliance examinations, noting that pre-examination scoping often involves voluminous and broad questions, including questions related to consumer laws for which the FDIC does not have supervisory authority. For smaller banks, the FDIC will look at doing more to risk-focus examinations by concentrating on products material to an institution’s business. Additionally, Chairman Hill stated that the FDIC plans to explore guardrails around the use of “visitations” outside of the specified examination cycle, so that they are used only in rare circumstances. He also noted the need to increase dollar thresholds that dictate the severity of violations, observing that the highest, most severe violations currently are those resulting in aggregate consumer harm of more than $10,000.
Payment Stablecoins and Pass-Through Deposit Insurance. Chairman Hill indicated that the FDIC plans to clarify that payment stablecoins would not be eligible for pass-through deposit insurance. He explained that treating stablecoin holders as insured depositors, even on a pass-through basis, seems inconsistent with the GENIUS Act’s prohibition on payment stablecoins being “subject to Federal deposit insurance.” Additionally, because the GENIUS Act prohibits marketing stablecoins as subject to deposit insurance, Hill suggested it is difficult to rationalize that stablecoins were intended to serve as an access mechanism for FDIC-insured deposit accounts. The FDIC is particularly interested in comments on this aspect of the proposal, and Hill noted the agency is “open to hearing different perspectives on this issue” but believes the question should be answered definitively by regulation rather than waiting until a bank holding stablecoin reserves fails.
Bank Resolution Framework. Chairman Hill previewed changes to the FDIC’s bank resolution framework intended to broaden the pool of potential acquirers of failed banks and facilitate more rapid transactions. In that connection, on March 19, 2026, the FDIC rescinded its “Statement of Policy on Qualifications for Failed Bank Acquisitions,” eliminating the 2009-era policy that imposed enhanced scrutiny on private equity investors and other private capital seeking to acquire failed banks. In his speech, Hill emphasized that rescinding the guidance would remove a barrier to nonbanks engaging in the bidding process for failed institutions, which can ultimately reduce the cost of failures to the Deposit Insurance Fund and increase the likelihood of a stabilizing resolution outcome. Additionally, he signaled the FDIC is exploring with other banking agencies the possibility of establishing an emergency exception that would enable a nonbank to rapidly establish a shelf charter to bid on a failed institution following a sudden failure. Hill noted that the current shelf charter process can take months or years as it includes approvals for a charter, deposit insurance, and in some cases a bank holding company.

Insights. Chairman Hill’s remarks signal a continued shift in regulatory posture at the FDIC. Institutions should anticipate a shift in consumer compliance examinations toward outcomes-based supervision rather than process-focused reviews, which may warrant reevaluation of internal compliance structures and examination preparation strategies. The FDIC’s planned clarification that payment stablecoins are ineligible for pass-through deposit insurance may have significant implications for stablecoin reserve arrangements and issuer business models. The rescission of the 2009 failed bank acquisition policy removes longstanding barriers to private capital participation in failed bank transactions and may expand the universe of potential acquirers in future bank failures—potentially facilitating faster, more cost-effective resolutions. Institutions and investors interested in failed bank acquisitions should monitor the FDIC’s forthcoming shelf charter proposal and assess how the revised framework may create new opportunities for participation in the resolution process.

FSOC Proposes Revised Guidance on Nonbank Financial Company Designations. On March 25, 2026, the FSOC proposed new interpretive guidance that would replace its 2023 framework for nonbank financial company designations under Section 113 of the Dodd-Frank Act. Key changes include: (i) reestablishing an activities-based approach as the primary method for addressing systemic risk, with entity-specific designations used only as a last resort when risks cannot be adequately addressed through an activities-based approach; (ii) requiring a cost-benefit analysis before any designation, under which FSOC would proceed only if expected benefits to financial stability justify expected costs; (iii) restoring the assessment of the likelihood of a company’s material financial distress as part of evaluating designation benefits; (iv) raising the threshold for what constitutes a “threat to the financial stability of the United States” to mean impairment sufficient to inflict “severe damage” on the broader economy, a higher standard than the 2023 framework’s “substantial impairment” test; (v) adding economic growth and economic security as considerations when identifying potential risks; and (vi) establishing a new pre-designation procedural step requiring FSOC to identify remediation steps a company or regulators could take to address potential threats, with an expectation that material risks be addressed within 180 days. The proposed guidance would also consolidate the 2023 Interpretive Guidance and 2023 Analytic Framework into a single document. Comments on the proposal are due by May 14, 2026.

Insights. The proposed guidance represents a significant recalibration of FSOC’s approach to nonbank systemic risk (or a reversion to the 2019 Guidance), shifting decisively toward an activities-based framework that prioritizes coordination with primary regulators over entity-specific designations. For large nonbank financial companies, asset managers, insurers, and other institutions that may have faced designation risk under the 2023 framework, the proposed guidance substantially raises the bar for entity-specific action by requiring cost-benefit analysis, restoring the likelihood-of-distress assessment, and adopting the more demanding “severe damage” threshold. The 180-day remediation process also provides companies with an opportunity to address identified risks before FSOC proceeds toward designation. However, nonbank financial companies should not assume designation risk has been eliminated entirely; FSOC retains authority to designate entities when activities-based measures prove insufficient, and the proposed guidance preserves the two statutory pathways for designation (material financial distress and activities-based threats). Institutions potentially within FSOC’s purview should engage constructively during the comment period to shape the final guidance and should continue to monitor FSOC’s activities-based work on potential systemic risks in their sectors.

OTHER NOTABLE ITEMS

Statement by Comptroller of the Currency Gould at FSOC Meeting. Comptroller of the Currency Jonathan V. Gould delivered remarks at the March 25, 2026 FSOC meeting regarding the proposed nonbank designation framework. Gould supported an activities-based approach that addresses risks at their source before resorting to entity-specific designations and emphasized the need for cost-benefit analysis and a clear likelihood-of-distress standard. He also highlighted the importance of a more transparent framework, including defined off-ramps from designation, to ensure actions are appropriately targeted to genuine systemic risks.

Remarks by Governor Barr on Stablecoins. On March 31, 2026, Federal Reserve Board Governor Michael Barr delivered remarks addressing the regulatory framework for payment stablecoins and banks’ involvement in stablecoin-related activities. Barr noted that the GENIUS Act provides needed clarity to stablecoin issuers and that increased regulatory certainty could lead to more rapid stablecoin development. He identified two key areas of concern: (i) the potential for stablecoin use in money laundering or terrorist financing, particularly through secondary market purchases without customer identification requirements; and (ii) financial stability risks arising from the quality and liquidity of reserve assets backing stablecoins. Drawing on historical parallels, including the Free Banking Era, the Panic of 1907, and modern money market fund runs, Barr emphasized that stablecoins will be stable only if they can be reliably redeemed at par during market stress. He noted that while the GENIUS Act limits permissible reserve assets to high-quality, highly liquid instruments, success will depend on regulatory implementation, including reserve asset regulation, capital and liquidity requirements, anti-money-laundering controls, and consumer protection requirements.

Speech by Vice Chair for Supervision Bowman on Small Business Lending. On March 31, 2026, Vice Chair for Supervision Michelle Bowman delivered remarks on small business lending and capital requirements. In her remarks, Bowman explained that the agencies’ recently published Basel III and standardized approach proposals would make three key changes to small business loan treatment: (i) reducing the risk weight from 100% to 65% for small business loans exceeding $1 million to borrowers considered investment grade; (ii) reducing the risk weight from 100% to 75% for small business loans under $1 million; and (iii) providing capital treatment for small business credit cards that is more aligned with actual risk, relying more heavily on repayment history. Bowman emphasized that stakeholder feedback during the comment period is critical to ensuring these regulations support rather than restrict lending to small businesses.

Speech by Vice Chair for Supervision Bowman on Basel III and Bank Capital Rules. On March 12, 2026, Vice Chair for Supervision Michelle Bowman delivered a speech titled “Capital Rules for the Real Economy,” addressing forthcoming proposals to implement the final phase of Basel III in the United States. In her speech, Bowman emphasized that the agencies took a “bottom-up” approach, evaluating each requirement on its merits rather than working backward from an aggregate target, to ensure requirements are properly calibrated to risk, and outlined proposals to modify each of the four pillars of the regulatory capital framework for the largest banks: stress testing, the supplementary leverage ratio, the Basel III framework for risk-based capital requirements, and the GSIB surcharge.

Speech by Vice Chair for Supervision Bowman on Liquidity. On March 3, 2026, Vice Chair for Supervision Michelle Bowman delivered a speech titled “Liquidity Resiliency, Financial Stability, and the Role of the Federal Reserve.” In her speech, Bowman reviewed the current prudential liquidity framework’s three main components—the liquidity coverage ratio (LCR), net stable funding ratio (NSFR), and internal liquidity stress testing (ILST)—and questioned whether compliance with these requirements actually translates into resilience under stress. She identified what she described as two key problems with the current framework: during normal times, banks over-allocate to high-quality liquid assets (HQLAs) because they must demonstrate that liquidity needs can be met with balance sheet resources alone, reducing lending capacity; during stress, banks are reluctant to draw down HQLAs out of concern about falling below minimum LCR thresholds, making the buffer effectively unusable and exacerbating pro-cyclical behavior. Bowman also addressed the Federal Reserve’s discount window, noting that banks avoid using it even in times of stress due to stigma arising from weekly aggregate disclosure, above-market interest rates, and market interpretation of any usage as a sign of fragility. She called for fundamental reform to allow the discount window to function as a reliable liquidity backstop, and noted that the current fragmentation across the 12 Reserve Banks, each of which maintains independent rules, processes, and lending decisions, creates uncertainty and may exacerbate banking system fragilities.

Testimony by Director Guynn on Innovation. On March 26, 2026, Randall D. Guynn, Director of the Federal Reserve Board’s Division of Supervision and Regulation, delivered testimony before the Subcommittee on Digital Assets, Financial Technology, and Artificial Intelligence of the House Financial Services Committee. In his testimony, Guynn highlighted recent actions to facilitate bank engagement with digital assets, including rescinding crypto-related supervisory letters, sunsetting the novel activities supervision program, and issuing joint guidance on crypto custody and tokenized securities. Looking ahead, Guynn stated the Federal Reserve is considering how to provide additional clarity for banks engaged in digital asset activities and is coordinating with the other banking agencies on regulations to implement the GENIUS Act. On third-party relationships, Guynn noted the Federal Reserve will continue to explore options to ensure banks have regulatory and supervisory clarity in their engagements with fintechs. He also emphasized the Federal Reserve’s commitment to supervisory transparency, highlighting the public release of supervisory operating principles in November 2025 and operating manuals for supervising the largest banking organizations in January 2026.

FDIC Testimony on Innovation and Technology. On March 26, 2026, Ryan Billingsley, Director of the FDIC’s Division of Risk Management Supervision, delivered testimony before the Subcommittee on Digital Assets, Financial Technology, and Artificial Intelligence of the House Financial Services Committee. In his testimony, Billingsley emphasized the FDIC’s commitment to supporting responsible innovation while maintaining its core mandates of safety and soundness, depositor protection, and financial stability. Billingsley highlighted three priorities relevant to banks engaging with emerging technologies: (i) the FDIC is supporting bank experimentation with new technologies without requiring extensive prior supervisory involvement; (ii) the agency is considering whether additional guidance on permissible crypto-related activities would benefit supervised banks; and (iii) following enactment of the GENIUS Act in July 2025, which established the FDIC as the primary federal regulator for payment stablecoin issuers that are subsidiaries of FDIC-supervised institutions, the FDIC issued a proposed application framework in December 2025 and expects to soon propose tailored prudential requirements for stablecoin issuers.

