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We are pleased to provide you with the February 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 the Federal Deposit Insurance Corporation (FDIC) released the 2026 stress test scenarios. The Federal Reserve Board voted to maintain the current stress capital buffer requirements through 2027 pending revisions to supervisory stress testing models.
At a Senate Banking Committee hearing, Vice Chair for Supervision Michelle Bowman confirmed the Federal Reserve, OCC and FDIC have reached consensus on a Basel III endgame re-proposal and intend to issue it before the end of March.
The OCC issued a notice of proposed rulemaking to implement the GENIUS Act regarding the issuance of payment stablecoins and certain related activities by entities subject to the OCC’s jurisdiction. For additional information, see our Client Alert.
The OCC finalized its rule on the scope of national trust bank charters to clarify the longstanding authority of national trust banks to engage in non-fiduciary activities in addition to their fiduciary activities. The final rule is effective April 1, 2026.
The National Credit Union Administration (NCUA) issued a proposed rule implementing portions of the GENIUS Act relating to applications for payment stablecoin issuance. The FDIC announced a 90-day extension to the comment period on its related proposal.
Continuing a broader interagency trend toward formalizing supervisory review processes, the OCC issued a proposed rule revising procedures governing appeals of material supervisory determinations.
The New York State Department of Financial Services issued draft regulations establishing a licensing and supervision framework for Buy Now, Pay Later providers. Comments on the draft regulations are due by March 5, 2026.

DEEPER DIVES

Stress Capital Buffer Maintained Through 2027. In conjunction with issuing the final stress test scenarios, the Federal Reserve Board voted to maintain current SCB requirements through 2027, postponing the computation of new buffer levels based on the 2026 test results until revised supervisory models — incorporating public feedback — are finalized. The Federal Reserve Board noted that delaying the recalculation will provide time to refine stress testing methodologies, scenario design, and model documentation following extensive outreach and comments from industry participants. The decision effectively preserves the status quo in capital planning requirements for large banking organizations in the near term, reducing immediate uncertainty over capital buffer changes while the Federal Reserve continues its broader review of stress testing practices and transparency initiatives.

Insights. Maintaining the current SCB requirements through 2027 signals a measured approach by the Federal Reserve, balancing the need for robust capital standards with responsiveness to industry feedback and supervisory model enhancements. Banks should continue integrating scenario details into capital planning and model validation processes while preparing for potential recalibration of SCB requirements once revised stress testing methodologies are finalized.

OCC Proposes Comprehensive Stablecoin Framework to Implement the GENIUS Act. On February 25, 2026, the OCC issued a 376-page proposed rule to implement key provisions of the GENIUS Act for entities under OCC jurisdiction. The proposal would establish a prudential regulatory framework for permitted payment stablecoin issuers, including national banks, federal savings associations, federal branches, federally supervised nonbank entities, and certain foreign issuers operating in the United States. The proposal addresses permissible activities, reserve composition and segregation, redemption timing, capital requirements, audit thresholds, and transition mechanics for larger state-regulated issuers.

Insights. The OCC’s proposed rule establishes the first detailed federal prudential regime for payment stablecoins. While it clarifies core structural requirements, key issues — including reserve diversification, capital calibration, interest/yield interpretation, and multi-brand issuance — remain open. Market participants should evaluate economic models, governance frameworks, and distribution strategies in light of the proposed constraints and engage meaningfully during the comment period. Notably, the OCC seeks comment on more than 200 questions—including how reserve diversification should be structured, how capital should be calibrated, and how multi-brand or co-branded issuance models should be treated under the rule—signaling that several core calibrations remain open and subject to meaningful stakeholder influence.

OCC Finalizes Rule on Scope of National Trust Bank Charters. On February 27, 2026, the OCC finalized a rule amending its chartering regulation (12 C.F.R. § 5.20) to clarify the permissible activities of uninsured national trust banks. The rule replaces references to “fiduciary activities” with the statutory phrase “operations of a trust company and activities related thereto,” aligning the regulation with the National Bank Act. The change resolves ambiguity created by prior regulatory language that had been interpreted by some as limiting trust banks to strictly fiduciary activities or requiring them to perform core banking functions in order to engage in non-fiduciary operations. The final rule is effective April 1, 2026.

Insights. The principal effect of the rule is to confirm that national trust banks may engage in non-fiduciary trust company activities — including custody and safekeeping — without triggering the core banking function requirement applicable to full-service national banks. Notably, the OCC also declined to address whether a national trust bank must conduct fiduciary activities at all or whether any minimum “quantum” of fiduciary activity is required, stating that this question is outside the scope of the rulemaking. By preserving case-by-case discretion and declining to impose a fiduciary threshold, the OCC reduces interpretive uncertainty that had constrained some charter applicants and may broaden the practical appeal of the national trust bank charter for specialized custody, asset servicing, and digital-asset business models, subject to regulatory approval.

OCC Proposes Revisions to Supervisory Appeals Process. On February 17, 2026, the OCC issued a notice of proposed rulemaking to revise its procedures governing appeals of material supervisory determinations. The proposal would modify the composition of the appellate body, clarify timelines for appeal submissions and codify standards of review. The proposal follows the FDIC’s January 2026 establishment of a new Office of Supervisory Appeals and adoption of updated supervisory appeals guidelines. The OCC indicated that the revisions are intended to enhance transparency, consistency, and independence in the appeals process.

Insights. The OCC’s proposal — together with the FDIC’s recent creation of a new Office of Supervisory Appeals — signals a broader interagency effort to strengthen the procedural credibility and independence of supervisory appeals. While the revisions do not alter substantive supervisory standards, they may meaningfully affect how institutions manage disagreements over MRAs, MRA severity, and other material determinations. If the revised framework is perceived as more independent and predictable, institutions may be more willing to utilize the appeals process than in prior years. Banks should view these reforms not merely as technical procedural changes, but as an opportunity to reassess internal escalation, documentation, and board reporting practices around supervisory findings. Even absent a formal appeal, a clearer and more structured appellate framework may alter supervisory dynamics during examinations by providing institutions with greater leverage in negotiating the scope and characterization of findings. Institutions should assess whether their governance and documentation processes position them to effectively evaluate and, if appropriate, pursue appeals under the revised frameworks.

Vice Chair for Supervision Bowman Details Supervisory Priorities and Examination Approach. On February 19, 2026, Vice Chair for Supervision Michelle Bowman delivered opening remarks at the Federal Reserve Bank of Atlanta 2026 “Banking Outlook Conference: The Next Horizon in Banking,” outlining the Federal Reserve’s supervisory and regulatory priorities for the year ahead. Bowman emphasized continued commitment to regulatory and supervisory tailoring, underscoring that supervisory expectations should reflect an institution’s size, complexity, and risk profile rather than impose uniform standards across institutions.
Bowman noted ongoing reviews of the Federal Reserve’s merger and acquisition and de novo chartering processes, including potential streamlining measures and refinements to competitive analysis frameworks aimed at supporting community bank growth. She also provided updates on capital-related initiatives, including continued review of proposed revisions to the Community Bank Leverage Ratio, consideration of adjustments to the mutual bank capital framework, coordination with the OCC and FDIC on U.S. Basel III implementation, refinements to the G-SIB surcharge framework, and efforts to enhance stress testing transparency through expanded model and scenario disclosures.

Bowman further highlighted efforts to recalibrate supervisory findings and Matters Requiring Attention (MRAs) to focus more squarely on material financial risks — including credit, liquidity, and interest rate risk — while reaffirming that operational and cybersecurity risks remain core supervisory priorities. She emphasized that an increased focus on core financial risks does not diminish the Federal Reserve’s attention to nonfinancial risks where safety and soundness concerns are implicated, stating: “Let me be clear: emphasizing core and material financial risks to safety and soundness does not mean neglecting nonfinancial risk. Cybersecurity, for example, remains a top priority. Strong risk management remains essential to the safety and soundness of the institutions we supervise, and we will continue to issue findings and examine for it where appropriate.”

Insights. Bowman’s remarks are consistent with her prior public statements emphasizing regulatory tailoring, supervisory recalibration and incremental refinement of capital frameworks rather than sweeping reform. Her continued focus on aligning supervisory expectations with demonstrable risk — particularly for community and regional institutions — signals that the Federal Reserve’s 2026 supervisory agenda is likely to prioritize proportionality, clarity in MRAs and predictability in capital requirements. While Bowman reiterated that cybersecurity and operational resilience remain core supervisory priorities, the speech reinforces an ongoing effort to concentrate examination findings more squarely on material financial risks. Institutions should view the remarks as confirmation of an evolving supervisory posture rather than a directional shift. With respect to capital, Bowman again signaled that 2026 will be a year of incremental but consequential capital framework refinement rather than sweeping reform. Days later, at a Senate Banking Committee hearing, Bowman confirmed the Federal Reserve, OCC and FDIC have reached consensus on a Basel III endgame re-proposal and intend to issue it before the end of March.

OTHER NOTABLE ITEMS

FDIC Extends Comment Period on Proposed GENIUS Act Rulemaking. On February 6, 2026, the FDIC announced a 90-day extension to the comment period on the FDIC’s notice of proposed rulemaking that would implement the application provisions under the GENIUS Act for state-chartered nonmember banks and state savings associations seeking to issue payment stablecoins through a subsidiary. The FDIC is extending the comment period from February 17, 2026, to May 18, 2026.

NCUA Proposes Rule for Permitted Payment Stablecoin Issuer Applications. On February 12, 2026, the NCUA issued a proposed rule to implement portions of the GENIUS Act relating specifically to payment stablecoin issuers that are subsidiaries of federally insured credit unions (FICUs). Under the proposal, the NCUA would establish the application and licensing process for permitted payment stablecoin issuers (PPSIs) within its jurisdiction and would limit federally insured credit unions to investing only in NCUA-licensed PPSIs. Comments on the proposal are due by April 13, 2026. The NCUA signaled forthcoming rulemakings on substantive PPSI standards, with additional guidance and supervisory updates likely to follow as FICU examination policies and guidance are adapted to incorporate stablecoin supervision.

Speech by Vice Chair for Supervision Bowman on Mortgage Lending. On February 16, 2026, Vice Chair for Supervision Michelle Bowman gave a speech titled “Revitalizing Bank Mortgage Lending, One Step with Basel.” In her speech, Vice Chair for Supervision highlighted the significant long-term decline in bank participation in mortgage origination and servicing, noting that banks’ share of mortgage originations fell from roughly 60% in 2008 to about 35% in 2023, and servicing rights held by banks dropped from around 95% to approximately 45% over the same period. She attributed part of this shift to regulatory capital treatments that may be overly punitive relative to underlying risk, particularly the capital deduction and high risk weight applied to mortgage servicing rights (MSRs) and the uniform risk weighting of on-balance-sheet mortgages irrespective of loan-to-value ratios. Bowman outlined that the federal banking agencies are considering revisions within the Basel framework to better align capital requirements with risk and to encourage bank engagement in mortgage markets. Potential modifications include removing the requirement to deduct MSRs from regulatory capital while reconsidering their appropriate risk weight and introducing greater risk sensitivity for residential mortgage exposures based on credit characteristics such as loan-to-value. She emphasized that such recalibrations aim to support bank participation in mortgage origination and servicing without compromising safety and soundness and invited industry feedback on forthcoming proposals.

SEC Commissioner Uyeda Remarks on Treasuries and Tokenization. On February 9, 2026, Securities and Exchange Commission Commissioner Mark Uyeda gave remarks at the Asset Management Derivatives Forum 2026 conference. In his remarks, Commissioner Uyeda provided a comprehensive update on the Commission’s progress toward mandatory clearing for certain U.S. Treasury securities, outlining benefits and operational challenges as the compliance deadline approaches. Uyeda noted ongoing outreach on interpretive questions—including inter-affiliate transactions and extraterritorial scope—indicating continued engagement with market participants to refine the operational framework ahead of full compliance. On tokenization of securities, Uyeda described the shift from theoretical discussion to practical market developments. He framed tokenization as a potential modernization of capital markets infrastructure that should be integrated within the existing securities regulatory framework, rather than prompting entirely new or separate regulatory regimes.

Federal Reserve Announces Public Outreach Meeting on Review of Regulations. On February 19, 2026, the Federal Reserve announced it will hold a hybrid public outreach meeting on March 26, 2026 as part of the agency’s required review of regulations under the Economic Growth and Regulatory Paperwork Reduction Act. The outreach meeting will present an opportunity for stakeholders to present their views on the regulatory categories for which comment was previously published in the Federal Register: applications and reporting; powers and activities; international operations; consumer protection; directors, officers and employees; money laundering; rules of procedure; safety and soundness; securities; banking operations; capital; and the Community Reinvestment Act. Those interested in providing oral comments must register by March 19, 2026.

FDIC Updates PPE List. On February 24, 2026, the FDIC released an updated list (as of February 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.

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)

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.

The OCC proposal sets forth a detailed prudential, operational and supervisory framework for “permitted payment stablecoin issuers” and marks the first comprehensive federal implementing rule under the GENIUS Act.

On February 25, 2026, the Office of the Comptroller of the Currency (OCC) issued a proposed rule (Proposal) to implement the Guiding and Establishing National Innovation for U.S. Stablecoins Act (the GENIUS Act) for entities within the OCC’s jurisdiction. The Proposal would establish a new regulatory framework governing the issuance of “payment stablecoins” and related custody activities of national banks, federal savings associations, federal branches of foreign banks, foreign payment stablecoin issuers, federal qualified payment stablecoin issuers and certain state qualified payment stablecoin issuers.

The Proposal sets forth a detailed prudential, operational and supervisory framework for “permitted payment stablecoin issuers” (PPSIs) and marks the first comprehensive federal implementing rule under the GENIUS Act. The Proposal would operationalize the GENIUS Act’s statutory requirements, including licensing, reserve composition, capital and liquidity standards, governance and risk management expectations, supervisory reporting and statutory restrictions on PPSI activities.