FDIC Updates PPE List. On March 24, 2026, the FDIC released an updated list (as of March 15, 2026) of companies that have submitted notices for a Primary Purpose Exception (PPE) under the 25% or Enabling Transactions test.

The following Gibson Dunn lawyers contributed to this issue: Jason Cabral and Ro Spaziani.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. Please contact the Gibson Dunn lawyer with whom you usually work or any of the member of the Financial Institutions practice group:

Jason J. Cabral, New York (+1 212.351.6267, jcabral@gibsondunn.com)

Ro Spaziani, New York (+1 212.351.6255, rspaziani@gibsondunn.com)

Stephanie L. Brooker, Washington, D.C. (+1 202.887.3502, sbrooker@gibsondunn.com)

M. Kendall Day, Washington, D.C. (+1 202.955.8220, kday@gibsondunn.com)

Jeffrey L. Steiner, Washington, D.C. (+1 202.887.3632, jsteiner@gibsondunn.com)

Sara K. Weed, Washington, D.C. (+1 202.955.8507, sweed@gibsondunn.com)

Ella Capone, Washington, D.C. (+1 202.887.3511, ecapone@gibsondunn.com)

Sam Raymond, New York (+1 212.351.2499, sraymond@gibsondunn.com)

Rachel Jackson, New York (+1 212.351.6260, rjackson@gibsondunn.com)

Join us for a presentation designed to equip investors and companies with an in-depth analysis of private investment in public equity (PIPE). The one-hour webinar focuses on the common varieties of PIPEs, including traditional and non-traditional transactions.

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PANELIST

Branden C. Berns is a partner in the San Francisco office of Gibson Dunn where he practices in the firm’s Transactional Department. He represents leading life sciences companies and investors on a broad range of complex corporate transactions, including mergers and acquisitions, asset sales, spin-offs, joint ventures, PIPEs, as well as a variety of financing transactions, including initial public offerings, secondary equity offerings and venture and growth equity financings.

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Eric M. Scarazzo is a partner in the New York office of Gibson Dunn where he is a member of the firm’s Capital Markets Practice Group, Securities Regulation and Corporate Governance Practice Group, Public Company Industry Group, and Cleantech Industry Group. Eric represents issuers and underwriters, public, private, and private equity portfolio companies, and businesses from development-stage to blue chip, in high-profile securities transactions.

Gibson Dunn advised Diversified Energy Company on the pricing of its secondary offering of common stock. The company focuses on acquiring, operating, and optimizing cash generating energy assets.

The Gibson Dunn team included partners Hillary Holmes and Cynthia Mabry, of counsel Patrick Cowherd, and associates Lauren Guzman and Lauren Romagnoli.

Partner Cynthia Chen McTernan and associate Sonia Ghura have co-authored with Sim Singh Attariwala, Director of the Anti-Hate Program at Asian Americans Advancing Justice, the New York Law Journal article “ICE Fraud and Abuse: Growing Concerns and a Path for Accountability.” [PDF] The article outlines emerging trends in race-motivated impersonation and abuse of immigration enforcement mechanisms and discusses challenges and opportunities for improvement in the existing legal frameworks to hold perpetrators of these behaviors accountable.

Associates Albert Tian, Stacey Lee, and Elaine Tsui also contributed to the article.

Partners Theodore J. Boutrous Jr. and Theane Evangelis have been named by the Daily Journal to its list of Leading Commercial Litigators for 2026: lawyers who “have built careers on bet-the-company cases — with outcomes that matter for their clients, their industries and the law itself.”

The Daily Journal selected the honorees “based on impact, professional contribution, public service and a commitment to reflecting the diversity of California’s legal community.”

At the recent Global Competition Review awards, Gibson Dunn was named co-winner in the Behavioural Matter of the Year – Europe category for its role in securing early resolution of a major investigation by the Competition and Markets Authority into certain practices by large U.K. housebuilders. The multidisciplinary team led by Ali Nikpay, Co-Chair of the firm’s Antitrust and Competition group, included Doug Watson, Dee Taylor, Joel Harrison, Ben Nunez, Steve Melrose, Helen Elmer, Sophie Hammond, Irfan Walji, Robert Hyde, Tina Asgharian, Crystal Miles, and David O’Flannigan.

The awards, presented in Washington, D.C., honor the world’s leading antitrust lawyers, economists, and enforcers as well as the biggest cases from 2025

Gibson Dunn is advising Marriott International on its proposed joint venture with the Leali family, founders of the Lefay brand. Completion of the transaction is subject to customary approvals and closing conditions.

Lefay will be the first brand in Marriott’s portfolio dedicated exclusively to luxury wellness. The Lefay portfolio includes two award-winning luxury resorts in Italy (Lago di Garda and Dolomiti); a further three properties are under development in Tuscany, Southern Italy, and the Swiss Alps.

The Gibson Dunn team is led by partner Marwan Elaraby and includes associates Krishna Parikh and Caitlin Moss. Partner Claire Shepherd and associate Aakarsh Narula are advising on antitrust aspects.

In this update, we summarize the proposed rule and the litigation context in which it arose and practical considerations for employers, plan fiduciaries, and alternative asset managers.

On March 30, 2026, the U.S. Department of Labor (DOL) proposed a new rule that would give 401(k) plan fiduciaries a clearer path to offering alternative investments—like private equity, real estate, and infrastructure—alongside traditional mutual funds and index funds.[1]

Under the Employee Retirement Income Security Act (ERISA), fiduciaries who select investment options for a retirement plan must satisfy a duty of prudence. The proposed rule would create a process-based safe harbor under ERISA that sets forth steps for plan fiduciaries to follow when selecting investment options for participant-directed defined contribution retirement plans, which under the rule, would give rise to a legal presumption that the fiduciaries satisfied this duty of prudence.

The safe harbor applies to all investment selections—not just alternative investments—but it was prompted by Executive Order 14330, which President Trump signed in August 2025 to expand retirement savers’ access to alternative assets. If finalized, the rule could make fiduciaries more comfortable offering investment options that include exposure to alternative assets offered by private equity firms, real estate fund managers, and other fund managers.

In this update, we summarize the proposed rule and the litigation context in which it arose and practical considerations for employers, plan fiduciaries, and alternative asset managers.

Although the proposed rule is not yet final, there are a few key takeaways at this stage:

For employers and plan fiduciaries: The proposal provides guidance on how to evaluate nontraditional investments, which could reduce the legal risk of considering these alternatives for ERISA-governed plans. Thoughtful fiduciary committee process, monitoring, and documentation remain essential.
For alternative asset managers: The proposal could significantly expand the market and capital raising opportunities for products designed for defined contribution plans. Managers who want to be positioned when a final rule takes effect should be thinking now about product structure, fee transparency, liquidity management, and valuation processes.
Comments are due by June 1. Employers, plan fiduciaries, fund managers, and others who would be affected should consider submitting comments to DOL during the 60-day comment period.
The final rule could change. DOL could revise the rule in response to comments. Plan sponsors and fund managers should review the final rule when it is released, which could be by the end of 2026.

Background

Why Alternatives Have Been Rare In 401(k) Plans

Alternative investments—such as private equity, private credit, real estate, infrastructure, digital assets, and commodities—are often cited as offering diversification benefits and the potential for higher risk-adjusted returns, and they are already common in traditional pension plans. Yet they remain rare in participant-directed defined contribution plans, such as 401(k) and 403(b) retirement plans.

The reluctance to include them in such plans has come from both plan sponsors and the managers of alternative investment funds.

On the plan sponsor side, alternative investments present some features that have attracted ERISA class action lawsuits, which in turn has discouraged plan sponsors from including such products in their lineups. Compared with traditional mutual funds and the low-cost index funds now common in 401(k) plans, alternatives can involve higher fees, more complex structures, more difficult valuation issues, and reduced liquidity. Plaintiffs regularly point to these features when alleging that fiduciaries acted imprudently in including alternatives among plan investment lineups. In the proposal’s preamble, DOL identified litigation risk as a central reason for the relative absence of alternative investments in 401(k) plans, citing more than 500 suits since 2016 alleging violations of ERISA and more than $1 billion in ERISA settlements since 2020. Against that backdrop, DOL concluded that the threat of litigation has discouraged fiduciaries from offering investment options beyond the familiar mix of mutual funds, index funds, and target date funds, even where other options could improve participant outcomes.

On the alternative investment manager side, practical obstacles have limited access to 401(k) capital. Most alternative investment managers have primarily sponsored private funds that restrict investments by benefit plan investors to less than 25% of any class of equity interests (the so-called “25% Test”), which leads them to prefer large institutional pension plans over smaller accounts. Typical private equity fund structures also call capital and make distributions irregularly based on deal flow, and have limited or irregular liquidity mechanisms, creating complications for inclusion in 401(k) plans with participants that might change jobs, take a hardship withdrawal, take a plan loan, or retire at any time. And while most private funds value their portfolios quarterly using internal processes, most 401(k) plans operate on a daily valuation cycle. For these reasons, many alternative investment managers have historically viewed the back-office infrastructure required to administer many small accounts as not worth the effort.

That dynamic is already changing. In recent years, alternative investment managers have embraced the “retailization” of the industry, investing significant capital in private wealth distribution channels, and entirely new product designs, including semi-liquid fund structures that are regulated under the Investment Company Act. This broader trend of increased retail access to private market investment opportunities has led these historically institutional-focused alternative investment managers to invest in retail distribution relationships and operational and compliance infrastructure that may better position them to also access 401(k) capital. And although DOL’s prior guidance sent mixed signals—at times acknowledging that alternatives could be included in 401(k) plans, and at times warning fiduciaries against doing so—the agency has recently made it clear that defined contribution plan participants should have access to alternatives. Following Executive Order 14330, DOL rescinded its restrictive guidance on private equity in 401(k) plans. The new proposed rule is the most significant action to follow the Executive Order.

These market and regulatory dynamics have led to increased interest among alternative investment managers in developing purpose-built products specifically designed for inclusion in 401(k) plan investment line-ups, most notably, Investment Company Act-registered funds that fit within target date funds structured as collective investment trusts. Target date funds are diversified asset allocation funds that use an investor’s target retirement date to adjust asset allocation over time, becoming more conservative as retirement approaches. Sponsors of target date funds may include an alternatives sleeve in a registered fund wrapper within a predominantly liquid portfolio to provide 401(k) plan participants the benefits of exposure to alternative investments within a balanced portfolio that meets the operational needs of 401(k) plan participants and fiduciaries.

What The Proposal Would Do

The proposal would add a new regulation at 29 C.F.R. § 2550.404a-6. Its most important provisions establish a process-based safe harbor for fiduciaries selecting investment options for a retirement plan menu—including, but not limited to, options containing alternative investments. In that respect, the proposed rule is broader than Executive Order 14330. The proposal states that ERISA “does not require or restrict any specific type” of investment, so long as it is legal.[2] It does, however, exclude brokerage windows from the definition of designated investment alternative, leaving those arrangements outside the scope of the rule.[3]

Under the proposal, a fiduciary that objectively, thoroughly, and analytically evaluates the factors listed in the rule when selecting a designated investment alternative would be entitled to a legal presumption that it satisfied ERISA’s prudence requirement as to those factors.[4] The proposal states that such a determination would be entitled to “significant deference.”[5]

The six factors listed in the rule are:

Expected performance;
Fees and expenses;
Liquidity;
Valuation;
Benchmarking; and
Complexity.[6]

The factors are “non-exhaustive,” meaning a fiduciary should still consider other factors that “the fiduciary knows or should know are relevant to the particular designated investment alternative.”[7]

The proposal also includes illustrative examples, several of which address features commonly associated with private-market or other nontraditional investments—including limited liquidity, fair-value pricing procedures, and the use of alternative assets within diversified asset allocation strategies.[8]

Practical Considerations

Even at the proposal stage, the proposal carries practical implications. It may encourage plan fiduciaries to revisit their prior assumptions that certain structures are effectively off-limits, or present too great a risk of attracting an unmeritorious lawsuit, solely because they involve alternative assets—and it may encourage alternative investment sponsors to begin building the infrastructure required to access defined contribution plan capital.

For Employers And Plan Fiduciaries

The proposal reinforces the importance of careful committee process, reasoned analysis, and ongoing monitoring. It confirms that the key fiduciary question is not whether an investment falls within a handful of “favored” categories, but whether the fiduciary engaged in a prudent and well-documented decisionmaking process tailored to the investment and the plan. That focus is intended to reduce the litigation risk posed by including on plan menus funds that include exposure to alternative investments.

For Alternative Investment Fund Managers

The proposal presents alternative investment fund managers an opportunity to expand their platforms by creating products designed for participant-directed defined contribution plans. Fund managers that have historically sponsored private funds will need to consider multiple issues, including:

Valuation requirements. Many 401(k) plans price investments daily, which can be difficult for funds that hold assets without readily available market prices.
Participant liquidity events. Fund managers will need to plan for outflows, because 401(k) participants can change jobs, retire, take hardship withdrawals, take plan loans, or in most cases move money between investments at any time.
Fee transparency and reasonableness. 401(k) plans are required to disclose investment fees to participants, which means fund managers will need to provide robust fee disclosure, and plan fiduciaries closely monitor fee structures and overall fee/expense levels to ensure reasonableness.
Securities law exemptions. Many private funds rely on exemptions under the Investment Company Act—such as Sections 3(c)(1) and 3(c)(7)—that restrict how they can be marketed, including limits on general solicitation. Private fund managers will need to consider whether those restrictions are compatible with a participant-directed defined contribution plan that makes the investment available to all participants.
The 25% Test. Fund managers will need to continue tracking benefit plan commitments carefully to meet the 25% Test, or consider whether to instead rely on the venture capital operating company or real estate operating company safe harbors.
Investment Company Act considerations. The operational and compliance incompatibility of traditional private fund structures with 401(k) plans will likely lead alternative investment fund managers to consider Investment Company Act-regulated structures, such as interval funds, tender offer funds, and non-traded BDCs. These structures avoid the limitations of the 25% Test and the need for reliance on certain securities law exemptions. Investment Company Act-registered funds also provide the robust disclosure and valuation frequency that is needed for participant-directed 401(k) plans that provide for daily transactions by participants.
Investment Advisers Act considerations. Fund managers building products for 401(k) plans will also need to consider their obligations under the Investment Advisers Act. From an Advisers Act perspective, the manager’s contractual client is typically the private fund, the target date fund manager, or other fiduciary decision-maker, rather than individual participants. This creates a dual compliance lens: managers will be diligenced against both SEC/Advisers Act requirements applicable to an adviser managing a pooled investment vehicle and ERISA/DOL requirements for products used in a 401(k) context.
Fund documentation and conflicts management. Fund documentation may need to be adjusted so it is operationally compatible with the platform and readable for ERISA-oriented gatekeepers. Liquidity provisions should clearly define redemption windows, notice requirements, gates, suspension rights, and any in-kind mechanics. Managers should provide a clear expense allocation policy, identify any caps or waivers, and disclose any platform or data-related fees.

Looking Ahead

Submit comments by June 1. The proposed rule is open for public comment for 60 days. Rulemaking comments matter—this is a proposal, not a final rule, and the final version will reflect the input DOL receives. Plan sponsors, fiduciaries, asset managers, and service providers that want to shape the final product should consider engaging in the comment process.

Watch Congress and the courts. Interested parties should also monitor potential developments in the legislative and judicial branches. Members of Congress have continued to show interest in the policy goals of Executive Order 14330. One bill in early stages—the Retirement Investment Choice Act—would provide that Executive Order 14330 “shall have the force and effect of law.”[9] And the Senate HELP Committee addressed alternative investments in a December 2025 hearing on retirement policy.[10] In the courts, the Supreme Court granted certiorari in Anderson v. Intel Corporation Investment Policy Committee, No. 25-498, which will address whether pleading an ERISA fiduciary breach claim predicated on fund underperformance requires alleging a “meaningful benchmark.” The Proposed Rule may affect the Supreme Court’s decision in Intel, which will not be argued before Fall 2026 and is unlikely to be decided until after the proposed rule is finalized.

Monitor SEC examination priorities. Alternative investment managers entering the 401(k) space should also monitor SEC examination priorities, which in 2026 have emphasized adherence to duty of care and duty of loyalty obligations, particularly with regard to aspects of their business that serve retail investors. Given the retail-adjacent nature of 401(k) participants, managers should expect heightened scrutiny of their compliance programs, Marketing Rule adherence, and conflicts management practices. Recent enforcement cases involving the Marketing Rule have focused on retail-facing communications, signaling the SEC’s focus on investor protection in contexts where retail participants may be affected.

Consider impact on existing fund operations. Managers should consider the potential impact of entering the 401(k) space on their existing fund operations. Expanding into retail-adjacent channels can create headline risk, examination risk, and litigation risk that may draw attention away from managing existing private funds. Managers should also carefully consider conflicts that may arise, including allocation of constrained capacity across accounts, co-investment allocation obligations under existing side letters, and whether fee streams used to seed assets for defined contribution products could affect GP economics or existing LP relationships.

Maintain fiduciary discipline. The proposed rule is fundamentally focused on process, and a disciplined fiduciary process remains the most effective defense against litigation even in the absence of the proposed rule. Although the proposed rule, if finalized in its current form, would create a safe harbor where that process standard has been met, it will also remain to be seen how courts will apply any final rule in private litigation.

Gibson Dunn will continue to monitor these developments, and is available to assist plan sponsors, fiduciaries, fund managers, and others in navigating these developments.

[1] Fiduciary Duties in Selecting Designated Investment Alternatives, 91 Fed. Reg. 16,088 (Mar. 31, 2026).

[2] Proposed Section 2550.404a-6(c), 91 Fed. Reg. at 16,136.

[3] Proposed Section 2550.404a-6(m)(2), 91 Fed. Reg. at 16,144.

[4] Proposed Section 2550.404a-6(f), 91 Fed. Reg. at 16,136.

[5] Id.

[6] Proposed Section 2550.404a-6(g)-(l), 91 Fed. Reg. at 16,136-44.

[7] Proposed Section 2550.404a-6(f), (e), 91 Fed. Reg. at 16,136.

[8] Proposed Section 2550.404a-6(g)-(l), 91 Fed. Reg. at 16,136-44 (examples).

[9] H.R. 5748, 119th Cong. (2025).

[10] Senate HELP Comm., The Future of Retirement (Hearing, Dec. 2025).

The following Gibson Dunn lawyers prepared this update: Andrew G.I. Kilberg, Kevin Bettsteller, Michael Collins, Blake Estes, Marian Fowler, David Perechocky, Brian Richman, Jennafer Tryck, Shannon Errico, and Aaron Hauptman.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding the issues discussed above. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following leaders and members of the firm’s Administrative Law & Regulatory, ERISA Litigation, Executive Compensation & Employee Benefits, Investment Funds, or Real Estate / REITS practice groups:

Administrative Law & Regulatory:
Eugene Scalia – Washington, D.C. (+1 202.955.8543, esmith@gibsondunn.com)
Andrew G.I. Kilberg – Washington, D.C. (+1 202.887.3759, akilberg@gibsondunn.com)
Brian Richman – Dallas (+1 214.698.3466, brichman@gibsondunn.com)

ERISA Litigation:
Karl G. Nelson – Dallas (+1 214.698.3203, knelson@gibsondunn.com)
Ashley E. Johnson – Dallas (+1 214.698.3111, ajohnson@gibsondunn.com)
Jennafer M. Tryck – Orange County (+1 949.451.4089, jtryck@gibsondunn.com)

Executive Compensation & Employee Benefits:
Michael J. Collins – Washington, D.C. (+1 202-887-3551, mcollins@gibsondunn.com)
Sean C. Feller – Los Angeles (+1 310.551.8746, sfeller@gibsondunn.com)
Krista Hanvey – Dallas (+1 214.698.3425, khanvey@gibsondunn.com)

Investment Funds:
Kevin Bettsteller – Los Angeles (+1 310.552.8566, kbettsteller@gibsondunn.com)
Shannon Errico – New York (+1 212.351.2448, serrico@gibsondunn.com)
Blake E. Estes – New York (+1 332.253.7778, bestes@gibsondunn.com)
Marian Fowler – Washington, D.C. (+1 202.955.8525, mfowler@gibsondunn.com)
MacRae Robinson – New York (mmrobinson@gibsondunn.com)

Real Estate / REITS:
David Perechocky – New York (+1 212.351.6266, dperechocky@gibsondunn.com)

Paramount Global v. State of Rhode Island Office of the General Treasurer, On Behalf of the Employees’ Retirement System of Rhode Island, No. 129, 2025 – Decided March 25, 2026

Last week, the Delaware Supreme Court held 3-2 that the Court of Chancery did not err by considering post-demand evidence and anonymous sources when determining whether a stockholder demonstrated a “credible basis” to suspect wrongdoing under Section 220 of the Delaware General Corporation Law.

“The general rule is that when a stockholder seeks relief under § 220, it will be limited to evidence identified in the demand and the information available to the stockholder when the demand was made. But under exceptional circumstances, the Court of Chancery may, in the exercise of its sound discretion, consider post-demand evidence that is material to the court’s credible-basis inquiry and not prejudicial to the corporation.”

Justice Traynor, writing for the Court

Background

In 2023 and 2024, news outlets reported on the potential sale of National Amusements, Inc., which owned a majority interest in Paramount Global. These reports, often citing anonymous sources, suggested that Shari Redstone (who owned a majority interest in National Amusements) might be blocking a sale of Paramount in its entirety in favor of a sale of just National Amusements’ controlling interest in Paramount.

Paramount stockholder Employees’ Retirement System of Rhode Island (Rhode Island) served a books-and-records demand on Paramount in April 2024, seeking documents to explore potential wrongdoing in connection with the developing sale. The demand relied largely on the news reports just discussed to establish the “credible basis” of wrongdoing that Section 220 requires before a stockholder may inspect books and records.