Comments on the Proposal are due 60 days following publication in the Federal Register. The Proposal contains a comprehensive set of targeted requests for comment (well over 200 discrete questions with multiple subparts) spanning definitions, reserve design, capital methodology, anti-evasion mechanics, operational timing, and interoperability. The OCC explicitly invites evidence and data to support preferred calibrations.

Scope and Covered Entities

The Proposal would apply to PPSIs within the OCC’s jurisdiction under the GENIUS Act, including:

Subsidiaries of national banks and federal savings associations that are organized as PPSIs and approved by the OCC;
Federal qualified nonbank PPSIs chartered or licensed by the OCC pursuant to the GENIUS Act;
Foreign payment stablecoin issuers to the extent they fall within OCC regulatory or enforcement authority under the statute;
State-qualified payment stablecoin issuers that exceed the statutory issuance threshold and transition to federal oversight; and
National banks, federal savings associations, and federal branches engaged in custody or safekeeping of payment stablecoins or reserve assets subject to OCC supervision.

While the Proposal references Bank Secrecy Act and sanctions compliance as applicable legal requirements, it notes that detailed anti-money laundering and sanctions standards will be proposed in a separate coordinated rulemaking.

Permissible and Prohibited Activities of PPSIs

Permissible Activities

The GENIUS Act limits the types of activities that may be conducted by a PPSI to (i) issuing or redeeming payment stablecoins; (ii) managing related reserves; (iii) providing custodial or safekeeping services for payment stablecoins, required reserves, or private keys of payment stablecoins; and (iv) other activities that directly support these enumerated activities.

The Proposal closely tracks the GENIUS Act in defining permissible activities, while layering in clarifications and additional conditions. Permitted activities for PPSIs include:

Issuing and redeeming payment stablecoins;
Managing related reserves, including purchasing, selling, and holding “reserve assets” and providing custodial services for reserves, consistent with applicable law;
Providing custodial or safekeeping services for payment stablecoins, reserve assets, and private keys, subject OCC requirements;
Undertaking “activities that directly support” these core functions (e.g., holding non stablecoin crypto assets as principal solely to test distributed ledger functionality); and
Acting as principal or agent with respect to payment stablecoins and paying “gas” or network fees to facilitate customer transactions.

The OCC clarifies that these authorities sit alongside, and do not curtail, other powers of depository institutions and trust companies to engage in activities permissible pursuant to applicable state and federal law.

The Proposal also explicitly clarifies that stablecoin issuers may assess fees associated with purchasing or redeeming stablecoins, which the OCC views as inherent in the GENIUS Act’s authorized activities.

Prohibition on Payment of Interest or Yield

The Proposal implements the GENIUS Act’s prohibition on paying “any form of interest or yield” to holders “solely in connection with holding, using, or retaining” a payment stablecoin.

The Proposal goes beyond the statutory language to confront concerns on the use of affiliates or related third parties to circumvent this restriction. To address this concern, the Proposal introduces a rebuttable presumption that certain affiliate or third party arrangements designed to replicate yield economics are inconsistent with the statute. Even where the presumption does not apply, the OCC expressly reserves authority to evaluate arrangements on a case-by-case basis if they function as yield in economic substance. For the purposes of the prohibition, the Proposal would define a “related third party” to include “any person paying interest or yield to payment stablecoin holders as a service (i.e., on behalf of the [PPSI]) and any person that the issuer issues payment stablecoins on behalf or under the branding of (i.e., persons that have entered [a] white-label relationship with the issuer).” This anti-evasion presumption may be rebutted, but it is also not intended to be an exclusive example of prohibited relationships intended to evade the prohibition.

The breadth of this restriction is significant in that the prohibition is not limited to traditional interest payments and it potentially encompasses balance-based rewards, rebates, loyalty tokens, profit-sharing arrangements, or other economic benefits tied to holding stablecoin balances. Lastly, the formal legal separation between the issuer and a third-party partner will not be dispositive if economic substance suggests compensation for passive holding. The Proposal therefore places structural constraints on how stablecoin ecosystems may be monetized.

Notably, the Proposal specifically highlights that merchants are not prohibited from independently offering a discount for a holder that uses a specific stablecoin or for issuers to share profits with non-affiliated partners in a white-label agreement. However, the boundaries of this type of permissible activity are unclear.

Other Prohibited Activities

In addition to the prohibited payment of interest or yield, the Proposal includes a number of other prohibited activities, including:

PPSIs may not use a deceptive name or combinations of terms suggesting U.S. government issuance or backing (e.g., “United States Government,” “USG”) in stablecoin names, and may not market payment stablecoins in a way that would cause a reasonable person to view them as legal tender, U.S. government issued, or guaranteed/approved by the United States. References to USD as a pegged currency are not impacted by this prohibition;
PPSIs may not suggest that stablecoins are legal tender, backed by the full faith and credit of the United States or subject to federal deposit or share insurance; and
PPSIs may not pledge, rehypothecate, or reuse required reserve assets, directly or indirectly (including via custodians), except in narrow circumstances.

Reserve Assets and Liquidity Requirements

As required under the GENIUS Act, the Proposal would require a PPSI to maintain identifiable reserve assets on a 1:1 basis backing the “outstanding issuance value” of the PPSI’s payment stablecoins. For these purposes, the Proposal defines “outstanding issuance value” to mean the total consolidated par value of all payment stablecoins for which the PPSI has an obligation to convert, redeem, or repurchase for a fixed amount of monetary value, which generally reflects payment stablecoins in circulation and excludes stablecoins held by a PPSI but not yet issued or permanently removed from circulation. Reserve assets must be maintained at fair value in an amount at least equal to the outstanding issuance value at all times. The OCC notes that the Proposal includes robust liquidity requirements, but does not include any capital-based overcollateralization or reserve asset buffer requirements. The OCC specifically requests comment on whether the final rule should include a reserve asset buffer requirement in excess of the outstanding issuance value and/or remove some of the liquidity requirements, or if the OCC should provide additional guidance on appropriate buffer levels for purposes of prudent risk management.

Eligible Reserve Assets

Under the Proposal, eligible reserve assets are limited to a statutory list of “high-quality, liquid instruments,” consistent with the GENIUS Act, and generally include the following categories:

Cash and balances at the Federal Reserve;
Short-term U.S. Treasury securities;
Qualifying repurchase agreements backed by eligible Treasury collateral;
Certain money market funds invested solely in eligible assets; and
Tokenized representations of eligible reserve assets that meet specified criteria.

The Proposal excludes stablecoins themselves and other crypto assets as eligible reserve assets. This preserves the statute’s requirement that reserves consist of traditional high-quality liquid assets and ensures that payment stablecoins are not backed by volatile or intrinsically unstable instruments.

Reserve Concentration Limits and Diversification Requirements

The Proposal would impose reserve asset diversification and deposit concentration requirements under two proposed frameworks.

Under “Option A” set forth in the Proposal, the OCC would adopt a principles-based diversification requirement, pursuant to which a PPSI would be required to maintain reserve assets that are sufficiently diverse to manage credit, liquidity, interest rate, and concentration risks, taking into account the PPSI’s business model and risk profile. Option A would also include a safe harbor under which a PPSI would be deemed to satisfy the diversification requirement if, on each business day, the PPSI maintains:

At least 10% of its required reserve assets as demand deposits or money at a Federal Reserve Bank;
At least 30% of its reserve assets as demand deposits, at a Federal Reserve Bank, or amounts receivable and due unconditionally within five business days on pending sales of reserve assets, maturing reserve assets, or other maturing transactions;
No more than 40% of its reserve assets at any one eligible financial institution, whether as deposits or insured shares at any one insured depository institution, securities custodied at any one eligible financial institution, bilateral reverse repurchase agreements with any counterparty, or through other exposures;
No more than 50% of the amount required to be immediately available liquidity (i.e., at least 10% of reserve assets held as demand deposits or at a Federal Reserve Bank) at any one eligible financial institution; and
Reserve assets with a weighted average maturity of no more than 20 days.

In addition, the Proposal would impose a mandatory minimum amount of insured deposit reserves—at least 0.5% of reserve assets, up to a maximum of $500 million—for PPSIs with at least $25 billion in stablecoin issuance value.

The OCC notes that Option A is intended to provide flexibility for PPSIs—particularly smaller, less complex issuers—to satisfy diversification standards without meeting all of the safe harbor requirements.

Under Option B, these same Option A quantitative benchmarks would apply – but they would be mandatory requirements for all PPSIs, rather than considered to be a safe harbor.

Segregation and Use Restrictions

The OCC’s preamble emphasizes that reserve assets must be “segregated from the issuer’s own operating assets” and held in a manner that protects them from commingling, rehypothecation for unrelated purposes, or loss in insolvency. This reflects the statutory objective of protecting holders’ redemption rights by ensuring that reserves are legally and operationally insulated from the issuer’s risk-taking or commercial activities.

Capital Requirements

Consistent with how the OCC evaluates and sets capital requirements for newly chartered national trust banks under OCC Bulletin 2007-21, the Proposal would require a PPSI to maintain capital sufficient to support its ongoing operations, with capital requirements tailored to the PPSI’s business model and risk profile. At inception, a PPSI would be required to maintain capital equal to the greater of (1) the minimum amount specified in a de novo or other OCC approval order, or (2) $5 million.[1] In addition, each PPSI would be required to establish and maintain a process for assessing capital adequacy on an ongoing basis based on its risk profile and operating history, subject to supervisory review.

PPSIs would be required to maintain an operational liquidity backstop consisting of highly liquid assets generally sufficient to maintain operations of the stablecoin issuer during a business disruption and calculated based on the actual total operating expenses of the stablecoin issuer over the past 12 months, calculated quarterly. This liquidity backstop is consistent with the OCC’s approach to chartering national trust banks, which typically requires a pool of liquid assets sufficient to cover six to 12 months of expenses.

PPSIs would also be required to include Accumulated Other Comprehensive Income (AOCI) as a component of CET1 capital. This inclusion would make PPSIs subject to potential regulatory capital volatility associated with changes in value of available-for-sale fixed income securities (e.g., due to changes in interest rates), though the OCC expects that any changes in value to the short-dated securities permitted to be held by PPSIs would likely generate immaterial amounts of AOCI.

While not in the proposed regulations, the OCC noted that it is also considering a variable capital component tied more directly to price and interest rate risk of stablecoin reserve assets. Under this approach, a capital charge would apply to reserve assets that consist of U.S. Treasuries, repurchase agreements, and tokenized versions of those assets.

PPSI Application Timeline and OCC Review Framework

The GENIUS Act provides that the OCC must act on certain applications within 120 days. The Proposal clarifies that this statutory review period begins only once the OCC determines that an application is “substantially complete.”

The Proposal establishes application and approval requirements for entities seeking to become PPSIs under OCC supervision. Applicants must establish that they will satisfy the statutory and regulatory standards governing:

Permissible and prohibited activities,
Reserve assets and liquidity requirements,
Redemption mechanics,
Capital sufficiency,
Operational resilience and internal controls, and
Applicable compliance obligations.

The Proposal further notes that the OCC may impose conditions on approvals and retains authority to determine whether an applicant satisfies the statutory and regulatory criteria for PPSI status.

Covered Custodians

Safekeeping Standards

The Proposal prescribes standards consistent with the GENIUS Act for covered custodians providing custodial or safekeeping services for “covered assets”. Covered assets would include payment stablecoin reserves, payment stablecoins used as collateral, private keys used to issue payment stablecoins, and any cash or other property received in connection with the provision of custodial or safekeeping services for such assets. Covered custodians would include national banks, federal savings associations, federal branches, and PPSIs to the extent they engage in custody activities subject to the Proposal.

The Proposal would impose minimum principles‑based requirements designed to ensure that covered assets are treated as customer property and protected from claims of the custodian’s creditors. Covered custodians would be required to maintain written policies, procedures, and internal controls commensurate with their size, complexity, and risk profile, and to separately account for covered assets. In addition, covered custodians would be required to maintain possession or control of covered assets that are held directly, including in a digital wallet for which the covered custodian controls the associated private keys.

The Proposal clarifies that certain segregation requirements of customer assets from that of the covered custodian do not apply in the case of a depository institution that provides custodial or safekeeping services for covered assets that are in the form of cash to the extent the depository institution holds such cash in the form of cash on deposit, provided such treatment is consistent with federal law.

The Proposal would permit omnibus arrangements for multiple customers’ covered assets if recordkeeping and controls are sufficient to preserve customers’ interests and meet safety and soundness standards.

Reporting

The OCC indicates a preference in the Proposal to leverage existing Call Report Schedule RC-T data for bank custodians and quarterly financial reporting for nonbank issuers, but is considering requiring covered custodians to report on a separate form maintained by the OCC: (1) total covered assets under custody, and (2) total payment stablecoin reserves under custody. For payment stablecoin reserves under custody, the OCC is further considering requiring covered custodians to report the following: (a) total payment stablecoin reserves under custody for (i) an affiliate and (ii) third parties; (b) total payment stablecoin reserves held in a deposit account at (i) the covered custodian and (ii) a third-party depository institution; (c) total payment stablecoin reserves held in a deposit account that are not covered by FDIC insurance at (i) the covered custodian and (ii) a third party depository institution; and (d) total payment stablecoin reserves held in each of the eight eligible reserve asset categories.