The parties subsequently went to trial on whether Rhode Island had enough evidence to demonstrate a credible basis to suspect wrongdoing. The magistrate who oversaw the trial held that it did not, and rejected Rhode Island’s attempt to rely on newspaper articles that post-dated its books-and-records demand. In doing so, the magistrate explained that the court could “only consider the evidence available at the time the demand was served.”

Rhode Island asked Vice Chancellor Laster to review the magistrate’s ruling, which the Vice Chancellor reversed. The court held that “there are settings when a stockholder can legitimately rely at trial on post-demand evidence.” As for Rhode Island’s reliance on anonymous sources in news articles, the court held that “articles from reputable publications that rely on anonymous sources will generally be sufficiently reliable for a court to consider when assessing” the existence of a “credible basis to suspect wrongdoing.”

Issues on Appeal

Paramount sought interlocutory appeal on whether a credible basis could be established based on (1) post-demand evidence, and (2) hearsay from anonymous sources in news reports.

Court’s Holdings

Post-Demand Evidence: The Delaware Supreme Court held “under exceptional circumstances, the Court of Chancery may, in the exercise of its sound discretion, consider post-demand evidence that is material to the court’s credible-basis inquiry and not prejudicial to the corporation.” The Court reasoned that there is nothing in Section 220’s text that prohibits the consideration of post-demand evidence. However, the Court endorsed the general rule “that when a stockholder seeks relief under § 220, it will be limited to evidence identified in the demand and the information available to the stockholder when the demand was made.”

Hearsay in Confidentially Sourced News Reports: The Court affirmed that hearsay from anonymous sources in news articles, if found to be sufficiently reliable, can support a credible basis. The Court expressed unease with the Vice Chancellor’s suggestion that “[n]ews articles from reputable publications that rely on anonymous sources will generally be sufficiently reliable for a court to consider when assessing whether a stockholder has a credible basis to suspect wrongdoing,” but was satisfied that the Vice Chancellor did not rely exclusively on the news outlets’ reputations in reaching his conclusion. The Court noted that an inquiry into the reliability of hearsay evidence is “fact-specific” and concluded that the Vice Chancellor’s reliability determination fell “within the permissible range of choices available in this case.”

What It Means

Potential for Increased Demands. Corporations should be aware that this ruling may encourage stockholders to prematurely file books-and-records demands based on developing situations, knowing that post-demand evidence may bolster their case.

Further Litigation Over “Exceptional Circumstances.” Although the Supreme Court held the Court of Chancery has discretion to consider post-demand evidence under “exceptional circumstances,” it did not delineate those circumstances. We can expect further litigation over what circumstances permit the use of post-demand evidence to establish a credible basis to suspect wrongdoing.

The following Gibson Dunn lawyers prepared this update: Monica Loseman, Brian Lutz, Jason Mendro, Craig Varnen, Michael J. Kahn, and Brian Yang.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following leaders and members of the firm’s Securities Litigation, Mergers & Acquisitions, or Private Equity practice groups:

Securities Litigation:
Michael J. Kahn – San Francisco (+1 415.393.8316, mjkahn@gibsondunn.com)
Monica K. Loseman – Denver (+1 303.298.5784, mloseman@gibsondunn.com)
Brian M. Lutz – San Francisco (+1 415.393.8379, blutz@gibsondunn.com)
Jason J. Mendro – Washington, D.C. (+1 202.887.3726, jmendro@gibsondunn.com)
Craig Varnen – Los Angeles (+1 213.229.7922, cvarnen@gibsondunn.com)

Mergers & Acquisitions:
Robert B. Little – Dallas (+1 214.698.3260, rlittle@gibsondunn.com)
Andrew Kaplan – New York (+1 212.351.4064, akaplan@gibsondunn.com)
Saee Muzumdar – New York (+1 212.351.3966, smuzumdar@gibsondunn.com)
George Sampas – New York (+1 212.351.6300, gsampas@gibsondunn.com)

Private Equity:
Richard J. Birns – New York (+1 212.351.4032, rbirns@gibsondunn.com)
Ari Lanin – Los Angeles (+1 310.552.8581, alanin@gibsondunn.com)
Michael Piazza – Houston (+1 346.718.6670, mpiazza@gibsondunn.com)
John M. Pollack – New York (+1 212.351.3903, jpollack@gibsondunn.com)

The California Law Revision Commission and California Legislature have moved forward with aggressive amendments to California state law on single firm conduct and mergers.

California Assembly Leader Introduces Bill Codifying Proposed CLRC Proposals on Single Firm Conduct

Assembly Majority Leader Cecilia Aguiar-Curry has introduced the COMPETE Act (Competition and Opportunity in Markets, for a Prosperous, Equitable and Transparent Economy).[1] The bill would codify the California Law Revision Commission (CLRC)’s single-firm conduct proposals, discussed in our June 23, 2025 and December 23, 2025 Client Alerts, and recently finalized.[2] As with the CLRC proposal, the COMPETE Act represents a potentially significant change to California’s substantive antitrust framework.

The Scope of The COMPETE Act

The COMPETE Act would establish for the first time under California state antitrust law a prohibition on anticompetitive conduct by a single firm. California has never had a single-firm antitrust law of general application. The bill proposes to prohibit anticompetitive monopolization (similar to Section 2 of the federal Sherman Act) as well as “restraints of trade by one or more firms”—an unprecedented and scarcely defined standard, as described in our December 23, 2025 Client Alert.

The bill expressly provides that California state courts are not generally bound by federal antitrust case law (except when persuasive and consistent with California law) and expressly rejects certain requirements that have been recognized under federal law.[3] For example, the bill would require that a firm’s refusal to deal with rivals satisfy only a lower “competitive benefit” standard—rather than the “profit sacrifice” standard required by federal law. The bill also does not require a plaintiff to prove a defendant engaged in below-cost pricing, which is required for certain antitrust claims under federal antitrust law. As one other notable example, the bill directs that courts “may” (rather than “shall”) consider competition in multiple relevant markets when dealing with multi-sided platforms, and they similarly “may or may not” treat each platform side as a distinct market.

The COMPETE Act also breaks from federal law in declining to adopt an express requirement of monopoly power (or a dangerous probability of monopoly power). In a departure from the CLRC’s prior proposal, however, the bill clarifies that violations require at least “market power”—a significantly lower threshold than what is required under federal law for single-firm conduct.

Taken together, the proposed COMPETE Act could present a stark departure from the predictable federal framework that has developed over more than a century of Sherman Act jurisprudence.

Implications for Businesses

The COMPETE Act is poised to create uncertainty for those who do business in California. Predictable rules that have emerged as a result of decades of economic and judicial thinking would be rejected in favor of indeterminate and untested standards. Businesses—including those that do not face scrutiny under federal law by dint of their non-dominant market positions—may be forced to litigate novel or otherwise long-rejected theories anew in California courts. Courts applying these untested frameworks may adopt decisions that depart from federal law, creating patchwork obligations for businesses that operate in multiple states.

California’s antitrust laws already permit private enforcement, and the Cartwright Act provides for treble damages. The addition of a new single-firm conduct prohibition would expand the universe of potential state-law claims may increase businesses’ exposure—and the number of cases they face—in California.

The COMPETE Act has not yet been voted on, and its final form—if adopted at all—may differ from the current proposal. Companies should track amendments, committee hearings, and floor debates to assess the bill’s trajectory and identify opportunities for engagement. Companies and their trade associations should also consider direct engagement with legislators or participation in industry coalition efforts. Gibson Dunn attorneys are available to discuss how the COMPETE Act could affect your business and to assist with legislative engagement, compliance planning, and litigation strategy as this proposal moves through the California Legislature.

CLRC Presents Draft Language on Merger Reform

As detailed in our June 23, 2025 Client Alert, the CLRC has been assessing options for new legislation to regulate mergers. In February, California enacted the California Uniform Antitrust Pre‑Merger Notification Act, which requires certain Hart-Scott-Rodino (HSR) filers to submit a copy of their federal premerger notification materials to the California Attorney General.[4] Separate from that statute, CLRC is working towards a California-specific standard to classify and prohibit anticompetitive mergers.

Following consideration of public comments on prior merger control proposals, CLRC directed its staff to present revised options for draft legislation. The staff presented several options in a March 10, 2026 memorandum.[5] Any of these proposals may introduce aggressive and far-reaching changes to existing competition law—making California law significantly broader, and more restrictive of acquisitions, than federal law. At the federal level, Section 7 of the Clayton Act prohibits mergers whose effects “may be substantially to lessen competition, or to tend to create a monopoly.”[6] While merger challenges can already be brought by the California Attorney General under certain state laws[7] and under federal law, the CLRC is considering new state-level legislation because “California currently lacks a broad, state-level merger statute and can only review mergers under its own laws for a few specific industries.”[8]

The CLRC staff has currently proposed three options:

Option 1: This option “largely tracks the Clayton Act’s basic standards”, but it would expand on federal law by also expressly prohibiting mergers that tend to create a monopsony, while removing analogous federal exemptions, such as those for common carriers.[9] This option also adopts federal case precedent that is not expressly codified in the Clayton Act. Namely, it would (1) add a presumption that mergers which would result in a “a firm controlling an undue percentage share of the relevant market”—likely at or around 30%—and “a significant increase in the concentration of firms in that market” are inherently anticompetitive and (2) recognize the 2023 Federal Merger Guidelines as “persuasive authority” in interpreting the statute.[10]
Option 2: This option incorporates and expands on Option 1 by codifying specific language from the 2023 Federal Merger Guidelines and adding instruction on rebutting presumptions of unlawfulness.[11] Option 2 presumes a merger to be unlawful if it would result in a market with a Herfindahl-Hirschman Index (HHI) greater than 1,800 or more and a change in HHI greater than 100 points or a market share greater than 30% for the merged company.[12] A defendant may rebut this presumption “by demonstrating by a preponderance of the evidence that there are no likely anticompetitive effects of the transaction or that the anticompetitive effects are de minimis and that any potential anticompetitive effects are clearly outweighed by the cognizable procompetitive benefits of the transaction in the same relevant market.”[13] Staff concedes that some may argue that this rebuttal standard “is too high a bar and not reflective of current law”, and because the Merger Guidelines are not law at the federal level and are prone to updates, by codifying a specific version of federal guidance into state legislation, California risks falling out of step with federal practices.[14]
Option 3: This option incorporates and expands on Option 2 by changing the Clayton Act’s first prong that prohibits mergers whose effect “may be substantially to lessen competition” to those whose effect “may be to create an appreciable risk of lessening competition more than a de minimis amount.”[15] The practical effect would be to reduce the burden of proof required to prove the illegality of a merger.

[1] AB 1776 (COMPETE Act), https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202520260AB1776

[2] Cal L. Revision Comm’n, Antitrust Law: Single Firm Conduct (Mar. 30, 2026) https://clrc.ca.gov/pub/Printed-Reports/Pub249-B750.pdf.

[3] Id.

[4] For more information on the California Uniform Antitrust Pre‑Merger Notification Act, please refer to our February 11, 2026 Client Alert.