Other Notable Provisions:

Timely Redemptions. The Proposal would require a PPSI to establish and publicly disclose policies and procedures providing for the “timely” redemption of payment stablecoins at par. Generally, a PPSI would be required to redeem a payment stablecoin no later than two business days following a valid redemption request. The Proposal highlights limited circumstances in which a payment redemption may be extended for up to seven calendar days – namely if a PPSI faces redemption demands in excess of 10% of its outstanding issuance value within a single 24‑hour period. Upon such an event, the PPSI would be required to notify the OCC within 24 hours and timely redemptions would be immediately extended to seven calendar days.
Examination Cycles and Standards. Consistent with the practice for national banks and federal savings associations, PPSIs would be subject to regular full-scope supervisory examinations at least once every 12 months, though in some cases every 18 to 36 months, as determined by the OCC in its sole discretion for PPSIs with an outstanding issuance value of less than $1 billion or less than $25 billion in total monthly trading volume that meet certain regulatory and compliance requirements. The OCC would also retain the flexibility to conduct more frequent or targeted examinations or reviews as it deems necessary.
Large State Issuers. The Proposal would require if a state-regulated nonbank PPSI exceeds $10 billion of payment stablecoins in circulation, it must notify the OCC within five business days of exceeding that threshold, complete of a capital analysis within 270 days and transition to OCC oversight within 360 days, receive a waiver from the OCC, or otherwise cease issuing new payment stablecoins until the circulation amount is under the $10 billion threshold (on a net basis).
Disclosures and Reporting. The Proposal would impose explicit public disclosure obligations designed to reinforce transparency and reduce run risk. In particular, a PPSI would be required to establish and publicly disclose policies and procedures governing the “timely” redemption of payment stablecoins at par and publish monthly reports on reserves held. Each PPSI would be also required to submit to the OCC (i) a confidential weekly report regarding the issuance and redemption, trading volume and reserve assets for each issuance, (ii) a quarterly report on the financial condition of the PPSI within 30 days of the end of the prior quarter and (iii) audited financial statements annually within 120 days after the end of its fiscal year. In addition, PPSIs would be subject to several event-driven and supervisory notice requirements.
Open Question on Co-Branding and Multi-Brand Issuance. The Proposal does not prohibit, but explicitly requests comment on whether a PPSI should be prohibited from issuing more than one brand of payment stablecoins, with the OCC noting in the preamble that is recognizes advantages PPSIs issuing under multiple brands, but also noted that it may also “foster uncertainty about reserve assets and encourage contagion and run risk among brands of payment stablecoins”. If multiple-brand issuances are not permitted by a PPSI, the OCC noted that it is considered streamlining the process for approving PPSI applications if an affiliate of the applicant has already been approved, in order to permit the sharing of back-office functions and services between legally separate issuers).
Transactions with Affiliates. The Proposal would require a PPSI to ensure that transactions with affiliates and insiders are on market terms, “not excessive and do not pose a significant risk of material financial loss” and are “appropriately documented and reviewed by the board of directors” of the PPSI. The Proposal does not define what constitutes “excessive” or what may pose a “significant risk of material financial loss”.
Change in Control Review. The Proposal would require that the OCC receive prior notice of any change in control of an OCC-regulated stablecoin issuer using definitions and procedures currently applicable to national banks under the OCC’s “Change in Bank Control Act” regulations. Under these standards, prior notice to the OCC may be required in some circumstances for the acquisition of a 10% or greater voting interest in a stablecoin issuer. The OCC would retain the right to approve, object or request additional time to review the proposed change in control.
State Law Preemption. The OCC describes but does not codify several GENIUS Act provisions that it views as “self executing” and central to the federal–state allocation of authority. These include: (i) exclusive OCC licensing and visitorial authority over Federal qualified payment stablecoin issuers, preempting competing state licensing or charter requirements and (ii) preemption of state charter or licensing requirements for PPSIs. The OCC invites comment on whether these self-executing GENIUS Act provisions should nonetheless be reflected in OCC regulations for convenience.

Key Takeaways for Market Participants

Stablecoin issuance is being prudentialized — not lightly regulated. The Proposal places payment stablecoins squarely within a bank-like supervisory framework emphasizing reserve integrity, capital adequacy, liquidity discipline, and governance. Stablecoin issuance will resemble specialized banking, not fintech licensing.
Regulatory calibration will drive economics. Reserve diversification design, capital methodology, and the interest prohibition will likely shape economic outcomes more than technological design decisions.
Co-branding remains unresolved and strategically significant. Multi-brand issuance models may be restricted or require structural separation. Institutions relying on ecosystem distribution should treat this as a core architectural issue.
Capital requirements will be case-by-case and negotiated. Individualized capital determinations introduce uncertainty but also flexibility. Early engagement and robust risk modeling will be critical.
Liquidity risk tolerance is anchored to the two-day redemption standard. Redemption timing expectations effectively define the minimum operational liquidity buffer.
Scaling introduces regulatory inflection points. The proposed $10 billion and $50 billion issuance thresholds materially impact reporting, examination, and governance obligations.
The comment period is unusually consequential. With more than 200 targeted questions and key areas where the OCC highlights openness to alternative proposals, stakeholders have a rare opportunity to shape the first generation of federal stablecoin prudential standards.

The Proposal represents the most comprehensive federal framework for payment stablecoins to date. Although it establishes a structured prudential regime, it leaves open critical design questions — particularly around reserve diversification, capital calibration, interest economics, and multi-brand issuance — that will shape competitive dynamics and ecosystem architecture.

For institutions considering entry into the stablecoin market, advocacy matters. The final contours of the rule will determine whether and how payment stablecoins evolve as foundational components of next-generation regulated payment infrastructure. Institutions that engage early — both strategically and in the comment process — will be best positioned to influence and adapt to the emerging regime.

[1] The OCC states in the Proposal that, based on its experience chartering de novo national trust banks seeking to provide stablecoin programs, “minimum capital amounts ranging from $6.05 million to $25 million would be necessary to establish a viable business model.”

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.

Please feel free to contact the Gibson Dunn lawyer with whom you usually work, any member of Gibson Dunn’s Financial Institutions, Financial Regulatory, Fintech and Digital Assets, Public Policy or Administrative Law and Regulatory practice groups, or the following authors:

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

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

Gibson Dunn’s Workplace DEI Task Force aims to help our clients navigate the evolving legal and policy landscape following recent Executive Branch actions and the Supreme Court’s decision in SFFA v. Harvard. Prior issues of our DEI Task Force Update can be found in our DEI Resource Center.

Key Developments

On February 26, U.S. Equal Employment Opportunity Commission (“EEOC”) Chair Andrea Lucas issued a letter to chief executive officers, general counsel, and board chairs of the 500 largest employers in the United States to educate them about her views on the potential for race- and sex-based discrimination in corporate DEI programs. The letter asserts that the “bedrock American principle[]” of equality has been “under attack” by “movements and ideologies” that “demand equal outcomes over equal treatment” and “promote discrimination against certain races or groups.” Chair Lucas writes, “we are the Equal Employment Opportunity Commission, not the Equitable Employment Outcomes Commission.” The letter states that the EEOC is committed to using “every available resource” to eradicate what it views as discriminatory practices in the workplace. In a press release regarding the letter, Chair Lucas, echoing Chief Justice Roberts in the SFFA v. Harvard admissions decision, stated that “[t]he only lawful way to stop discrimination on the basis of race or sex, is to stop discrimination on the basis of race or sex,” and urged corporate leaders to “reject identity politics” as a solution to workplace issues.

On the same day, the EEOC issued a decision holding that Title VII permits federal employers to maintain sex-separated bathrooms, and similar intimate spaces, based on biological sex and does not require special exceptions for transgender employees, reversing a 2015 EEOC decision which held that federal agencies “must allow” trans-identifying employees access to the “opposite sex restroom.” The case arose when a “male employee” of the U.S. Army began “identif[ying] as a woman” and requested access to female-designated bathrooms and locker rooms. The Army denied the request based on Executive Order 14168, which directed agencies to ensure that “intimate spaces” are designated by sex rather than identity. The EEOC reasoned that because of innate reproductive and physical differences between men and women, the sexes are not “similarly situated” when it comes to bathrooms and other intimate spaces where privacy expectations apply and, therefore, separating men and women under such circumstances is not discriminatory under Title VII. The EEOC also concluded that under the Supreme Court’s 2020 decision in Bostock v. Clayton County, trans-identifying employees are entitled to equal treatment, not exemptions from generally applicable workplace rules, including rules to use the bathroom corresponding to one’s biological sex. The EEOC’s decision applies only to federal agencies subject to the EEOC’s administrative complaint process and does not bind private sector employers or federal courts. In a LinkedIn post about the decision, Chair Lucas said that “[w]hen it comes to bathrooms, male and female employees are not similarly situated. Biology is not bigotry.” The case is Selina S. v. Dep’t of the Army, EEOC Appeal No. 2025003976 (Feb. 24, 2026).

Beginning on March 1, 2026, the Fair Investment Practices by Venture Capital Companies Law (“FIPVCC”) will require certain “venture capital companies” with broadly defined ties to the State to begin registering with the California Department of Financial Protection and Innovation (“DFPI”). By April 1, 2026, these covered entities must submit their first annual report, which will cover in-scope activities from 2025. The law mandates that these firms collect and report anonymized, aggregated demographic data on the founding teams of their portfolio companies, including information on race, ethnicity, gender identity, LGBTQ+ status, and disability status. While participation in the founder surveys is voluntary, the collected data will be published online by DFPI. Firms that fail to comply will be given a 60-day period to cure the deficiency before potentially facing penalties. In preparation for these new requirements, affected firms are advised to confirm their coverage under the law, identify their reportable 2025 venture capital investments, and implement processes for surveying founders and securely managing the data. For more information, please refer to the Gibson Dunn client alert on this topic.

On February 24, the United States Court of Appeals for the Sixth Circuit affirmed the dismissal of a putative-class action lawsuit alleging racially discriminatory grantmaking in violation of Section 1981 by Progressive Preferred Insurance, Progressive Casualty Insurance, and Circular Board. The defendants’ program—which was discontinued after the Supreme Court’s 2023 decision in SFFA v. Harvard—offered ten $25,000 grants to small businesses to help them buy a commercial vehicle and limited eligibility to Black-owned businesses.

In a 2-1 decision, Judge Andre Mathis, joined by Judge David McKeague, held that the lead plaintiff, a white commercial truck driver, lacked standing to challenge the defendants’ grant program because he failed to submit an application for the grant. The Sixth Circuit adopted the plaintiff’s two-contract theory, which distinguished between an “application-stage” contract and subsequent “grant-stage” contract, but held that the plaintiff’s injury was “self-inflicted” because he never applied to the grant program and therefore could not establish that the defendants caused his injury. The court noted that the plaintiff did not plead any race-based barriers to entering into an “application-stage” contract or allege that the grant application required him to disclose his race or certify compliance with any race-based eligibility criteria before applying. Thus, the court reasoned that because the plaintiff chose not to submit his application, he never subjected himself to the allegedly discriminatory race-based criteria for the subsequent “grant-stage” contract. Judge Danny Boggs dissented, disagreeing with the majority’s description of the plaintiff’s injury as “self-inflicted” because the grant program “clearly discriminated” based on race and led to the plaintiff’s injury of an “unequal contracting opportunity based on race.” The case is Nathan Roberts v. Progressive Preferred Insurance Co., No. 24-3454 (6th Cir. 2025).

On February 17, the EEOC sued Coca-Cola Beverages Northeast, Inc., alleging it engaged in unlawful employment practices on the basis of sex in violation of Title VII of the Civil Rights Act of 1964. The complaint alleges that Coca-Cola Northeast invited only female employees to an “employer-sponsored trip and networking event” at a casino resort, which featured a “social reception, team-building exercises and recreational activities,” excusing them from their regular work duties and paying their normal wages. The complaint alleges that Coca-Cola Northeast’s exclusion of male employees from attending and participating in the event constitutes a “denial of equal compensation, terms, conditions, or privileges of employment on the basis of sex.” EEOC Chair Andrea Lucas posted about the suit on LinkedIn, stating that “Title VII does not permit sex segregation and sex-based disparate treatment in privileges of employment like employer-sponsored events, trips, networking, and training.” The case is EEOC v. Coca-Cola Beverages Northeast, Inc., No. 1:26-cv-00115 (D. N.H. 2026).

On February 6, the United States Court of Appeals for the Fourth Circuit vacated an injunction barring enforcement of Executive Orders 14151 (“Ending Radical and Wasteful Government DEI Programs and Preferencing”) and 14173 (“Ending Illegal Discrimination and Restoring Merit-Based Opportunity”). The Fourth Circuit previously stayed the injunction pending the resolution of the appeal. The plaintiffs (the National Association of Diversity Officers in Higher Education, the American Association of University Professors, and the Mayor and City Council of Baltimore Maryland), argued that the “Termination Provision” of EO 14151 and the “Certification Provision” and “Enforcement Threat Provision” of EO 14173 violate the First and Fifth Amendments. Those provisions require all agencies to (1) terminate all DEI-related positions, programs, and performance requirements, (2) include in every contract or grant award a provision that states the contractual counterparty or grant recipient does not operate unlawful programs promoting DEI, and (3) prepare a plan specifying measures to deter unlawful DEI programs, respectively.

The three-judge panel—Chief Judge Albert Diaz, Judge Pamela A. Harris, and Judge Allison J. Rushing—held that the plaintiffs lacked standing with respect to the Enforcement Threat Provision because the allegations “that they’ll be forced to restrict” their speech “or face penalties” “overstate[d]” the text of the provision. The court explained that the provision “focus[es] on internal government agency processes and programs and reporting to the President from his subordinates,” and that the plaintiffs are not in imminent danger of injury because they are not “agenc[ies] within the executive branch of government.” Turning to the Termination and Certification Provisions, the court held that plaintiffs had standing but concluded that their facial challenges as to each were unlikely to succeed. The court held that plaintiffs’ Fifth Amendment claim as to the Termination Provision was unlikely to succeed because the directive to terminate “equity-related” grants was not impermissibly vague. The court also found that plaintiffs’ First Amendment challenge to the Certification Provision was also likely to be unavailing because the provision effectively asks plaintiffs only to “certify compliance with federal antidiscrimination law,” and therefore does not burden “protected speech” because “plaintiffs have no protectable speech interest in operating” DEI programs that violate federal antidiscrimination law.

The court suggested that an as-applied challenge may be more likely to succeed than a facial challenge, if, for example, “the President, his subordinates, or another grantor misinterprets federal antidiscrimination law” in terminating a particular DEI program. And in a concurring opinion, Chief Judge Diaz emphasized that the court was presented with a “facial challenge,” not the legality or termination of a particular DEI program, which “makes all the difference.” He also stated that the evidence presented by the plaintiffs indicates that programs have been “terminated by keyword,” and “valuable grants” have been “gutted in the dark.” He concluded, “[f]or those disappointed by the outcome, I say this: Follow the law. Continue your critical work. Keep the faith. And depend on the Constitution, which remains a beacon amid the tumult.”

On February 9, a group of anonymous law students and the EEOC filed a stipulation voluntarily dismissing a lawsuit the students filed in response to the EEOC’s March 17 letters requesting information from twenty law firms. The lawsuit was filed after the EEOC sent requests to the law firms requesting information including the name, sex, race, GPA, and contact information for law students who applied for jobs since 2019. The EEOC stated that responding to the requests was voluntary, most law firms “did not provide any of the requested information,” and any information provided to the EEOC by law firms in response to the March 17 letters “did not include names, email addresses, phone numbers, or other personally identifying information of any law firm employee or applicant.” The stipulation states that the EEOC “considers the matter of responding to those letters closed.” The case is Doe 1 et. al v. EEOC, et. al, No. 25-cv-1124 (D.D.C. 2025).

On February 5, Judge John Ross of the U.S. District Court for the Eastern District of Missouri dismissed a lawsuit filed by the State of Missouri against Starbucks in which Missouri alleged that the company’s DEI commitments were pretext to discriminate on the basis of race, gender, and sexual orientation. The court found that the State lacked standing, because it “did not point to even a single Missouri resident” who suffered an adverse employment action because they lacked Starbucks’s “preferred racial or sex characteristics.” The court dismissed the State’s claims under both Title VII and the Missouri Human Rights Act. The case is State of Missouri v. Starbucks Corp., No. 4:25-cv-00165 (E.D. Mo. 2025).

On February 4, the EEOC filed a motion in the Eastern District of Missouri to enforce an administrative subpoena issued in its investigation of Nike for alleged violations of Title VII. The EEOC alleges that Nike engaged in unlawful employment practices by “engaging in a pattern or practice of disparate treatment against White employees, applicants, and training program participants,” including by committing to allegedly unlawful “race-based workforce representation quotas,” as evidenced by its published “2025 Targets.” The EEOC subpoenaed information relating to layoff decisions, executive compensation policies and decisions tied to DEI metrics, demographic and pay data for people of color that was provided to Nike executives, and programs aimed at increasing the representation of racial and ethnic minorities in the workforce. The EEOC asserts that Nike provided “some but not all the information and documents required” and therefore failed to “fully comply” with the subpoena. On February 12, 2026, the court ordered Nike to respond to the EEOC’s motion by March 16, 2026.

On January 30, 2026, Federal Trade Commission (“FTC”) Chairman Andrew N. Ferguson issued a letter to 42 law firms warning that their participation in the Diversity Lab’s Mansfield Certification program may expose them to potential antitrust liability. The letter alleges that to be eligible for Mansfield Certification, firms agree that at least 30% of the candidates they consider for leadership and promotion will come from underrepresented “racial and other groups” and agree to participate in monthly information-sharing calls with competitor firms to exchange strategies for achieving the program’s DEI benchmarks. The letter states that such coordination among competing employers could violate Section 1 of the Sherman Act and Section 5 of the FTC Act by distorting competition for legal talent, suppressing wages and benefits, and depriving labor markets of independent decision-making. Although the letter does not allege unlawful conduct by recipient law firms, it advises the firms to re-evaluate their relationship with Diversity Lab and peer firms in light of their obligations under federal antitrust law. Last spring, Judge Beryl Howell of the U.S. District Court for the District of Columbia wrote that the Mansfield program does not violate anti-discrimination laws because it “expressly does not establish any hiring quotas or other illegally discriminatory practices” and requires “only that participating law firms consider attorneys from diverse backgrounds for certain positions.” The case is Perkins Coie LLP v. U.S. Dep’t of Justice, et al., No. 25-716 (D.D.C. 2025) and is on appeal at the D.C. Circuit Court of Appeals, No. 25-05241 (D.C. Cir.).

On February 12, 2026, Bloomberg reported that Diversity Lab founder Caren Ulrich Stacy announced that the organization will pause its Mansfield program. According to Ulrich Stacy, the organization’s operating funds have been “substantially depleted by the need to respond to Executive Orders, DOJ law-firm lawsuits, and EEOC letters to law firms.” Ulrich Stacy stated that the FTC’s January 30 letters led to hundreds of concerned emails from clients. Most of Diversity Lab’s small team will be furloughed and the organization will operate with only one part-time employee and Ulrich Stacy herself.

Media Coverage and Commentary

Below is a selection of recent media coverage and commentary on these issues:

Washington Post, “Colleges quietly cut ties with organizations that help people of color” (February 19): Todd Wallack of The Washington Post reports that, under pressure from the Trump Administration, many colleges have cut ties with organizations associated with assisting racial minorities. He reports that following the U.S. Department of Education’s civil rights investigations into multiple colleges’ partnerships with the PhD Project, which seeks to diversify the pipeline of aspiring business school professors, more than 100 colleges have ended their relationship with the organization. According to Wallack, the Administration initiated these investigations because the PhD Project limited participation at a prior conference to indigenous students and students of color, although the PhD Project has since opened its annual conference to students of any race. Wallack reports that 31 universities have reached agreements with the Trump Administration to identify their partnerships with organizations that “restrict participation based on race” and either end those partnerships or explain why they will not. Wallack also reports that 14 additional universities are still negotiating with the Administration to resolve their civil rights investigations related to the PhD Project.
Wall Street Journal, “DEI is a Threat to Americans’ Health” (February 12): Stanley Goldfarb argues that DEI initiatives have contributed to a decline in medical education standards in the United States and urges the Trump Administration to reform the accreditation system for medical schools.
CNBC, “Corporate DEI Index Sees 65% Drop in Participation from Fortune 500 Companies” (February 4): CNBC’s Laya Neelakandan reports that the Human Rights Campaign’s Corporate Equality Index saw a 65% drop in Fortune 500 participation, from 377 companies in 2025 to 131 in 2026. Launched in 2002, the index rates companies on workplace social responsibility and equity. Neelakandan writes that the index has become a “conservative target” in recent years and has “seen more companies exiting its orbit.”
K-12 Drive, “Education Department Doubles Down on Anti-DEI Efforts” (February 4): Naaz Modan of K-12 Drive reports that following a court order enjoining enforcement of the U.S. Department of Education’s 2025 “Dear Colleague” letter regarding DEI initiatives, the Department stated to K-12 Drive that it would “continue to vigorously enforce Title VI to protect all students and hold violators accountable.” The Department said that that it “has full authority under Title VI of the Civil Rights Act of 1964 to target impermissible DEI initiatives” and that it “continued to do so with or without the February 14th Dear Colleague Letter.” Modan writes that the letter had been challenged in multiple lawsuits. She quotes the Vice President for Partnerships and Engagement at EdTrust, an educational equity nonprofit, as stating that even without the letter as a source of authority, the Administration has “other levers” to enforce Title VI, including through investigations.

Case Updates

Below is a list of updates in new and pending cases:

1. Contracting claims under Section 1981, the U.S. Constitution, and other statutes

American Alliance for Equal Rights v. American Bar Association, No. 1:25-cv-03980 (N.D. Ill. 2025): On April 12, 2025, the American Alliance for Equal Rights (“AAER”) sued the American Bar Association (“ABA”) in relation to its Legal Opportunity Scholarship, which AAER asserts violates Section 1981. According to the complaint, the scholarship awards $15,000 to 20-25 first-year law students per year. To qualify, an applicant must be a “member of an underrepresented racial and/or ethnic minority.” On June 16, 2025, the ABA moved to dismiss the complaint for failure to state a claim. AAER filed an amended complaint on June 25, 2025 making new allegations about the ABA’s commitment to diversity and beliefs around refusing to contract with persons of certain races. On July 30, 2025, the ABA again moved to dismiss. On October 31, 2025, AAER filed a notice advising the court that the ABA’s scholarship no longer requires applicants to “be a member of an underrepresented racial and/or ethnic minority” and instead now requires applicants to “have demonstrated a strong commitment to advancing diversity, equity, and inclusion (DEI).” AAER accused the ABA of failing to timely bring these changes to the court’s attention. On November 6, 2025, the court struck AAER’s notice from the record, stating that the reason for the notice was “a mystery since no relief was requested,” and that, given that the ABA had not raised any argument that the case was now moot in light of changes to its policy, the court was “unwilling to follow the parties down this rabbit hole” and would not grant further briefing on the issue.
- Latest update: On January 21, 2026, the court granted in part and denied in part the ABA’s motion to dismiss AAER’s amended complaint. The court held that AAER had organizational standing based on Member A but not Member B, reasoning that Member A had plausibly alleged that he was ready and able to apply but was ineligible under the scholarship’s published criteria for the 2025 cycle, rendering any application futile. Member B, on the other hand, was not applying to law school in 2025 and therefore could not apply for the scholarship during that cycle. The court also noted that the altered eligibility language for the 2026 scholarship cycle appeared to eliminate Member B’s race‑based ineligibility, further undermining the plaintiff’s standing as to Member B. On the merits, the court held that AAER had plausibly pled a Section 1981 claim, rejecting the ABA’s argument that the scholarship was a purely gratuitous program and not “contractual.” Finally, the court declined to resolve the ABA’s First Amendment affirmative defense at the motion‑to‑dismiss stage, because the defense depended on disputed facts that required further factual development through discovery.
American Alliance for Equal Rights and Do No Harm v. Buckfire & Buckfire PC, No. 2:25-cv-13617 (E.D. Mich. 2025): On November 13, 2025, AAER and Do No Harm sued Buckfire & Buckfire, P.C., a Michigan law firm, alleging that the firm discriminates against white scholarship applicants in violation of Section 1981. The plaintiffs allege that the firm offers two scholarships that are “automatically open to member[s] of an ethnic, racial, or other minority group” but only open to white applicants who “demonstrate a defined commitment to issues of diversity.” The plaintiffs assert claims on behalf of their “members who are victims of Buckfire’s discrimination.” The plaintiffs seek declaratory judgment that the scholarships violate Section 1981, a permanent injunction prohibiting defendants from “knowing applicants’ race” and from “considering race as a factor when administering its scholarship programs,” nominal damages, and attorneys’ fees.
- Latest update: On January 20, 2026, the plaintiffs filed an amended complaint alleging that applicants are forced to select a race or ethnicity as part of the application process for the scholarships and providing new factual details regarding Member 1’s denied application for one of the two scholarships. The defendant answered on January 30, 2026, denying that its scholarship programs discriminate, asserting that the scholarships are not contractual, and stating that all applicants are subject to the same requirements and selection criteria. The defendant denies that the “Race/Ethnicity” box on the application is a required field and denies that the plaintiffs’ members suffered any cognizable injury. The defendant seeks dismissal of the action and requests attorneys’ fees and Rule 11 sanctions for factual misstatements.

2. Employment discrimination and related claims

Cooper v. The Office of the Commissioner of Baseball, et al., No. 1:24-cv-03118 (S.D.N.Y 2024): On April 24, 2024, Brandon Cooper, an Arizona-based former minor league baseball umpire sued Major League Baseball (“MLB”), claiming that his employment was retaliatorily terminated after he accused a female umpire of harassing him and using homophobic slurs. The complaint further alleges that the MLB implemented an “illegal diversity quota requiring that women be promoted regardless of merit,” which Cooper contends emboldened the female umpire to believe she could “get away with anything” because she was a woman, and that “MLB ha[d] to hire females” and would not terminate her employment. Cooper later filed an amended complaint adding Alexander Lawrie, a Florida-based former minor league baseball umpire, as co-plaintiff, raising claims under state, local, and federal law for hostile work environment, wrongful termination, failure to promote, and retaliation. The defendants moved to dismiss or in the alternative, to transfer Cooper’s claims to the District of Arizona and Lawrie’s to the Middle District of Florida. On December 17, 2025, the parties submitted a joint letter informing the court that the defendants had reached a settlement in principle with Lawrie and were in the process of finalizing the settlement agreement.
- Latest update: On January 29, 2026, the parties stipulated to dismiss Lawrie’s claims with prejudice, and the court ordered the dismissal on February 6, 2026. Cooper’s claims remain pending. As of February 9, 2026, Cooper and the MLB have confirmed completion of The MLB stated that it intends to move for summary judgment.
EEOC v. Battleground Restaurants, No. 1:24-cv-00792 (M.D.N.C. 2024): On September 25, 2024, the EEOC filed a lawsuit against a sports bar chain, Battleground Restaurants, alleging the chain refused to hire men for its front-of-house positions, such as server or bartender jobs, in violation of Title VII. On August 15, 2025, the parties submitted a proposed consent decree intended as a “complete resolution of all matters in controversy.” The consent decree would enjoin the defendants from “discriminating against any qualified male applicants who apply for nonmanagerial front-of-house positions,” “steering applicants into positions, in whole or in part, because of their sex,” and “disposing of or failing to maintain records relevant to applications for employment.” The defendants agreed to make a payment of $1,111,300 to be distributed to a class of eligible claimants. The defendants also agreed to, among other requirements, “promulgate and maintain” policies that prohibit Title VII violations, require hiring practices be periodically reviewed, require all images in promotional materials depict at least one male server, and require application records be maintained for the duration of the decree. They also agreed to provide an annual in-person training to “all supervisory, management and Human Resources personnel” involved in restaurant hiring.
- Latest update: On February 3, 2026, the court entered the parties’ consent decree providing injunctive and monetary relief, appointing a claims administrator to identify eligible class members and distribute compensation, and requiring policy revisions, training, and reporting by the defendants. The decree will remain in effect for three years and will automatically extend until all related disputes are resolved.
Wang v. University of Pittsburgh et. al., No. 2:20-cv-01952 (W.D. Pa. 2022); No. 25-1816 (3d Cir. 2025): On June 14, 2023, a former employee filed this action against the University of Pittsburgh, the University of Pittsburgh Medical Center, and other individual defendants. The plaintiff alleged that the defendants violated Sections 1983 and 1981, Title VII, and the Pennsylvania Human Relations Act (“PHRA”) by removing him as Director of the Clinical Electrophysiological Program after he published an article criticizing DEI considerations in the cardiology workforce. On March 29, 2024, the defendants moved for summary judgment, arguing that the plaintiff’s claims under Section 1981, Title VII, and the PHRA failed because he did not engage in protected activity and could not establish a causal connection between any purported protected activity and an adverse action, and because the defendants had legitimate, non-retaliatory reasons for removing him from the role. The defendants further argued that the plaintiff’s Section 1983 claims failed because he could not demonstrate a deprivation of federal rights by a defendant acting under the color of state law. On March 26, 2025, the court granted the defendants’ summary judgment motion in full, finding that the University of Pittsburgh was not involved in any alleged adverse actions, that the plaintiff’s removal from the role did not constitute state action, and that his comments during a private meeting with individual defendants did not constitute protected activity. On April 24, 2025, the plaintiff filed a notice of appeal with the Third Circuit, and briefing between the parties concluded on November 3, 2025.
- Latest update: On January 5, 2026, the parties were notified that the appeal was scheduled for oral argument before the Third Circuit on March 6, 2026.