[5] Memorandum 2026-14, Draft Language Options for Mergers and Acquisitions and Additional Public Comment, Cal. L. Revision Comm’n (Mar. 10, 2025) [henceforth “March Merger Options Memo”], https://clrc.ca.gov/pub/2026/MM26-14.pdf.

[6] 15 U.S.C. § 18.

[7] See Corp. Code §§ 5914 – 5926 (nonprofit health facilities), §§ 14700 – 14707 (retail grocery firms and retail drug firms), and Health & Safety Code §§ 127507 – 12507.6 (health care).

[8] March Merger Options Memo at 1-2.

[9] March Merger Options Memo at 3-5.

[10] Id. at 4.

[11] Id. at 5-9.

[12] Id. at 5-6.

[13] Id. at 6.

[14] Id. at 9.

[15] Id. at 10-13.

The following Gibson Dunn lawyers prepared this update: Rachel Brass, Daniel Swanson, Caeli Higney, Julian Kleinbrodt, Sarah Roberts, and Kunal Jhaveri.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s Antitrust & Competition, Mergers & Acquisitions, or Private Equity practice groups:

Antitrust & Competition:
Rachel S. Brass – San Francisco (+1 415.393.8293, rbrass@gibsondunn.com)
Kristen C. Limarzi – Washington, D.C. (+1 202.887.3518, klimarzi@gibsondunn.com)
Samuel G. Liversidge – Los Angeles (+1 213.229.7420, sliversidge@gibsondunn.com)
Cynthia Richman – Washington, D.C. (+1 202.955.8234, crichman@gibsondunn.com)

Mergers & Acquisitions:
Robert B. Little – Dallas (+1 214.698.3260, rlittle@gibsondunn.com)
Saee Muzumdar – New York (+1 212.351.3966, smuzumdar@gibsondunn.com)
George Sampas – New York (+1 212.351.6300, gsampas@gibsondunn.com)

We are pleased to provide you with the February and March edition of Gibson Dunn’s digital assets regular update. This update covers recent legal news regarding all types of digital assets, including cryptocurrencies, stablecoins, CBDCs, and NFTs, as well as other blockchain and Web3 technologies. Thank you for your interest.

REGULATION AND LEGISLATION

UNITED STATES

SEC and CFTC Issue Joint Interpretation Regarding Digital Asset Regulation
On March 17, the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) issued joint interpretive guidance providing long-awaited clarity on the application of federal securities and commodities laws to digital assets, including a taxonomy distinguishing between digital commodities, digital collectibles, digital tools, GENIUS Act stablecoins, and digital securities. The agencies indicated that most digital assets are not themselves securities, though certain transactions involving such assets may still constitute investment contracts subject to securities laws. The guidance also clarifies the treatment of common crypto activities such as protocol mining, protocol staking, airdrops, and the wrapping of non-security crypto assets, while aligning SEC and CFTC oversight. Forbes; SEC Statement; CFTC Statement; Gibson Dunn client alert.

CFTC Staff Issues FAQs Clarifying Digital Asset Activities for Registrants
On March 20, the CFTC’s Market Participants Division and Division of Clearing and Risk released a set of frequently asked questions (FAQs) providing interpretive guidance on how existing regulations apply to registrants and registered entities engaging in digital asset and blockchain-related activities. The FAQs build on prior CFTC staff guidance addressing tokenized collateral and the acceptance of certain digital assets as margin collateral. Among other things, the guidance aligns the CFTC’s capital charge framework with recent SEC broker-dealer guidance, including a 20% haircut for bitcoin and ether and a 2% haircut for payment stablecoins. The FAQs build on prior no-action relief and reflect continued interagency coordination as regulators integrate digital assets into existing regulatory frameworks. CFTC Statement; The Block.

CFTC Launches the Innovation Task Force
On March 24, the CFTC launched the Innovation Task Force, which the agency says is dedicated to advancing clear rules related to novel products and technologies within the U.S. derivatives market. According to the CFTC, the Innovation Task Force will focus on developing a regulatory framework for (i) digital assets and blockchain technologies; (ii) AI and autonomous systems; and (iii) prediction markets and event contracts. Chairman Michael Selig of the CFTC said, “By establishing a clear regulatory framework for innovators building on the new frontier of finance, we can foster responsible innovation at home and ensure American market participants are not left on the sidelines.” CFTC Statement; The Block.

OCC Comment Period Opens for GENIUS Act
On February 25, the Office of the Comptroller of the Currency (OCC) issued a notice of proposed rulemaking to implement the GENIUS Act framework for issuance of payment stablecoins and related activities by OCC-supervised entities and other covered stablecoin issuers under OCC jurisdiction. The proposal addresses permissible activities, limitations on offering yield on stablecoins, reserve assets, redemption, risk management, audits/reporting/supervision, custody, application/registration processes, treatment of foreign issuers, and transition pathways for certain state issuers. Comments must be received by May 1, 2026. OCC Statement; The Block; Gibson Dunn client alert.

SEC Commissioner Uyeda Addresses Tokenization, Urging Technology-Neutral Application of Existing Rules
On February 9, SEC Commissioner Mark Uyeda discussed tokenization as a market modernization development in his remarks at the Asset Management Derivatives Forum, emphasizing that tokenization has moved into early-stage real-world testing and can help address current challenges in shareholder identification and corporate actions, which can contribute to fair, orderly, and efficient markets. Commissioner Uyeda also cautioned that SEC rules should not create “unnecessary roadblocks” to onchain issuance, holding, and transfer of traditional securities. SEC Statement.

SEC Staff Issues Guidance Allowing 2% Haircut for Payment Stablecoins
On February 19, SEC staff updated its guidance relating to digital asset activities and distributed ledger technology. The guidance states that “staff would not object if a broker-dealer were to apply a 2% haircut on proprietary positions.” A “2% haircut” refers to a regulatory capital deduction applied to the value of an asset for purposes of calculating a broker-dealer’s net capital under SEC Rule 15c3-1. SEC Commissioner Hester Peirce framed the guidance as a practical step to enable broker-dealers to participate more broadly in tokenized securities and related blockchain-based activities by clarifying how stablecoin positions may be treated in net capital computations. Peirce also invited market input on whether Rule 15c3-1 (and other SEC rules) should be amended to better address payment stablecoins used by SEC-registered entities. SEC Statement; Peirce Statement.

Comptroller Gould Testifies on OCC’s Priorities
On February 26, Comptroller Jonathan Gould testified in front of the Senate Banking Committee that the OCC is re-centering supervision on a risk-based, safety-and-soundness approach with greater reliance on examiner judgment and proportionate supervisory tools, including reforms to the Matters Requiring Attention process and clarified enforcement standards. He emphasized an agency focus on addressing “debanking,” including implementing the President’s executive order on “fair banking,” investigating complaints, and proposing to remove “reputation risk” from supervision. He also pointed to interagency work on reproposing Basel III, potential CRA improvements, BSA/AML modernization and burden relief for community banks, and continued engagement on GENIUS Act implementation and innovation (including AI). OCC Statement.

OCC Grants Conditional Approvals for National Trust Bank Charter Applications to Crypto.com and Bridge
The Office of the Comptroller of the Currency granted the conditional approvals of applications for de novo national trust bank charters for Bridge (which owned by the company Stripe) on February 16 and Crypto.com on February 23. Crypto.com and Bridge, subject to meeting the OCC’s conditions, will join approximately 65 other national trust banks currently supervised by the OCC. Bridge; Crypto.com.

Federal Reserve Seeks to Codify Removal of “Reputation Risk” From Bank Supervision
On February 23, the Federal Reserve Board opened a 60-day public comment period on a proposal to formally codify its earlier decision in June 2025 to remove “reputation risk” as a factor in bank supervision, a move aimed at addressing concerns that such subjective standards contributed to penalizing or prohibiting banks from serving (or “debanking”) disfavored but lawful businesses, including digital asset firms. The Federal Reserve; CoinDesk.

SEC Chairman Testifies Before US House Financial Services Committee
On February 11, SEC Chairman Paul Atkins testified before the U.S. House Financial Services Committee. He expressed support for the CLARITY Act and for Congress to establish a federal framework for crypto markets. In the meantime, Atkins also said that the SEC is jointly working with the CFTC in an effort known informally as Project Crypto to provide a bridge towards legislation and “consider a token taxonomy to offer both investors and innovators a clear understanding of their regulatory obligations.” SEC Statement.

CFTC Expands Definition of “Payment Stablecoin” To Cover National Trust Banks
On February 6, CFTC’s Market Participants Division reissued Staff Letter 25-40 with a targeted update to the definition of “payment stablecoin” to clarify that a national trust bank may be a permitted issuer for purposes of the letter’s no-action position. The underlying no-action relief addresses certain requirements for futures commission merchants that accept non-securities digital assets (including payment stablecoins) as customer margin collateral and hold certain proprietary payment stablecoins in segregated customer accounts. The CFTC stated the revision was prompted by staff recognition that qualifying payment stablecoins may be issued by national trust banks and that the earlier wording was not intended to exclude them. CFTC Statement.

INTERNATIONAL

European Banking Authority Issues Guidance on Treatment of Crypto Firms Providing E-Money Token-Related Payment Services After End of Transition Period
On February 12, the European Banking Authority (EBA) issued an Opinion advising national regulators on how to supervise crypto-asset service providers (CASPs) that provide e-money token (EMT)-related services which also qualify as payment services. In June 2025, the EBA issued a No-Action Letter which allowed CASPs that provide EMT-related payment services to continue doing so during a nine-month transitional period while applying for authorization as a payment service provider under the EU Revised Payment Services Directive (PSD2). With the transitional period expiring, the EBA now advises national competent authorities to permit CASPs to continue providing EMT-related payment services only where they have submitted a PSD2 authorization application and are awaiting a supervisory decision. CASPs that have not submitted a PSD2 authorization application should be required to cease providing EMT-related payment services. EBA.

European Securities and Markets Authority Warns That Crypto Perpetuals May Fall Within EU CFD Restrictions
On February 24, the European Securities and Markets Authority (ESMA) issued a public statement noting the increased offering of “perpetual futures” which provide leveraged exposure to underlying assets such as bitcoin or ether. The statement cautions that such products are likely to meet the definition of a contract for difference (CFD) and therefore would be subject to existing EU restrictions on CFDs, including leverage limits, mandatory risk warnings, margin close-out and negative balance prohibition and the prohibition of monetary and non-monetary benefits. Firms are advised to conduct a legal analysis of such products and their features in order to determine whether they fall within the regulatory perimeter. ESMA.

Hong Kong Securities and Futures Commission Loosens Restrictions on Margin Financing for Virtual Asset Trading
On February 11, the Hong Kong Securities and Futures Commission (SFC) announced its intention to allow licensed corporations to provide clients with margin financing for the purposes of virtual asset trading. Specifically, licensed corporations which already provide virtual asset dealing services to clients pursuant to an omnibus account arrangement with SFC-licensed virtual asset exchanges (VATP operators) may now allow their clients who have securities margin accounts to trade virtual assets on margin, subject to strict collateral requirements. In addition, VATP operators will also be allowed to engage an affiliated company to provide market making services on their trading platforms, subject to restrictions designed to mitigate conflicts of interest and safeguard clients. Such VATP operators will be subject to a defined list of terms and conditions imposed by the SFC. Before engaging an affiliated company as a market maker, the VATP operator will also need to notify the SFC in advance and submit an independently prepared report demonstrating the VATP operator’s compliance with the SFC’s terms and conditions. Margin Financing Circular Market Making Circular.