3. Challenges to statutes, agency rules, executive orders, and regulatory decisions

Glass, Lewis & Co., LLC v. Ken Paxton, No. 1:25-cv-01153 (W.D. Tex. 2025): On July 24, 2025, Glass, Lewis & Co., LLC sued Texas Attorney General Ken Paxton to enjoin Texas Senate Bill 2337, which, starting September 1, 2025, requires proxy advisory services like Glass Lewis to “conspicuously disclose” that their advice or recommendations are “not provided solely in the financial interest of the shareholders of a company” if the advice or recommendations are based wholly or in part on ESG, DEI, social credit, or sustainability factors. Glass Lewis alleges that the law unconstitutionally discriminates based on viewpoint and infringes on its freedom of association in violation of the First Amendment. Glass Lewis also contends that the law is unconstitutionally vague under the First and Fourteenth Amendments and is preempted by ERISA. On August 29, 2025, the district court issued a preliminary injunction preventing the law from going into effect. On November 20, 2025, Glass Lewis filed a motion for summary judgment, and in response, the Attorney General filed a motion to defer or deny the motion as premature, arguing that the factual record needed to be complete to resolve Glass Lewis’s claims. On December 5, 2025, the Attorney General filed an answer to Glass Lewis’s complaint.
- Latest update: The court held oral argument on the motions regarding summary judgment on January 22, 2026. On February 2, 2026, the court deferred ruling on Glass Lewis’ summary judgment motion and directed the parties to meet and confer regarding document production.

Legislative Updates

Since the start of 2026, several states have introduced Proxy Advisor Transparency Acts, requiring proxy advisors to disclose when they recommend casting a vote for nonfinancial reasons including diversity, equity, and inclusion.
- Kansas SB 375: The Kansas State Senate Judiciary Committee introduced Kansas Senate Bill 375 on January 22, 2026. The bill requires proxy advisors to disclose when they make recommendations “against company management” without conducting financial analysis, such as recommendations relating to ESG, DEI issues, and social credit and sustainability scores. The stated purpose of the bill is to prevent fraudulent or deceptive practices.
- Mississippi SB 2676: Mississippi State Senator Josh Harkins (R) introduced Mississippi Senate Bill 2676 on January 19, 2026. Like Kansas’s SB 375, the Mississippi Proxy Advisor Transparency Act requires proxy advisors to disclose when they make recommendations against company management without conducting financial analysis. Recommendations against company management include those related to ESG and DEI issues. Shareholders, companies, limited partners, and recipients of proxy advisory services aggrieved by violations of the Act would be entitled to injunctive or declaratory relief.
- Oklahoma HB 4429: Oklahoma State Representative Kyle Hilbert (R) introduced Oklahoma House Bill 4429 on February 2, 2026. The bill requires proxy advisors to “provide, clear, factual disclosures when they recommend casting a vote for a nonfinancial reason” to “prevent fraudulent or deceptive acts and practices.”
- West Virginia SB 417: State Senator Patricia Rucker (R) introduced West Virginia’s Senate Bill 417 on January 15, 2026. The Act requires proxy advisors to disclose when proxy recommendations lack financial analysis. The bill’s “legislative findings” observe that “proxy advisors have recommended votes against company management, including votes for shareholder proposals related to environmental, social, or governance (ESG) issues; diversity, equity, or inclusion (DEI) issues; and social credit and sustainability scores; but have not disclosed to clients that the recommendations were made without conducting a financial analysis to determine how these votes would affect shareholder value.”
Arizona HB 2135: On February 5, 2026, Arizona State Representative Michael Way (R) introduced Arizona House Bill 2135, which provides a private cause of action for private individuals to sue covered entities, such as public employers, universities, or other entities, which violate state or federal anti-DEI laws. The bill defines “covered entity” as “a corporation, organization, institution or agency in [Arizona] that is subject to a state or federal law prohibiting a diversity, equity and inclusion policy.” “Diversity, equity, and inclusion policy,” in turn, is defined as “a policy that is known and practiced as DEI, Critical Race Theory or Anti-Racism or” various other concepts, including the idea of “one race or sex [being] inherently superior to another race or sex” and the idea that “the United States is fundamentally racist.”
Florida SB 1566: Florida State Senator Nick DiCeglie (R) introduced Florida Senate Bill 1566 on January 9, 2026. The bill prohibits local governments from expending public funds for the purpose of promoting DEI initiatives. The bill also prohibits the government from contracting with private vendors for the provision of DEI training or education and requires termination of such contracts. The bill requires each local government to annually certify compliance and encourages individuals to call the governmental efficiency hotline established under the bill to report violations under the section. Similar legislation was introduced in the House.
New Hampshire HB 1788: On January 9, 2026, New Hampshire State Representatives Richard Nalevanko (R), Susan Deroy (R), Robert Wherry (R), Joe Sweeny (R), Jose Cambrils (R), Ross Berry (R), and Ruth Ward (R) introduced New Hampshire House Bill 1788. The bill would require courts to find contracts that include DEI-related provisions to be void as a matter of law and provides a private cause of action for taxpayers to sue public entities or state agencies for engaging in or failing to investigate allegations of contracts with DEI-related provisions. Taxpayers bringing suit would be entitled to declaratory relief, injunctive relief, and reasonable attorney’s fees in any action brought against a district or administrative unit in violation of the act. The bill excludes the following from the definition of DEI: “activities of registered student organizations, mental or physical health services by licensed professionals, bona fide qualifications based on sex, or any attempt to comply in good faith with the Americans with Disabilities Act.”

The following Gibson Dunn attorneys assisted in preparing this client update: Jason Schwartz, Mylan Denerstein, Anna McKenzie, Cynthia Chen McTernan, Zakiyyah Salim-Williams, Molly Senger, Katherine Smith, Cate McCaffrey, Sameera Ripley, Anna Ziv, Emma Eisendrath, Benjamin Saul, Simon Moskovitz, Teddy Okechukwu, Beshoy Shokrolla, Angelle Henderson, Lauren Meyer, Kameron Mitchell, Taylor Bernstein, Jerry Blevins, Chelsea Clayton, Sonia Ghura, Samarah Jackson, Shanelle Jones, Elvyz Morales, Allonna Nordhavn, Felicia Reyes, Eric Thompson, Laura Wang, Daniela De La Cruz, Taylor-Ryan Duncan, Sam Moan, Shreya Sarin, and Rachel Schwartz.

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 Labor and Employment practice group, or the following practice leaders and authors:

Jason C. Schwartz – Partner & Co-Chair, Labor & Employment Group
Washington, D.C. (+1 202-955-8242, jschwartz@gibsondunn.com)

Katherine V.A. Smith – Partner & Co-Chair, Labor & Employment Group
Los Angeles (+1 213-229-7107, ksmith@gibsondunn.com)

Mylan L. Denerstein – Partner & Co-Chair, Public Policy Group
New York (+1 212-351-3850, mdenerstein@gibsondunn.com)

Zakiyyah T. Salim-Williams – Partner & Chief Diversity Officer
Washington, D.C. (+1 202-955-8503, zswilliams@gibsondunn.com)

Molly T. Senger – Partner, Labor & Employment Group
Washington, D.C. (+1 202-955-8571, msenger@gibsondunn.com)

Greta B. Williams – Partner, Labor & Employment Group
Washington, D.C. (+1 202-887-3745, gbwilliams@gibsondunn.com)

Cynthia Chen McTernan – Partner, Labor & Employment Group
Los Angeles (+1 213-229-7633, cmcternan@gibsondunn.com)

Anna M. McKenzie – Partner, Labor & Employment Group
Washington, D.C. (+1 202-955-8205, amckenzie@gibsondunn.com)

Law360 [PDF] has reported on a recent $600,000 settlement reached between our client Amin Booker and the New York Department of Corrections and Community Supervision. Mr. Booker was held in solitary confinement for more than five years in a New York state prison, confined to a windowless cell for 23 hours a day while missing visits from his family. Mr. Booker said he was the victim of retaliation for whistleblowing on mistreatment by corrections officers.

Partner Justine Goeke explained that Mr. Booker’s settlement is one example of many agreements that New York state and the DOCCS have reached with people in solitary confinement. She said that when the attorney general’s office saw the firm was prepared to go to trial, they quickly offered to settle.

“We have a compelling client that speaks clearly about the abuses of the prison system, we already had a finding of liability by a district court judge on one of the claims — I mean, that set the floor,” Justine said. “When we showed the AG’s office that we were ready to go, they came to the table with a significant settlement offer.”

In addition to Justine, our team included associates Marc Aaron Takagaki, Kate Goldberg, Teddy Kristek, Sophie White, Dennis Ting, and Apratim Vidyarthi.

New SDNY program provides a clear pathway for declinations where corporations decide to self-report certain financial crimes, with key differences from other DOJ corporate self-disclosure programs.

On February 24, 2026, the United States Attorney’s Office for the Southern District of New York (SDNY) announced a new, voluntary self-disclosure program in which corporations that timely self-report certain types of financial crimes, and subsequently cooperate with SDNY’s investigation, remediate the misconduct, and provide restitution to victims, will promptly receive a letter from SDNY declining to criminally prosecute the corporation.[1] Jay Clayton, U.S. Attorney for the SDNY, had previewed this new program in a fireside chat in December when he told a New York City Bar Association audience that SDNY was planning to offer “real benefits” to companies that quickly self-report misconduct, cooperate with the government, and rapidly compensate victims.[2]

SDNY’s new program, which differs in several key (and often favorable) respects from self-disclosure programs previously announced by other U.S. Attorneys’ Offices and DOJ divisions, provides corporations with a clear outline of the steps necessary to obtain a criminal declination. At the same time, SDNY has made clear that failure to timely self-report or attempt to self-report will result in a presumption that the corporation will not receive a declination, regardless of its cooperation. With the greater certainty of declination should the corporation follow the prescribed steps, and of the consequences of failing to timely self-report, SDNY’s new program may lead to an increase in corporate self-reporting of covered financial crimes to SDNY. SDNY’s program may also serve as a model for other U.S. Attorney’s Offices to adopt similar programs.

Categories of Crimes Eligible for Self-Reporting

The new SDNY program only applies to certain categories of financial crimes. Specifically, it applies to any fraud committed by a corporation or any of its employees, officers, directors, or agents. This includes any fraud in connection with securities, commodities, or digital assets, any false statements to auditors or regulators, and any other willful violations of federal securities laws that undermine the integrity of financial markets or otherwise cause harm, such as insider trading and market manipulation.

The SDNY program will not apply to any corporate crimes that have a nexus to terrorism, sanctions evasion, foreign corruption, drug or human trafficking, or other crimes involving violence or forced labor, nor to crimes involving the financing or laundering of money in connection with those crimes. For most corporations, the biggest impact will be that the SDNY program will not apply to FCPA and associated internal controls and books and records violations.

Importantly, eligibility for the program will not depend on the seriousness of the offense, the pervasiveness of the misconduct, the severity of harm caused by the misconduct, past criminal history, or the involvement of senior leaders. This is in stark contrast to other federal government self-disclosure programs, including among others the DOJ Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy, which treated these as aggravating factors disqualifying corporations from receiving declination.[3] For that reason, the SDNY program both opens a wider number of crimes to declination if self-reported, and, importantly, offers corporations considering whether to self-report much greater certainty that, if self-reported, the illegal conduct they identified will not result in a criminal prosecution depending on the facts learned during the investigation. The SDNY program may therefore yield a higher rate of self-reporting than other government self-reporting programs.

Timely Self-Reporting

If a crime is eligible for potential declination, the corporation must promptly report it to SDNY, prior to receiving a government subpoena or document request, including from a regulatory agency or state government, and prior to the company learning of the existence of a government investigation. Critically, a corporation will not be disqualified even if the corporation self-reports after it learns of a whistleblower submission to the government or there are press reports regarding the illegal activity, provided there was no public reporting of a government investigation into the misconduct. This again is in contrast to other government self-disclosure programs, which require self-reporting prior to the misconduct being publicly disclosed or known to the government, and even before there is an imminent threat of disclosure or government investigation.[4] In other words, unlike other programs, the SDNY program appropriately assesses the timeliness of self-reporting based on when the company learned of a government investigation, not based on when the government knew or was about to learn of the alleged misconduct. The SDNY program therefore makes it easier for a company’s self-report to qualify as timely and, thereby, eligible for declination.