Hong Kong SFC Allows Licensed Virtual Asset Exchanges to Offer Virtual Asset Perpetuals to Professional Investors
On February 11, the Hong Kong SFC published a high-level framework setting out how VATP operators may offer virtual asset perpetual contracts in Hong Kong. Under the framework, virtual asset perpetual contracts may only be offered to professional investors. VATP operators that wish to offer virtual asset perpetual contracts will also need to adhere to requirements relating to product design, trading and settlement, margin and loss allocation, market surveillance and risk disclosure. The SFC notes that the framework represents an initial regulatory approach and further guidance may be issued as the market evolves. SFC.

Dubai Financial Services Authority Publishes Crypto Token FAQs
On February 12, the Dubai Financial Services Authority (DFSA) published a set of FAQs intended to provide practical guidance on the application of the DFSA Rulebook to financial services and activities involving crypto tokens conducted in or from the Dubai International Financial Centre (DIFC). The FAQs also provide guidance on key issues such as when authorization is required for crypto token-related activities in DIFC, the DFSA’s expectations in relation to crypto token suitability assessments and ongoing monitoring, and the treatment of stablecoins and funds which invest in crypto tokens. DFSA.

ENFORCEMENT ACTIONS

UNITED STATES

Treasury Sanctions Iran-Linked Crypto Exchanges in OFAC Action Targeting Iranian Repression and Sanctions Evasion
On January 30, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated two cryptocurrency exchanges (Zedcex Exchange Ltd. and Zedxion Exchange Ltd.) alongside Iranian businessman Babak Morteza Zanjani and other targets, citing (among other things) operation in Iran’s financial sector and alleged links to illicit financial activity. This was the first time OFAC designated a digital asset exchange for operating in the financial sector of Iran’s economy. OFAC.

Incognito Market Owner Sentenced to 30 Years for Operating Dark Web Narcotics Marketplace
On February 3, Rui-Siang Lin (a/k/a Pharaoh), the owner and operator of “Incognito Market,” was sentenced to 30 years of prison in the Southern District of New York for narcotics trafficking and money laundering-related offenses tied to operating a crypto-enabled online narcotics marketplace. The DOJ noted that Incognito Market facilitated the sale of more than one ton of narcotics and more than $105 million in narcotics sales before it was shut down in March 2024. DOJ.

Defendant Sentenced to 20 Years for Role in $73 Million Crypto Investment Fraud
On February 9, Daren Li was sentenced in the Central District of California to the statutory maximum 20 years’ imprisonment (in absentia) for his role in a global cryptocurrency investment fraud and money laundering conspiracy that stole at least $73.6 million from victims by promoting fraudulent crypto investments after gaining victims’ trust through unsolicited social-media interactions, telephone calls and messages, and online dating services. Li and his co-conspirators established spoofed domains and websites that resembled legitimate cryptocurrency trading platforms. The DOJ stated that Li cut off his ankle monitor and absconded in December 2025. DOJ.

Former SafeMoon CEO Sentenced to 100 Months for Multi-Million-Dollar Crypto Fraud Scheme
On February 10, Braden John Karony, CEO of SafeMoon US LLC, a digital asset company, was sentenced in the Eastern District of New York to 100 months’ imprisonment for conspiracy to commit securities fraud, wire fraud, and money laundering in connection with a scheme involving the “SafeMoon” digital asset. According to DOJ, Karony allegedly acquired over $9 million in crypto assets by employing complex transactions to obscure the movement through his access to SafeMoon’s liquidity pool. The DOJ announced that Karony was ordered to forfeit approximately $7.5 million and two residential properties. DOJ.

DOJ Fined Paxful for AML Violations and Charges Ex-Executive
On February 11, Paxful Holdings Inc., an online virtual currency trading platform, was fined $4 million for its lack of anti-money laundering controls and failure to comply with applicable money-laundering laws. The company pled guilty to conspiracies to promote illegal prostitution, violate the Bank Secrecy Act, and knowingly transmit funds derived from criminal offenses. Additionally, soon thereafter the DOJ charged the company’s founder, Ray Youssef, for operating Paxful without proper licensing and ineffective anti-money laundering (AML) mechanisms. In 2024, Paxful’s co-founder and former chief technology officer, Artur Schaback, pleaded guilty to conspiracy to fail to maintain an effective AML program in relation to the same scheme. DOJ; Law360.

Praetorian Group CEO Sentenced to 20 Years For Bitcoin Ponzi Scheme
On February 12, Ramil Ventura Palafox, who was the CEO of Praetorian Group International, was sentenced to 20 years in prison after he was convicted on wire fraud and money laundering charges for operating a $200 million bitcoin Ponzi scheme that defrauded over 90,000 investors worldwide. Palafox falsely claimed that the company was engaged in bitcoin trading, with promised daily returns of 0.5% to 3%. However, investors were actually being paid back with their own money or with funds received from other investors. DOJ.

Ismael Sanchez Found Guilty for CryptoFX Ponzi Scheme
On February 12, a federal jury found Ismael Sanchez liable for securities fraud and registration violations for his role as a lead salesperson in the CryptoFX Ponzi scheme, which raised tens of millions of dollars from approximately 40,000 investors by falsely promising profitable crypto and FX trading. SEC Statement.

DOJ Seizes $61 Million in USDT Linked to Investment Fraud
On February 24, U.S. Attorney’s Office for the Eastern District of North Carolina announced the seizure of more than $61 million worth of Tether (USDT) allegedly associated with a large-scale crypto investment fraud commonly known as “pig butchering,” where individuals were lured onto fraudulent trading platforms via romance-based social engineering. These fraudulent platforms displayed false investment products with extraordinary returns that served to entice individuals to invest, after which the money would be transferred to a crypto wallet under the schemers’ control. Analysts from Homeland Security Investigations were able to trace lost funds through a network of wallets. DOJ; The Block.

Creator of “OnlyFake” Pleads Guilty To Selling More Than 10,000 Digital Fake Identification Documents Paid for With Crypto
On February 26, Ukrainian national Yurii Nazarenko pled guilty in the Southern District of New York to conspiracy to commit fraud in connection with identification documents, for operating “OnlyFake,” an online service that sold more than 10,000 AI-generated fake identification documents, including driver’s licenses and passports, primarily paid for in cryptocurrency. Prosecutors emphasized that the fake IDs were designed to circumvent Know Your Customer checks at financial institutions and crypto exchanges, facilitating money laundering and other criminal activity; Nazarenko faces up to 15 years in prison and must forfeit proceeds of the scheme. DOJ.

INTERNATIONAL

BitRiver Parent Enters Bankruptcy Monitoring as Founder/CEO Faces House Arrest on Tax Charges in Russia
On February 2, Igor Runets, founder of Russia’s largest crypto miner BitRiver, was placed under house arrest on multiple tax evasion charges, and BitRiver’s parent company was placed into a bankruptcy monitoring/observation procedure after an En+ Group subsidiary filed a $9.2 million insolvency claim tied to mining equipment allegedly undelivered by BitRiver’s parent. CoinDesk.

South Korean Crypto Asset Management Firm CEO Sentenced to Three Years for Token Price Manipulation Under New Virtual Asset Law
On February 4, South Korea’s Seoul Southern District Court sentenced the CEO of a local crypto asset management firm, Jong-hwan Lee, to three years of prison for manipulating token prices to earn approximately 7.1 billion won (about $4.88 million), in what was the first case under South Korea’s Virtual Asset User Protection Act, which went into effect in July 2024. Lee used an automated trading program to inflate trading volumes and repeatedly place wash trade orders to manipulate token prices, and the court imposed a 500 million won (about $344,000) in addition to the prison sentence. The Block.

UK Financial Conduct Authority Takes Enforcement Action against HTX
On February 10, the UK Financial Conduct Authority (FCA) commenced legal proceedings against global crypto exchange HTX (formerly Huobi), alleging that HTX illegally promoted cryptoasset services to UK consumers in breach of the UK’s cryptoasset financial promotions regime. According to the FCA, HTX continued to promote its services through its website and social media platforms, including TikTok, X, Facebook, Instagram and YouTube, despite prior warnings that its promotions did not comply with the cryptoasset financial promotions regime. Although HTX has reportedly taken steps to prevent new UK users from opening accounts after the proceedings were initiated, the FCA noted that existing UK customers were still able to access the platform and related promotional material. The FCA has since asked social media platforms to block HTX accounts for UK users and requested the removal of HTX’s apps from Apple and Google app stores in the UK. This development underscores the FCA’s willingness to pursue enforcement against overseas crypto platforms targeting UK consumers and highlights the practical compliance risks for firms that continue to market digital asset services into the UK without adhering to the cryptoasset financial promotions framework. FCA.

LITIGATION

UNITED STATES

Terraform Sues Jane Street
On February 23, 2026, Terraform Labs’ court-appointed bankruptcy administrator filed a federal lawsuit against trading firm Jane Street, alleging that Jane Street used confidential, non-public information from its relationship with Terraform to execute and profit from trades ahead of the 2022 TerraUSD/LUNA collapse, intensifying the market downturn and contributing to Terraform’s Chapter 11 bankruptcy. The complaint, filed in the Southern District of New York, alleges that rapid sales shortly after key internal liquidity decisions exacerbated the stablecoin’s de-peg and systemic losses, and seeks damages, disgorgement, and interest at trial. Jane Street has rejected the claims as “baseless,” framing them as an opportunistic bid for recovery amid broader litigation tied to the Terra collapse. Law360; The Block.

INTERNATIONAL

Singapore High Court Clarifies How Damages for Lost Cryptocurrency Should be Valued
On February 9, the Singapore High Court published its written decision in the case of Kalen, Alexandru v World Exchange Services Pte Ltd [2026] SGHC 31, awarding approximately US $10.1 million in damages to 85 users of the cryptocurrency trading platform formerly known as World Exchange after finding that the operator of the platform had breached its contractual obligations to users. Notably, in its judgment, the Court addressed the issue of when damages in cryptocurrency disputes should be valued and held that damages should generally be assessed at the point when claimants could reasonably have taken steps to mitigate their losses. In reaching this holding, the Court declined to apply the “New York Rule” which measures damages according to the highest value reached by the asset between the time of the wrongful act and a reasonable period thereafter. eLitigation.

Singapore International Commercial Court Issues Guidance on Quantifying Damages in Terraform Labs Judgment
On February 9, the Singapore International Commercial Court published its written decision in the case of Kupetz, Jonathan and others v Terraform Labs Pte Ltd [2026] SGCA(I) 1. There, the Court issued guidance on, among other things, the assessment of damages in cases of fraudulent misrepresentation which induced the claimant to purchase an asset. In such cases, the Court held that it is necessary to assess damages by taking the difference between the price at which the claimants purchased the asset and the value of the benefits they received as a result of the purchase. In adopting this method, it is necessary to fix a date at which to calculate the value of the benefits received, and as a starting point, that date should be when the misrepresentation ceases to be operative. Once the misrepresentation is discovered, if the claimant exercises a free choice to hold on to the acquired asset, then the chain of causation is broken and the defendant is not liable for any further losses. eLitigation.

OTHER NOTABLE NEWS

SEC Names Taylor Lindman as Chief Counsel for Crypto Task Force
On February 23, the SEC announced Taylor Lindman, former deputy general counsel of Chainlink Labs, as the new Chief Counsel of the agency’s Crypto Task Force, succeeding Michael Selig after his move to head the CFTC. The Crypto Task Force, established in 2025, has conducted multiple roundtables on crypto regulation, including tokenization and decentralized finance issues. Yahoo Finance; X.

CTFC Appoints David Miller To Lead Enforcement Division
On March 2, the CFTC announced the appointment of former federal prosecutor and white-collar defense attorney David Miller as its director of enforcement, succeeding Paul Hayeck, who will remain with the agency leading its Complex Fraud Task Force. The appointment comes amid scrutiny of the agency’s enforcement staffing as the CFTC may have an expanded role in regulating the crypto industry. CFTC Statement; The Block.

The following Gibson Dunn lawyers contributed to this issue: Jason Cabral, Kendall Day, Jeff Steiner, Sara Weed, Sam Raymond, Nick Harper, Apratim Vidyarthi, Nicholas Tok, Michelle Lou, Cody Wong, and Chad Kang.

FinTech and Digital Assets Group Leaders / Members:

Ashlie Beringer, Palo Alto (+1 650.849.5327, aberinger@gibsondunn.com)

Michael D. Bopp, Washington, D.C. (+1 202.955.8256, mbopp@gibsondunn.com)

Stephanie L. Brooker, Washington, D.C. (+1 202.887.3502, sbrooker@gibsondunn.com)

Jason J. Cabral, New York (+1 212.351.6267, jcabral@gibsondunn.com)

Ella Alves Capone, Washington, D.C. (+1 202.887.3511, ecapone@gibsondunn.com)

M. Kendall Day, Washington, D.C. (+1 202.955.8220, kday@gibsondunn.com)

Sébastien Evrard, Hong Kong (+852 2214 3798, sevrard@gibsondunn.com)

William R. Hallatt, Hong Kong (+852 2214 3836, whallatt@gibsondunn.com)

Nick Harper, Washington, D.C. (+1 202.887.3534, nharper@gibsondunn.com)

Martin A. Hewett, Washington, D.C. (+1 202.955.8207, mhewett@gibsondunn.com)

Sameera Kimatrai, Dubai (+971 4 318 4616, skimatrai@gibsondunn.com)

Michelle M. Kirschner, London (+44 (0)20 7071.4212, mkirschner@gibsondunn.com)

Stewart McDowell, San Francisco (+1 415.393.8322, smcdowell@gibsondunn.com)

Hagen H. Rooke, Singapore (+65 6507 3620, hhrooke@gibsondunn.com)

Mark K. Schonfeld, New York (+1 212.351.2433, mschonfeld@gibsondunn.com)

Orin Snyder, New York (+1 212.351.2400, osnyder@gibsondunn.com)

Ro Spaziani, New York (+1 212.351.6255, rspaziani@gibsondunn.com)

Jeffrey L. Steiner, Washington, D.C. (+1 202.887.3632, jsteiner@gibsondunn.com)

Eric D. Vandevelde, Los Angeles (+1 213.229.7186, evandevelde@gibsondunn.com)

Sara K. Weed, Washington, D.C. (+1 202.955.8507, sweed@gibsondunn.com)

Gibson Dunn teamed up with the Louis D. Brandeis Center for Human Rights to secure dismissal with prejudice of a slew of damages claims filed against a former Georgetown University student for speaking out against antisemitism on campus.

The ruling marks a significant win for the firm and its client after a year of litigation in state and federal courts. The student criticized Georgetown’s hiring of an administrator who posted virulent anti-Jewish content on social media. Following an investigation, the administrator was terminated. She then sued Georgetown for wrongful termination and later expanded her claims to include the student and others who expressed their opinions about her conduct.

Representing the student pro bono, Gibson Dunn and the Brandeis Center moved to dismiss the claims on multiple grounds, including that they improperly targeted protected speech and expression on matters of public concern.

In a March 31 opinion, the Court agreed that the suit improperly attacked the student’s First Amendment right to address content that was “an affront to her Jewish identity, especially in the immediate aftermath of the October 7 attack.” The dismissal order stressed the strong public interest in protecting speech on university hiring decisions, and warned that allowing the suit would “undoubtedly chill campus speech” and undercut the “marketplace of ideas.”

Gibson partner Elizabeth Papez said “Gibson Dunn is proud to have achieved justice for our client in this lawsuit, which improperly sought to punish her exercise of First Amendment rights and chill the expression of countless others. We’re especially pleased that the Court agreed that our client’s First Amendment defense “packs a strong punch” and that the claims against her are so flawed they require dismissal with prejudice.”

The victory advances Gibson Dunn’s longstanding leadership in combating antisemitism by providing free legal assistance to individuals who experience antisemitic discrimination, intimidation, harassment, vandalism or violence.

The Gibson Dunn team was led by partners Elizabeth Papez and David Kusnetz, senior associate Lavi Ben Dor, and former associate Josh Zuckerman. Papez and Ben Dor argued the winning motion with support from associates Tamara Skinner and Ester Cross and former associate Audrey Payne.

Gibson Dunn is monitoring regulatory developments closely. Our lawyers are available to assist companies as they navigate the challenges and opportunities posed by the current, evolving legal landscape.

On March 19, 2026, a federal district court in Texas vacated a Final Rule (the Residential Real Estate Rule or the Rule) issued in 2024 by the Financial Crimes Enforcement Network (FinCEN).[1] The Residential Real Estate Rule imposed reporting requirements on non-financed transfers of residential real estate. The Court held that the Residential Real Estate Rule exceeds FinCEN’s authority under the Bank Secrecy Act, and thus vacated the rule in its entirety. Accordingly, the reporting obligations imposed by the Rule are no longer in effect, though this could quickly change. This update briefly describes the ruling and what it means for those subject to the Residential Real Estate Rule’s requirements.

Background

On August 28, 2024, FinCEN issued the Residential Real Estate Rule.[2] The Rule covers non-financed transfers of various types of residential real estate, including single-family houses, townhouses, condominiums, cooperatives, and other buildings designed for occupancy by one to four families.[3] Under the Residential Real Estate Rule, a transaction is considered “non-financed” if it does not involve an extension of credit issued by a financial institution required to maintain an AML program and file SARs.[4] The Rule includes exemptions for some common, low-risk types of real estate transfers, such as those resulting from death, divorce, or to a bankruptcy estate.[5] The Residential Real Estate Rule identifies persons required to file a report (Reporting Person(s)) through a “cascade” framework that assigns the reporting responsibility in sequential order to various persons who perform closing or settlement functions for residential real estate transfers.[6] The Reporting Person is required to report certain information about themselves; the transferee of the property; the transferor of the property; the property; and the payments, to FinCEN.[7]

The Residential Real Estate Rule was initially set to go into effect on December 1, 2025. On September 30, 2025, FinCEN delayed the effective date to March 1, 2026.[8]

Court’s Ruling

Plaintiff Flowers Title Companies, LLC, a Texas-based title company, challenged the Residential Real Estate Rule under the Administrative Procedure Act (APA), arguing that FinCEN lacked statutory authority to impose the reporting regime. After briefing, the U.S. District Court for the Eastern District of Texas (Judge Jeremy D. Kernodle) granted summary judgment in favor of Plaintiff and vacated the rule, as exceeding FinCEN’s authority under the Bank Secrecy Act.

The Court analyzed the two Bank Secrecy Act statutory provisions FinCEN invoked as authority to issue the Rule and found neither sufficient:

FinCEN’s authority under 31 U.S.C. § 5318(g)(1), which authorizes the agency to require financial institutions to report “any suspicious transaction relevant to a possible violation of law or regulation.” The Court held that FinCEN’s attempt to characterize all non-financed residential real estate transfers to entities or trusts as categorically “suspicious” failed as a matter of statutory interpretation.
FinCEN’s authority under 31 U.S.C. § 5318(a)(2), which authorizes the agency to require financial institutions to “maintain appropriate procedures, including the collection and reporting of certain information.” The Court held this interpretation was inconsistent with the natural reading of the statute.

The Court vacated and set aside the Residential Real Estate Rule, concluding that vacatur is the only statutorily prescribed remedy under the APA for a successful challenge to agency action and that universal vacatur is appropriate under Fifth Circuit precedent. The Court declined to depart from that default approach, reasoning that the Rule’s statutory deficiencies are fundamental and unlikely to be curable on remand, and that, given the Rule had been in effect for only a short time, vacatur merely restores the pre-rule status quo.

What the Ruling Means for Reporting Persons

Given the Court’s nationwide vacatur, the Residential Real Estate Rule’s reporting obligations are currently unenforceable. FinCEN’s webpage on the Rule states: “ALERT: In light of a federal court decision, reporting persons are not currently required to file real estate reports with FinCEN and are not subject to liability if they fail to do so while the order remains in force.”[9] As such, title companies, settlement agents, and others who would have been Reporting Persons under the rule are not currently required to file reports with FinCEN.

However, the government may appeal and seek an emergency stay of the vacatur from either the Fifth Circuit or the Supreme Court. It is notable that Judge Kernodle is not the only court to opine on the legality of the Residential Real Estate Rule. A judge in the Middle District of Florida reached the opposite conclusion in an earlier case.[10]  Given the possibility of either the Fifth Circuit or the Supreme Court staying the district court’s order pending appeal, Reporting Persons’ legal obligations are subject to change on short notice.

Entities and professionals subject to the Rule should monitor this matter closely and consult with counsel as necessary to understand whether and when its obligations may be reinstated.

[1]  Flowers Title Companies, LLC v. Bessent, et al., 25-cv-127 (E.D. Tex. Mar. 19, 2026).

[2] The rule was codified at 31 C.F.R. § 1031.320. FinCEN described the rule in a series of documents in 2024. Press Release, U.S. Dep’t of the Treasury, FinCEN, FinCEN Issues Final Rules to Safeguard Residential Real Estate, Investment Adviser Sectors from Illicit Finance (Aug. 28, 2024), https://www.fincen.gov/news/news-releases/fincen-issues-final-rules-safeguard-residential-real-estate-investment-adviser; Fact Sheet: FinCEN Issues Final Rule to Increase Transparency in Residential Real Estate Transfers, https://www.fincen.gov/sites/default/files/shared/RREFactSheet.pdf; Real Estate Reports Frequently Asked Questions, https://www.fincen.gov/sites/default/files/shared/RREFAQs.pdf (Real Estate FAQ); 89 Fed. Reg. 70258 (Aug. 29, 2024), https://www.federalregister.gov/documents/2024/08/29/2024-19198/anti-money-laundering-regulations-for-residential-real-estate-transfers.

[3] 89 Fed. Reg. at 70265-66; Real Estate FAQ B.3.

[4] 89 Fed. Reg. at 70266.

[5]  Id. at 70266-69.

[6]  Id. at 70270-72.

[7] 31 C.F.R. § 1031.320.

[8]  https://www.fincen.gov/news/news-releases/fincen-announces-postponement-residential-real-estate-reporting-until-march-1.