If a company decides to self-report, it should not wait to complete its internal investigation before reporting. Delay in self-reporting, especially where SDNY views it as strategic or self-serving, may disqualify a company. The company’s self-report must include all known facts about the misconduct, the individuals involved, and any affected parties, and must be updated promptly as the company learns new information.

Conditional Declination

After a company self-reports, SDNY will determine whether the company is eligible for declination pursuant to the program. If SDNY determines that the company is eligible, SDNY will promptly grant the company a conditional declination. The conditional declination letter will explain that SDNY will decline to prosecute the company for the illegal conduct if it satisfies certain conditions set forth in the letter, including committing to cooperate with the government’s investigation, conduct remediation, and provide restitution to those harmed.[5] SDNY expects that conditional declination letters will be issued to qualifying companies within two to three weeks of self-reporting.

Other self-reporting programs have not offered such a prompt, conditional declination, waiting until the investigation runs its course to determine whether declination is appropriate.[6] As SDNY emphasizes, its new approach of prompt conditional declinations is designed to give the company, its management, and its shareholders crucial clarity regarding the likely outcome of the investigation at the outset, further incentivizing self-reporting.

Even if a company that timely self-reports is deemed ineligible for conditional declination based on the nature of the crime reported, it is possible that SDNY may still treat the company more favorably for having timely self-reported.

Still, executives should approach the program with caution. SDNY has historically focused on charging high-level executives, rather than companies, so SDNY may view the provision of information and evidence against executives as a key component of cooperation. Companies should also be prepared to assess whether a conditional declination is worthwhile if it means a key executive could later be charged criminally.

The early need to make a decision whether to self-report and agree to a conditional declination, especially if the conduct potentially involved company executives, may also accelerate and increase Board of Director involvement, including through the creation of a Special Committee to help assess and determine a course of action.

Cooperation

As with other self-disclosure programs, the corporation must fully cooperate with the government’s investigation in order to receive declination. This cooperation must include, among other things, (a) accurate disclosure of all relevant, non-privileged information known to the company relating to the misconduct; (b) identifying individuals involved in or responsible for the conduct, as well as witnesses with material information; (c) sharing the non-privileged factual results of internal investigations; (d) producing all relevant documents, including documents located abroad, and making efforts to mitigate barriers to production caused by data privacy laws and foreign blocking statutes; (e) specifically identifying documents that are material to individual culpability; (f) subject to individuals’ Fifth Amendment rights against self-incrimination, using best efforts to make current or former company employees or representatives, including those located overseas, available for interviews or testimony; (g) using best efforts to ensure that these witnesses are truthful; (h) coordinating with SDNY to ensure that the company’s internal investigation does not interfere with SDNY’s investigation; and (i) preserving records, including relevant custodians’ communications on ephemeral messaging apps.

The company must also agree to self-report to SDNY for three years all credible evidence or allegations of violations of U.S. laws. Importantly, a company will not be disqualified from potentially receiving a declination for any misconduct that it subsequently self-reports pursuant to this continuing obligation. Nevertheless, this broad disclosure requirement may serve as a deterrent to self-reporting for some companies.

Remediation

The corporation must remediate the harm caused by the criminal conduct to obtain declination. Remediation may include implementing changes to the company’s compliance program and terminating or disciplining any company employees, officers, directors, agents, customers, or investors knowingly and directly involved in the misconduct.

The remediation required by the SDNY program differs from that required by other government self-reporting programs in multiple respects. First, certain other programs have required companies to conduct a root cause analysis to determine the cause of the misconduct, and to implement an effective compliance program.[7] The SDNY program more narrowly only states that remediation may require implementing changes to the compliance program, without any reference to a root cause analysis or implementation of an effective compliance program. It remains to be seen how meaningful a distinction this will be in practice. Second, whereas SDNY only requires disciplining individuals knowingly and directly involved in the misconduct, other programs have also required disciplining individuals who failed in oversight or had supervisory authority over the area in which the criminal conduct occurred, even if those individuals did not participate in the misconduct.[8] By requiring a narrower remediation than other self-disclosure programs, the SDNY program may encourage greater self-reporting.

Restitution to Injured Parties

As a condition of declination, the SDNY program requires companies to pay restitution to all injured parties. To the extent the corporation pays restitution through a resolution with a regulator such as the Securities and Exchange Commission, SDNY will credit that restitution.

Notably, other disclosure programs additionally require corporations to disgorge or forfeit profits that they earned from the illegal conduct.[9] The SDNY program, however, explicitly disclaims forfeiture so long as the company provides full restitution, and does not mention disgorgement. To the extent a corporation earned profits from criminal conduct for which there are no victims meriting restitution, a corporation may be able to retain those profits and still receive an SDNY declination letter for self-reporting. Of course, another regulator may still require disgorgement as a condition to settlement, so in practice a company may not be able to retain any profits associated with the criminal conduct.

Final Declination

At the conclusion of the government’s investigation, after the company has fulfilled its cooperation, remediation, and restitution obligations, SDNY will issue a final declination notice, concluding the case without criminal charges. Importantly, the declination letter will not protect individuals, including company employees, from prosecution for the crimes the company self-reported.

The declination letter also has limits: “[it] cannot bind any state, local, or foreign prosecuting authority, or any other federal authority including regulators.” But SDNY pledges to bring to the attention of any such agencies the company’s self-reporting, cooperation, and remediation. As additional incentives to self-report, SDNY will not require payment of any fine or forfeiture as a condition of declination, provided the company makes “reasonable best efforts to provide prompt and full restitution to all injured parties.” Nor will SDNY require a company to employ a monitor in order to receive declination.

Summary of Key Differences With Other Programs

As shown above, the SDNY program differs materially from that of other US Attorney’s Office and DOJ corporate disclosure programs, including most notably the DOJ Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy, in several key respects:

The SDNY program does not treat the seriousness of the offense, the pervasiveness of the misconduct, the severity of harm caused by the misconduct, past criminal history, or the involvement of senior leaders as aggravating factors precluding declination;
The SDNY program assesses the timeliness of self-reporting based on when the company learned of a government investigation, not when the government knew or was about to learn of the alleged misconduct;
The SDNY program offers companies that timely self-report covered misconduct a prompt, conditional declination at the outset of an investigation, rather than wait until the investigation concludes to determine whether declination is appropriate.
As part of remediation, the SDNY program requires companies to implement necessary changes to their compliance programs, but does not expressly mandate that companies conduct a root cause analysis or demonstrate the implementation of an effective compliance program;
Also as part of remediation, the SDNY program only requires disciplining individuals knowingly and directly involved in the misconduct, whereas other programs more broadly require disciplining individuals who failed in oversight or had supervisory authority over the area in which the criminal conduct occurred, even if those individuals did not participate in the misconduct; and
The SDNY program requires full restitution to all injured parties, but, so long as there has been restitution, does not require forfeiture or disgorgement of profits in order to receive a declination.

Conclusion

The SDNY’s new self-disclosure program seeks to deliver on U.S. Attorney Clayton’s promise to offer “real benefits” to companies that timely self-report applicable financial crimes. The program appears designed to provide a clear, structured pathway to achieve declination. The prompt conditional declination provides companies with the promise of a higher degree of certainty at the outset of an investigation regarding the ultimate outcome of what could potentially be a years’ long government investigation. In addition, by disclaiming the aggravating factors that other self-reporting programs use to disqualify corporations from eligibility for declination, the SDNY program is intended to provide companies with assurance that the conditional declination they received will not change as the facts develop during the course of the investigation. The SDNY program also appears to offer certain clearer benefits for self-reporting than comparable government disclosure programs, including narrower remediation and payments limited to restitution.

The SDNY program has incentives designed to change the calculus for many corporations regarding whether to self-report – and indeed to whom to self-report. As a result, there may be an increase in corporate self-reporting of eligible offenses to SDNY, and we will continue to closely monitor developments.

[1] See United States Attorney’s Office for the S.D.N.Y., Corporate Enforcement and Voluntary Self-Disclosure Program for Financial Crimes (Feb. 24, 2026), available at https://www.justice.gov/usao-sdny/media/1428811/dl?inline.

[2] See SDNY Head Backs Good Deals For Quick Cooperation By Cos., Law360 (Dec. 2, 2025), available at https://www.law360.com/pulse/articles/2417296.

[3] See U.S. Dep’t of Justice, Criminal Div., Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy (May 12, 2025), available at https://www.justice.gov/d9/2025-05/revised_corporate_enforcement_policy_-_2025.05.11_-_final_with_flowchart_0.pdf; United States Attorney’s Office for the E.D. Pa., Corporate Transparency Initiative (Sep. 3, 2025), available at https://www.justice.gov/usao-edpa/corporate-transparency-initiative; U.S. Dep’t of Justice, Nat’l Security Div., NSD Enforcement Policy for Business Organizations (Mar. 7, 2024), available at https://www.justice.gov/nsd/media/1285121/dl. For more on the Criminal Division Corporate Enforcement Policy, please see our client alert.

[4] See Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy; E.D. Pa. Corporate Transparency Initiative; NSD Enforcement Policy for Business Organizations; U.S. Dep’t of Justice, Antitrust Div., Leniency Policy and Procedures (June 2022), available at https://www.justice.gov/atr/page/file/1490246/dl?inline.

[5] SDNY published a model conditional declination letter, available at https://www.justice.gov/usao-sdny/media/1428826/dl?inline.

[6] See Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy; E.D. Pa. Corporate Transparency Initiative; NSD Enforcement Policy for Business Organizations.

[7] See Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy; NSD Enforcement Policy for Business Organizations.

[8] See Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy; NSD Enforcement Policy for Business Organizations.

[9] See Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy; E.D. Pa. Corporate Transparency Initiative; NSD Enforcement Policy for Business Organizations.

The following Gibson Dunn lawyers prepared this update: Stephanie Brooker, Nick Hanna, F. Joseph Warin, Winston Chan, Barry Berke, Reed Brodsky, Jordan Estes, Dani James, Michael Martinez, Karin Portlock, Oleh Vretsona, Sam Raymond, and Jonathan Seibald.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s White Collar Defense & Investigations practice group, or the authors:

Barry H. Berke – New York (+1 212.351.3860, bberke@gibsondunn.com)

Reed Brodsky – New York (+1 212.351.5334, rbrodsky@gibsondunn.com)

Stephanie Brooker – Co-Chair, Washington, D.C. (+1 202.887.3502, sbrooker@gibsondunn.com)

Winston Y. Chan – Co-Chair, San Francisco (+1 415.393.8362, wchan@gibsondunn.com)

Jordan Estes – New York (+1 212.351.3906, jestes@gibsondunn.com)

Nicola T. Hanna – Co-Chair, Los Angeles (+1 213.229.7269, nhanna@gibsondunn.com)

Dani R. James – New York (+1 212.351.3880, djames@gibsondunn.com)

Michael Martinez – New York (+1 212.351.4076, mmartinez2@gibsondunn.com)

Karin Portlock – New York (+1 212.351.2666, kportlock@gibsondunn.com)

Oleh Vretsona – New York (+1 202.887.3779, ovretsona@gibsondunn.com)

F. Joseph Warin – Co-Chair, Washington, D.C. (+1 202.887.3609, fwarin@gibsondunn.com

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

Jonathan Seibald – New York (+1 212.351.3916, mseibald@gibsondunn.com)

Gibson Dunn advised Thmanyah Publishing and Distribution Company (Thmanyah), a subsidiary of the Saudi Research and Media Group, on entering into a media rights agreement with the Saudi Professional League, the Saudi Arabian Football Federation, and the First Division League. The agreement will grant Thmanyah exclusive broadcasting rights for four sports tournaments — the King’s Cup, Saudi Pro League, Saudi Super Cup, and First Division League — and commercial exploitation across the Middle East and North Africa for a six-year term (2025–2031). The transaction is valued at SAR 2,320,000,000 (approximately $619 million USD).

Our team was led by partners Sean McFarlane and Megren Al-Shaalan and included associates Lojain AlMouallimi, Charlie Peskowitz, and Sloane Ruffa.

Gibson Dunn announced today that Robbie Sinclair has joined the firm’s London office as a partner in its renowned Labor and Employment Practice Group. He advises on the full range of contentious and strategic employment matters with a particular focus on complex litigation, crisis management, and investigations.

Robbie’s hire provides a platform in the U.K. for employment litigation matters and meets the key strategic needs of clients in their boardrooms.

Osma Hudda, Co-Chair of the London Disputes Group and Co-Partner in Charge of the London office, said: “Client demand for business protection, complex investigations, whistleblowing-related matters, and employment litigation continues to rise in the U.K., U.S., and other key markets. Building on the strong performance of our transactional practices in London, we are executing a focused expansion of our litigation and investigations bench. Robbie’s practice sits exactly at that intersection and squarely meets client demand.”

Robbie’s arrival will further strengthen Gibson Dunn’s global Labor and Employment practice, which advises multinational corporates and financial institutions on high-stakes matters across key jurisdictions in the U.S., U.K., Europe, the Middle East, and Asia. The group is consistently recognized in the top tier by leading directories and publications, including Chambers, Benchmark Litigation, and other industry and legal-sector rankings and awards.

James Cox, partner in Gibson Dunn’s London Labor and Employment Practice Group, added: “Our Labor and Employment practice is preeminent. Robbie expands our senior bench for High Court litigation, team moves, and investigations. He immediately enhances our seamless support to corporate, private equity, and finance clients through the deal and disputes lifecycle.”

“Gibson Dunn’s internationally renowned Labor and Employment platform together with its integrated global disputes and investigations capability is the right place to take my practice forward,” said Robbie. “Clients want consistent advice across jurisdictions and a team that can move quickly from advisory to enforcement. I’m excited to build that with colleagues in London, the U.S., and internationally.”