[9]  https://www.fincen.gov/rre.

[10]  Fidelity Nat’l Fin., Inc. et al. v. Bessent et al., 3:25-CV-554-WWB-SJH, 2025 WL 4477503 (M.D. Fla. Dec. 9, 2025), report and recommendation adopted sub nom. Fid. Nat’l Fin., Inc. v. Bessent, No. 3:25-CV-554-WWB-SJH, 2026 WL 472350 (M.D. Fla. Feb. 19, 2026).

The following Gibson Dunn lawyers prepared this update: Stephanie Brooker, M. Kendall Day, Eric Feuerstein, Jesse Sharf, Ella Alves Capone, and Sam Raymond.

Gibson Dunn has deep experience with issues relating to the Bank Secrecy Act, other AML and sanctions laws and regulations, and the defense of financial institutions more broadly. For assistance, please contact any of the authors, the Gibson Dunn lawyer with whom you usually work, or any of the leaders and members of the firm’s Anti-Money Laundering / Financial Institutions, Financial Regulatory, Real Estate, and White Collar Defense & Investigations practice groups:

Anti-Money Laundering / Financial Institutions:
Stephanie Brooker – Washington, D.C. (+1 202.887.3502, sbrooker@gibsondunn.com)
Jason J. Cabral – New York (+1 212.351.6267, jcabral@gibsondunn.com)
M. Kendall Day – Washington, D.C. (+1 202.955.8220, kday@gibsondunn.com)
Ro Spaziani – New York (+1 212.351.6255, rspaziani@gibsondunn.com)
Ella Alves Capone – Washington, D.C. (+1 202.887.3511, ecapone@gibsondunn.com)
Sam Raymond – New York (+1 212.351.2499, sraymond@gibsondunn.com)

Financial Regulatory:
William R. Hallatt – Hong Kong (+852 2214 3836, whallatt@gibsondunn.com)
Michelle M. Kirschner – London (:+44 20 7071 4212, mkirschner@gibsondunn.com)
Jeffrey L. Steiner – Washington, D.C. (+1 202.887.3632, jsteiner@gibsondunn.com)

Real Estate:
Eric M. Feuerstein – New York (+1 212.351.2323, efeuerstein@gibsondunn.com)
Jesse Sharf – Century City (+1 310.552.8512, jsharf@gibsondunn.com)

White Collar Defense & Investigations:
Stephanie Brooker – Washington, D.C. (+1 202.887.3502, sbrooker@gibsondunn.com)
Winston Y. Chan – San Francisco (+1 415.393.8362, wchan@gibsondunn.com)
Nicola T. Hanna – Los Angeles (+1 213.229.7269, nhanna@gibsondunn.com)
F. Joseph Warin – Washington, D.C. (+1 202.887.3609, fwarin@gibsondunn.com)

While climate litigation against corporations will continue, particularly in disclosure, greenwashing, and supply chain contexts, this decision is likely to limit the prospects of claims seeking direct emissions reductions through private law doctrines in Germany.

On 23 March 2026, the German Federal Court of Justice (Bundesgerichtshof, Court) rejected two climate lawsuits against Mercedes-Benz and BMW which sought to prohibit both companies from selling cars with internal combustion engines after October 2030, despite EU emissions regulation that allows such sales at least until 2035. Gibson Dunn represented Mercedes-Benz in the matter.

The Court dismissed the claims in their entirety, confirming important limits on the use of German civil law to advance climate-related claims against private actors, such as large corporations. The verdicts mark the first time that Germany’s highest civil court had to decide a climate lawsuit brought by individuals against private actors. It may have significant persuasive authority in pending climate cases in other European jurisdictions.

I. Key Takeaways

The Court rejected attempts to impose company-specific greenhouse gas (GHG) emissions limits through civil litigation.
The Court reaffirmed that climate policy, particularly the allocation of emissions budgets to individual private actors, is a matter for the legislature, not the courts.
The decision marks a significant limitation on the viability of climate litigation against private entities in Germany.

II. Plaintiffs and Their Theory of the Case

The plaintiffs are three executive directors of the German environmental NGO “Deutsche Umwelthilfe” (Environmental Action Germany). They sued not in their official capacity but as individual citizens.

In short, plaintiffs claimed that without the requested ban on vehicles with internal combustion engines after October 2030, the German legislature would be required to pass drastic laws in the future to combat climate change. Those laws would severely impact plaintiffs’ individual freedoms (using certain modes of transportation, etc.).

III. Procedural History

The lower courts had rejected plaintiffs’ claims and did not grant leave for appeal to the Federal Court of Justice. In summary, they held that the defendants’ compliance with existing EU emissions regulations barred claims based on general principles of German nuisance and tort law seeking to impose more stringent restrictions on the defendants than existing emissions regulations (OLG Munich, Verdict dated 12.10.2023, 32 U 936/23; OLG Stuttgart, Order dated 08.11.2023, 12 U 170/22).

In light of the novel legal questions presented by climate lawsuits under German civil law, the Court granted plaintiffs’ request to obtain leave for further appeal. On March 2, 2026, the Court held a hearing on the merits, which drew significant media attention.

IV. Reasoning of the Court

The Court’s decision rests on several core grounds:

1. No actionable interference with plaintiff’s individual rights

The Court held that the plaintiffs failed to establish a present or sufficiently concrete future infringement of their protected rights. The concept of an “interference-like pre-effect” (eingriffsähnliche Vorwirkung) derived from constitutional climate jurisprudence of the German Federal Constitutional Court was found inapplicable absent a defined and allocated emissions budget on the automakers by the legislature.

By way of background, in a landmark decision of 2021, the German Federal Constitutional Court had dealt with challenges brought by certain individuals against the German Climate Protection Act (Klimaschutzgesetz). The German Federal Constitutional Court opined that present-day GHG emissions may have an anticipatory effect on how citizens may be able to enjoy their freedoms in the future. As a result, the German Federal Constitutional Court held that Germany as a whole was required to take appropriate steps to limit GHG emissions to the maximum national GHG budget derived from the Paris Agreement in order to ultimately achieve climate neutrality as a country.

Picking up on the decision of the German Federal Constitutional Court, the German Federal Court of Justice pointed out that for private actors, there was no such maximum emissions budget under German law. Thus, in the view of the Court, German civil law does not provide a basis for making private actors individually responsible to comply with the Paris Agreement.

2. No basis for attributing emissions to individual manufacturers

The Court also held that potential climate effects of GHG emissions could not be attributed to the defendant automakers under German principles of attribution. Under established German case law, liability as an indirect “disturber” (mittelbarer Störer) requires more than a mere causal contribution to a harmful outcome. Specifically, attribution depends on a normative assessment of responsibility, typically grounded in the breach of specific duties of conduct and a delineation of spheres of responsibility.

Against this background, the Court rejected attribution on several grounds:

The Court found that, under current law, there are no specific legal obligations requiring automakers to limit their activities in line with a company-specific share of global emissions reductions. Neither German climate legislation nor EU law assigns individual emissions budgets or reduction obligations to specific companies.
The Court stressed that attribution would require a prior legislative determination allocating responsibility for emissions to individual actors. Such a “normative attribution” is currently lacking. In particular, existing climate law operates at the national and supranational levels and does not break down overall emissions budgets to the level of individual companies.
To the extent the claim was based on anticipated future restrictions imposed by the legislature, the Court held that such measures would be attributable only to the legislature as the immediate actor. Absent a concrete allocation of GHG budgets to individual companies, it would violate the judiciary’s constitutional powers to impute future legislative action to private entities.

3. Inadequacy of civil law mechanisms for systemic climate issues

The Court further held that claims based on private law principles of nuisance and tort are not suitable for addressing global, multi-actor phenomena such as climate change. According to the Court, civil law is designed for bilateral disputes, not for resolving complex societal and regulatory questions affecting indeterminate groups.

The Court emphasized that the allocation of emissions budgets and the balancing of intertemporal freedoms fall within the responsibility of the democratically legitimized legislature. Courts lack both the institutional competence and democratic mandate to determine and distribute emissions quotas among private actors.

4. Primacy of existing regulatory frameworks

The Court relied on the existence of comprehensive EU vehicles emissions regulation, which already seeks to meet the obligations imposed by the Paris Climate Agreement. Where such comprehensive emissions regulation exists, additional, judge-made obligations under civil law are precluded and companies – bar exceptional circumstances – have no duty of care to go beyond the prescribed measures.

The Court was silent on how it might decide cases which do not involve similarly comprehensive emissions regulations. Its reasoning on this point does open a door for plaintiffs in future cases to allege a violation of a company’s duty of care based on German civil law principles. Such a duty of care is at the core of climate litigation in other European jurisdictions, particularly the Netherlands.

5. Territorial and international law constraints

Since the plaintiffs sought to prohibit all emissions from vehicles sold worldwide with combustion engines October 2030, the Court expressed skepticism in the oral hearing that German courts could regulate emissions on a worldwide basis through domestic private law. Under the Paris Agreement, every state is responsible for reducing its own emissions. A verdict for plaintiffs with worldwide effect could jeopardize this system. In the final verdict, however, the Court only briefly alludes to this question without deciding it. Since the claim already was without merit regarding emissions in Germany, the Court did not need to address the question of international emissions.

V. Implications for Climate Litigation in Germany and Beyond

The decision represents a clear judicial boundary for climate litigation against private entities in Germany. The ruling significantly curtails strategic litigation seeking to impose emissions reductions through tort or nuisance-based claims.

The decision may also have a significant guiding effect on climate cases seeking damages for harm already incurred. In particular, the Court’s emphasis that liability requires a normative allocation of responsibility, rather than mere causal contribution, may raise substantial hurdles for claimants seeking to attribute concrete climate-related damage to individual emitters. Absent a legislative framework that assigns specific emissions responsibilities to companies, German courts may be reluctant to find legal attribution, even assuming that scientific contribution could be demonstrated. At the same time, the Court made clear that compliance with existing regulatory regimes weighs heavily against a finding of unlawfulness and therefore, potentially, against liability for negligence in damages cases.

The decision contrasts with more claimant-friendly developments in lower courts in Germany and some European jurisdictions (e.g., the Netherlands) which are based on the particularities of the respective national laws. It remains to be seen whether the decision will be accepted as persuasive authority in such other jurisdictions as well.

We will continue to monitor developments and are available to discuss the implications of this decision for your business.

The following Gibson Dunn lawyers prepared this update: Alexander Horn, Markus Rieder, and Valentin Held.

Gibson Dunn lawyers are available to assist in addressing any questions you may have about these issues. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s ESG: Risk, Litigation, and Reporting practice group in Europe:

Frankfurt:
Alexander Horn (+49 69 247 411 537, ahorn@gibsondunn.com)
Valentin Held (+49 69 247 411 534, vheld@gibsondunn.com)

Munich:
Markus Rieder (+49 89 189 33 260, mrieder@gibsondunn.com)
Carla Baum (+49 89 189 33 263, cbaum@gibsondunn.com)

Paris:
Eric Bouffard (+33 1 56 43 13 00), ebouffard@gibsondunn.com)
Pierre-Emmanuel Fender (+33 1 56 43 13 00, pefender@gibsondunn.com)
Robert Spano (+33 1 56 43 13 00, rspano@gibsondunn.com)