This appointment builds on the firm’s continued investment in its disputes platform in London. In recent months, the group has expanded with lateral hires including Christopher Harris KC and Robert Spano alongside internal promotions such as Cassie Aprile and Piers Plumptre.

About Robbie Sinclair

Robbie is recognized as a leading individual for employment law by Chambers UK and The Legal 500 UK. His experience spans business protection and crisis management, investigations, senior exits, restrictive covenants and team moves, complex employment and commercial litigation in the High Court, and employment aspects of M&A and outsourcings.

Until the scope of any new proposed rule becomes clear, companies should expect that cancellation design, consent flows, and subscription disclosures will remain under close regulatory scrutiny, including through active enforcement under ROSCA and Section 5 of the FTC Act.

The Federal Trade Commission has renewed its efforts to promulgate a nationwide rule governing subscription cancellation practices, following the U.S. Court of Appeals for the Eighth Circuit’s vacatur of the FTC’s prior “Click-to-Cancel” Rule in July 2025. The vacated rule would have imposed sweeping requirements on subscription and autorenewal programs, extending beyond existing statutory obligations under the Restore Online Shoppers’ Confidence Act (ROSCA). The Eighth Circuit’s ruling came in a case brought by Gibson Dunn on behalf of industry petitioners. Agreeing with Gibson Dunn’s arguments, the Eighth Circuit invalidated the Click-to-Cancel Rule in its entirety, holding that the FTC failed to comply with the procedural requirements of its Magnuson-Moss rulemaking authority. In response to the Eighth Circuit’s ruling, on January 30, 2026, the FTC submitted a draft Advance Notice of Proposed Rulemaking (ANPRM) to the Office of Information and Regulatory Affairs (OIRA), formally initiating a new rulemaking process.

Bottom Line: Although the July 2025 vacatur halted implementation of a sweeping trade regulation rule, it did not reduce federal scrutiny of subscription practices. Any renewed rulemaking proposal must address the deficiencies identified by the Eighth Circuit, including required economic analysis. Until the scope of any new proposed rule becomes clear, companies should expect that cancellation design, consent flows, and subscription disclosures will remain under close regulatory scrutiny, including through active enforcement under ROSCA and Section 5 of the FTC Act.

Key Takeaways

The Eighth Circuit vacated the prior Click-to-Cancel Rule in litigation brought by Gibson Dunn, requiring the FTC to comply with Magnuson-Moss procedural safeguards in any renewed rulemaking effort.
The FTC has now initiated a new rulemaking effort.
The FTC continues to pursue subscription-related conduct under its existing authority, including ROSCA and Section 5 of the FTC Act.
State autorenewal statutes—and state enforcement of those laws—continue to expand, increasing compliance complexity.

The Eighth Circuit’s Vacatur

In October 2024, the FTC adopted a revised Negative Option Rule—commonly referred to as the Click-to-Cancel Rule—that would have imposed sweeping requirements on companies offering subscription and autorenewal programs. The rule extended beyond online transactions and included, among other things:

A requirement for separate, express consent to the negative option feature;
Broad prohibitions on misrepresentations concerning any material aspect of the transaction;
Restrictions on certain “save” or retention attempts during cancellation; and
Cancellation mechanisms that were at least as easy as the method used to enroll.

These requirements went beyond the baseline obligations imposed by ROSCA, which applies to online transactions and focuses on clear disclosure, informed consent, and a simple mechanism to stop recurring charges.

In July 2025, the Eighth Circuit vacated the Click to Cancel Rule after petitioners represented by Gibson Dunn demonstrated that the FTC failed to conduct a preliminary regulatory analysis that was required because the Rule’s economic impact exceeded the statutory threshold for major rules under Section 18 of the FTC Act. The court held that the FTC’s later regulatory analysis could not cure that defect. The decision reinforces that FTC trade regulation rules must strictly comply with the procedural and economic requirements of the Magnuson-Moss framework, particularly where projected impact is substantial.

FTC’s Renewed Rulemaking

On January 30, 2026, the FTC submitted a draft ANPRM on negative option practices to OIRA for review pursuant to Executive Order 14215, which requires White House review of independent agency rulemakings. If cleared, the FTC will publish the ANPRM in the Federal Register, opening a new public comment process.

The text of the ANPRM has not yet been released publicly. As a result, it remains unclear whether the FTC intends to re-propose a rule comparable in scope to the vacated Click-to-Cancel Rule or pursue a different approach. In light of the Eighth Circuit’s ruling, the Commission may seek to advance a more tailored proposal centered on defining a “simple” or “easy” cancellation method, rather than re-proposing the broader prohibitions contained in the vacated rule.

The renewed ANPRM confirms continued federal attention to subscription and cancellation practices.

ROSCA Enforcement Remains Active

Even without a new rule in effect, the FTC continues to regulate subscription practices through enforcement under ROSCA and Section 5 of the FTC Act.

FTC leadership has publicly emphasized that unwanted subscriptions and cancellation obstacles remain enforcement priorities. Statements by Chair Andrew Ferguson and Bureau of Consumer Protection Director Chris Mufarrige underscore the FTC’s continued focus on subscription enrollment and cancellation practices under existing statutory authority.

ROSCA requires companies offering online negative option features to clearly and conspicuously disclose all material terms before obtaining a consumer’s billing information, secure the consumer’s express informed consent to the subscription, and provide a simple mechanism to stop recurring charges. These statutory standards remain fully operative and continue to serve as the basis for enforcement actions.

Recent cases reflect a consistent focus on whether subscription programs adequately disclose automatic renewal and fee terms before enrollment, whether consent mechanisms demonstrate informed agreement to recurring charges, and whether cancellation processes introduce friction that could be characterized as unreasonably difficult.

Over the past two years, the FTC and the U.S. Department of Justice (on the FTC’s behalf) have brought actions across multiple industry sectors—including e-commerce, digital services, ed-tech, and subscription-based consumer products—challenging enrollment disclosures, consent flows, and cancellation design. Several matters have resulted in substantial monetary settlements, including a $7.5 million resolution involving alleged concealment of cancellation options, and a $60 million settlement concerning renewal disclosures and refund practices.

The scale of these settlements underscores a central reality: the FTC is already using its existing statutory authority under ROSCA to pursue the same core subscription practices targeted by the vacated Click-to-Cancel Rule.

For businesses, the practical takeaway is that the vacatur of the Click-to-Cancel Rule has not reduced scrutiny of subscription models. The FTC’s enforcement posture reflects continued attention to disclosure, consent, and cancellation design—the very issues likely at the center of the renewed rulemaking effort.

State Law Developments

State legislatures continue to update and expand autorenewal statutes. States including California, Colorado, Minnesota, and New York have strengthened disclosure, reminder, and cancellation requirements. In some jurisdictions, state requirements exceed federal baseline standards under ROSCA.

In addition, like the FTC, states have been active in enforcing their state autorenewal laws. For example, in August, the California Automatic Renewal Task Force—made up of several California District Attorney’s offices—announced a $7.5 million settlement with a meal delivery service to resolve claims under California’s Autorenewal Law. In November 2025, 34 states announced a $4.8 million settlement with an online clothing retailer related to the retailer’s paid membership program.

For businesses operating nationally, compliance therefore requires navigating both evolving federal enforcement standards and increasingly prescriptive state mandates.

Implications for Businesses

Companies offering negative option features should:

Review subscription disclosures for clarity and prominence;
Confirm consent flows meet ROSCA’s express informed consent standard;
Evaluate cancellation pathways to ensure they are straightforward and defensible;
Assess retention or “save” mechanisms to ensure they do not functionally impede a consumer’s ability to cancel through a simple mechanism; and
Monitor both federal rulemaking developments and state legislative changes.

Conclusion

The FTC’s renewed rulemaking effort, coupled with ongoing ROSCA enforcement and expanding state regulation and enforcement, underscores that subscription compliance remains a significant regulatory risk for businesses. Companies should evaluate their subscription practices accordingly. Gibson Dunn lawyers are available to assist with compliance strategy, enforcement defense, and engagement in the rulemaking process.

The following Gibson Dunn lawyers prepared this update: Svetlana Gans, Ryan Bergsieker, Ashley Rogers, Caelin Moriarity Miltko, and Connor Mui.

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, the authors, or any of the following leaders and members of the firm’s Consumer Protection, Administrative Law & Regulatory, Antitrust & Competition, or Privacy, Cybersecurity & Data Innovation practice groups:

Consumer Protection:
Gustav W. Eyler – Washington, D.C. (+1 202.955.8610, geyler@gibsondunn.com)
Svetlana S. Gans – Washington, D.C. (+1 202.955.8657, sgans@gibsondunn.com)
Ashley Rogers – Dallas (+1 214.698.3316, arogers@gibsondunn.com)

Administrative Law & Regulatory:
Stuart F. Delery – Washington, D.C. (+1 202.955.8515, sdelery@gibsondunn.com)
Eugene Scalia – Washington, D.C. (+1 202.955.8673, escalia@gibsondunn.com)
Helgi C. Walker – Washington, D.C. (+1 202.887.3599, hwalker@gibsondunn.com)

Antitrust & Competition:
Rachel S. Brass – San Francisco (+1 415.393.8293, rbrass@gibsondunn.com)
Svetlana S. Gans – Washington, D.C. (+1 202.955.8657, sgans@gibsondunn.com)
Kristen C. Limarzi – Washington, D.C. (+1 202.887.3518, klimarzi@gibsondunn.com)
Cindy Richman – Washington, D.C. (+1 202.955.8234, crichman@gibsondunn.com)

Privacy & Cybersecurity:
Ryan T. Bergsieker – Denver (+1 303.298.5774, rbergsieker@gibsondunn.com)
Cassandra L. Gaedt-Sheckter – Palo Alto (+1 650.849.5203, cgaedt-sheckter@gibsondunn.com)
Vivek Mohan – Palo Alto (+1 650.849.5345, vmohan@gibsondunn.com)

From the Derivatives Practice Group: This week, the CFTC reissued Staff Letter 25-50 to add an additional no-action position regarding CPO delegation arrangements.

New Developments

CFTC Staff Reissues Staff Letter 25-50 to Add Additional No-Action Position on CPO Delegation Arrangements. On February 26, the CFTC’s Market Participants Division reissued CFTC Staff Letter 25-50 to add an additional no-action position in relation to the interaction between Letter 25-50 and CFTC Staff Letter 14-126, regarding certain delegation arrangements between commodity pool operators. [NEW]

CFTC Enforcement Division Issues Prediction Markets Advisory. On February 25, the CFTC’s Division of Enforcement issued an advisory following public release of two enforcement cases involving traders’ misuse of nonpublic information and fraud with respect to certain prediction markets. Please see Gibson Dunn’s upcoming alert on this issue for more information. [NEW]

CFTC Chairman Selig Announces Senior Staff Appointments. On February 23, CFTC Chairman Michael S. Selig announced four senior staff appointments in his office. The four appointments are: Brooke Nethercott as Director, Office of Public Affairs; Emma Johnston as Senior Agriculture Advisor; Meghan Tente as Senior Advisor; and Elizabeth (Libby) Mastrogiacomo as Senior Advisor. [NEW]

CFTC Reaffirms Exclusive Jurisdiction over Prediction Markets in U.S. Circuit Court Filing. On February 17, the CFTC filed an amicus brief in the U.S. Circuit Court of Appeals for the Ninth Circuit confirming its exclusive jurisdiction over the U.S. commodity derivatives markets, including event contract markets commonly referred to as prediction markets. The brief was filed in North American Derivatives Exchange, Inc. et al v. The State of Nevada on relation of the Nevada Gaming Control Board et al.

New Developments Outside the U.S.

ESMA Publishes the Results of the Annual Transparency Calculations for Equity and Equity-like Instruments. On February 27, ESMA published the results of the annual transparency calculations for equity and equity-like instruments, which will apply from April 6, 2026. The full list of assessed equity and equity-like instruments is available through ESMA’s FITRS in the XML files with publication date from 27 February 2026 (see here) and through the Register web interface (see here). [NEW]

ESMA Issues a Supervisory Briefing on Algorithmic Trading. On February 26, ESMA published a supervisory briefing to support consistent supervision of algorithmic trading across the EU. As ESMA states, the briefing provides National Competent Authorities with practical tools and clarified expectations for supervising firms engaged in algorithmic trading under MiFID II. It focuses on key areas where supervisory practices have diverged, including pre-trade controls, governance arrangements, testing frameworks and outsourcing of algorithmic trading systems. [NEW]

ESMA Consults on Post-trade Risk Reduction Services Under EMIR 3. On February 26, ESMA launched a consultation on the requirements for how post-trade risk reduction (PTRR) services can benefit from the conditioned exemption from the clearing obligation introduced under the European Market Infrastructure Regulation (EMIR 3). ESMA is seeking feedback on several elements of the framework for the PTRR service providers to operate under the exemption, including transparency towards participants, algorithm safeguards, execution of PTRR exercises, controls to be performed and record keeping. [NEW]

ESMA Sets Out Clearing Thresholds Under EMIR 3. On February 25, ESMA published its draft Regulatory Technical Standards setting out new and revised clearing thresholds under EMIR 3. The proposed thresholds ensure continuity in the coverage of systemic risk in over‑the‑counter derivative markets while avoiding unnecessary complexity and additional compliance burdens for market participants. [NEW]

EBA and ESMA Consult on Revised Suitability Assessment Requirements for Banks and Investment Firms. On February 25, European Banking Authority (EBA) and ESMA launched a consultation on the revised joint guidelines on the assessment of the suitability of members of the management body and key function holders. The revised guidelines form part of a broader package designed to harmonise suitability assessments and ensure supervisory convergence across the EU. The consultation runs until May 25, 2026. [NEW]

ESMA Reminds Firms of Their Obligations under CFD Product Intervention Measures Amid Rising Offerings of Perpetual Futures. On February 24, ESMA issued a statement reminding firms of their obligation to assess whether newly offered products fall within the scope of existing product intervention measures on contracts for differences. ESMA states that this statement responds to the increased offering of derivatives, often marketed as perpetual futures or perpetual contracts, that provide leveraged exposure to underlying values, including crypto-assets such as Bitcoin. [NEW]

ESMA Consults on Guarantees as CCP Collateral and on Certain Aspects of CCP Investment Policy. On February 23, ESMA launched a public consultation following the review of the European Market Infrastructure Regulation (EMIR 3). ESMA is encouraging all interested stakeholders, including non-financial counterparties (NFCs), to share their views about: the relevant conditions under which public guarantees, public bank guarantees and commercial bank guarantees may be accepted by central counterparties (CCPs) as collateral; the conditions under which debt instruments can be considered as eligible financial instruments for the purpose of CCP investment policy; and the highly secured arrangements in which emission allowances posted as margins or default fund contributions can be deposited. [NEW]

ESMA Simplifies MiFID II/ MiFIR Obligations on Market Data. On February 23, ESMA withdrew its guidelines on the Markets in Financial Instruments Directive (MiFID II) and Markets in Financial Instruments Regulation (MiFIR) obligations on market data, effective immediately, which it states reflected its ongoing commitment to simplifying rules and reducing unnecessary compliance burdens for market participants. ESMA stated that this decision aligns the framework with the newly applicable regulatory technical standards on the obligation to make market data available to the public on a reasonable commercial basis. [NEW]

ESMA Publishes Supervisory Briefing on the AAR Representativeness Obligation. On February 20, ESMA published a supervisory briefing on the representativeness obligation linked to the active account requirement (AAR). The briefing sets out ESMA’s supervisory expectations for how counterparties should comply with and report on the AAR representativeness obligation. According to ESMA, it also provides guidance and promotes supervisory convergence for the supervision of counterparties subject to the AAR.

ESMA Publishes List of Supplementary Deferrals for Sovereign Bonds. On February 19, ESMA and the National Competent Authorities (NCAs) have agreed that supplementary deferrals may be applied on top of the standard Markets in Financial Instruments Regulation deferral regime for sovereign bonds. ESMA and all NCAs, except the National Bank of Slovakia, have decided to allow the following supplementary deferrals: for trades of a medium size on liquid bonds in Group 1, the publication of the volume may be omitted until the end of the trading day. The supplementary deferrals should start applying on May 4, 2026.

ESMA Seeks Input to Streamline and Simplify its Market Abuse Guidelines. On February 19, ESMA launched a consultation proposing amendments to its Market Abuse Regulation guidelines on the delay in the disclosure of inside information. According to ESMA, the proposals will align the guidelines with the disclosure regime as amended by the Listing Act, ensuring issuers face fewer administrative burdens while benefiting from clearer requirements.

New Industry-Led Developments

ISDA Issues Joint Letter on Italian 2026 Budget Law. On February 24, ISDA, the Association for Financial Markets in Europe and the International Securities Lending Association jointly sent a letter to the Italian tax authorities about changes to withholding tax on dividends made in the 2026 budget law, which limits access to the reduced 1.2% withholding tax rate on outbound dividends declared after January 1, 2026. The associations request urgent clarification on how to calculate and apply the new rules, especially in scenarios like securities lending, collateral and derivatives hedging. [NEW]

ISDA Issues Joint Response to FRB Consultation on Stress Testing Framework. On February 23, ISDA, the Bank Policy Institute, the American Bankers Association, the Financial Services Forum, the Securities Industry and Financial Markets Association and the US Chamber of Commerce jointly responded to the US Federal Reserve’s consultation on the stress testing framework. The associations stated that they welcomed the Federal Reserve’s proposal to open its stress testing framework to public comment, which is a meaningful step toward greater transparency and objectivity. [NEW]

ISDA Responds to FCA Consultation on Improving the UK MIFIR Transaction Reporting Regime. On February 20, ISDA responded to the Financial Conduct Authority’s consultation on improving the UK Markets in Financial Instruments Regulation (MIFIR) transaction reporting regime. ISDA argues against the introduction of conditional single-sided reporting and proposes that the unique product identifier replaces the international securities identification number as the over-the-counter derivatives identifier. [NEW]

ISDA Publishes SwapsInfo Full Year 2025 and the Fourth Quarter of 2025 Review. On February 17, ISDA published a report noting that trading activity in interest rate derivatives (IRD) and credit derivatives increased in 2025, which ISDA said reflects shifting monetary policy expectations and broader market conditions. ISDA also found that IRD traded notional rose by about 46% year-on-year, led by an increase in overnight index swaps. Index credit derivatives also traded notional grew by more than 50%.

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)

The CFTC re-affirms its intent to police insider trading on registered prediction markets.

With prediction markets rapidly growing, the Commodity Futures Trading Commission’s (CFTC) Enforcement Division issued a pointed reminder: trading in event contracts on prediction markets can violate exchange rules and/or constitute fraud or insider trading-type misconduct under federal law if the trader has direct or indirect influence over the outcome of the event or has confidential information and acts in breach of a pre-existing duty of trust and confidence, such as a duty owed to the trader’s employer.

What Happened?

The February 25, 2026 CFTC enforcement advisory relates to enforcement action taken by a CFTC-registered exchange but makes clear that engaging in unlawful trading practices in event contracts will not escape scrutiny from the CFTC itself, whose mandate includes enforcement against fraud, manipulation, and abusive practices in the U.S. derivatives markets, including registered prediction markets.

CFTC-registered exchanges, which include registered prediction markets known as “Designated Contract Markets,” are self-regulatory organizations and have oversight responsibilities over the activities that occur on their platforms. In addition to supervising this exchange-level oversight, the CFTC retains enforcement authority over trading activities on the exchanges it regulates. The advisory cited one exchange’s internal enforcement program’s handling of two matters. In one matter, a political candidate traded an event contract tied to his own candidacy in violation of exchange rules because the exchange alleged that the trader had direct or indirect influence over the outcome of the event. In another, the exchange penalized a video editor who allegedly traded an event contract on upcoming content that had not yet been released, enabling highly successful trades on the alleged basis of material, nonpublic information that was misappropriated from the trader’s employer in violation of a pre-existing duty of trust and confidence.

In addition to noting these exchange-level sanctions, the enforcement advisory underscored that the CFTC has full authority to police illegal trading practices (including those on exchanges) and that such conduct may violate among other things Section 6(c)(1) of the Commodity Exchange Act and CFTC Rule 180.1, which prohibit manipulative schemes and trading based on misappropriated confidential information. The enforcement advisory highlighted that the CFTC’s Enforcement Division “will investigate and prosecute violations” and is coordinating with exchanges regarding “referrals of appropriate potential violations” to the Enforcement Division.

Why This Matters

Using confidential company information in prediction markets can violate a pre-existing duty of confidentiality to the company.

Using internal, confidential, or time-sensitive company information to profit on prediction markets can create significant personal and legal risk for individuals. In the course of their employment, employees often encounter nonpublic information subject to a duty of confidentiality and/or subject to requirements to not utilize such information for personal benefit, either pursuant to various company policies or under common law or both. For example, company codes of conduct or common law duties may prohibit employees and other covered persons from:

using employer confidential information for personal gain,
misusing employer resources,
engaging in conflicts of interest, or
acting in ways that harm the company’s reputation.

If an employee’s trading on prediction markets violates company policies or common law duties, such trading could not only breach duties to the trader’s employer, for which the employer could take punitive actions, but also result in violation of exchange rules and federal laws. The same types of restrictions, and thus same consequences, may apply to independent contractors, service providers, and others with access to confidential or proprietary information arising through a relationship that supports a duty of trust and confidence.

Trading on such confidential information could also potentially expose individuals to regulatory scrutiny.

The Enforcement Division, in its advisory, also made clear that (1) exchanges have been, and are expected to, enforce their rules and the CFTC’s rules with respect to trading in event contracts, and (2) the CFTC is looking at trading in event contracts as an area for potential investigation. This could create real legal risks for individuals involved in inappropriate activities.

The advisory, for example, cited CFTC Rule 180.1, which is broad and modeled on SEC Rule 10b-5,[1] and referenced as an illegal practice “misappropriation of confidential information in breach of a pre-existing duty of trust and confidence to the source of the information (commonly known as ‘insider trading’) ….” The Enforcement Division also cited other illegal disruptive trading practices including pre-arranged, noncompetitive trading and wash sales, disruptive trading, and general fraud and market manipulation.

Influence over an outcome is a red flag.

If an individual’s role allows that person to influence the outcome of an event (e.g., campaign work, corporate announcements, event planning, content production), trading on related event contracts poses significant risks that such trading could be found to violate not only workplace policies but also exchange rules and federal law, as outlined above. As referenced in the CFTC’s advisory, one trader in a recent exchange action was penalized specifically because he had direct or indirect influence over the outcome.

Bottom Line: Improper Event Contract Activity Will Attract Scrutiny

Like trading on any financial market, both the CFTC and CFTC-regulated exchanges prohibit the misuse of information. The CFTC has now re-affirmed that it has full authority to police illegal trading practices on exchanges and that prediction market users involved in inappropriate trading can face regulatory consequences.

In addition, many companies maintain codes of conduct or other policies that prohibit employees and others from engaging in conduct such as that discussed above. Companies may well find it helpful to specifically address the applicability of their policies to prediction market trading, both to assist their employees in avoiding prohibited or unlawful conduct and to protect the companies’ reputation. And the CFTC has been explicit that exchanges (e.g., designated contract markets) have a duty to maintain audit trails, conduct surveillance, and enforce their rules against illegal practices.

If you are interested in discussing these developments, Gibson Dunn’s lawyers are available to assist with any questions you may have.

[1] SEC Rule 10b-5, promulgated under Section 10(b) of the Securities Exchange Act of 1934, prohibits the use of any manipulative or deceptive device in connection with the purchase or sale of any security. The Rule makes it unlawful (a) to employ any device, scheme, or artifice to defraud; (b) to make any untrue statement of a material fact or to omit a material fact necessary to make statements made not misleading; or (c) to engage in any act, practice, or course of business that operates as a fraud or deceit upon any person, in each case in connection with the purchase or sale of any security. 17 C.F.R. § 240.10b-5 (2025); see also Securities Exchange Act of 1934 § 10(b), 15 U.S.C. § 78j(b) (2024).

The following Gibson Dunn lawyers prepared this update: Jina Choi, Julia Lapitskaya, Ronald Mueller, Osman Nawaz, Tina Samanta, Jeffrey Steiner, and Sarah Pongrace.

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, any member of the firm’s Derivatives, Securities Regulation & Corporate Governance, or Securities Enforcement practice groups, or the following authors:

Jina L. Choi – San Francisco (+1 415.393.8221, jchoi@gibsondunn.com)
Julia Lapitskaya – New York (+1 212.351.2354, jlapitskaya@gibsondunn.com)
Ronald O. Mueller – Washington, D.C. (+1 202.955.8671, rmueller@gibsondunn.com)
Osman Nawaz – New York (+1 212.351.3940, onawaz@gibsondunn.com)
Tina Samanta – New York (+1 212.351.2469, tsamanta@gibsondunn.com)
Jeffrey L. Steiner – Washington, D.C. (+1 202.887.3632, jsteiner@gibsondunn.com)

Partners Tory Lauterbach, Michael Darden, and Trey Cox were interviewed by Law360 after Gibson Dunn was named one of the publication’s Energy Groups of the Year. They discussed how the firm played a central role in the rapid expansion of data centers throughout the U.S. and in record-setting utility transactions, along with major client wins.

State Attorneys General are stepping into the spotlight with increasingly assertive investigations and enforcement actions to regulate conduct across consumer protection, government contracting, data privacy, antitrust, securities fraud, environmental violations, and beyond, and often on a national scale. This recorded session explores the expanding jurisdictional reach of state AGs, spotlights recent multi-state actions and landmark settlements, and highlights tactical considerations for corporate counsel preparing for heightened scrutiny at the state level.

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This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.5 credit hours, of which 1.5 credit hours may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit.

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PANELISTS:

Ryan T. Bergsieker is a partner in Gibson Dunn’s Denver office and a former federal cybercrimes prosecutor whose practice focuses on government investigations, complex civil litigation, and cybersecurity and data privacy counseling. He represents clients in high-stakes enforcement matters with the Department of Justice, Federal Trade Commission, Consumer Financial Protection Bureau, and state attorneys general, with deep expertise in federal, state, and international consumer protection, privacy, and cybersecurity laws.

Christopher (Chris) Chorba is a partner in Gibson Dunn’s Los Angeles office and Co-Chair of the firm’s Class Actions Practice Group. He specializes in defending companies in complex national- and state-level class action and multi-district litigation, including matters involving consumer protection, competition, and regulatory exposures, and has substantial experience at the trial and appellate level in California and throughout the country.

Prerak (Pre) Shah is a partner in Gibson Dunn’s Houston office and a member of the firm’s State Attorneys General Task Force. Drawing on his experience at the highest levels of the Texas Attorney General’s Office, U.S. Department of Justice, and U.S. Congress, he advises companies and executives facing state, federal, congressional, and internal investigations. He also represents clients in high-stakes civil litigation, with a particular expertise in state attorney general enforcement actions.

James L. Zelenay Jr. is a partner in Gibson Dunn’s Los Angeles office and a member of the firm’s Litigation and White Collar Defense and Investigations practice groups. James has deep experience defending clients in False Claims Act, government regulatory, and civil fraud matters, assisting clients in internal investigations, responding to subpoenas, and navigating high-stakes FCA litigation across industries.

Lawdragon has named 32 Gibson Dunn lawyers to its list of 500 Global Leaders in Crisis Management. The publication calls these lawyers “the advisors who are the legal world’s emergency responders – when investigators turn their eye to a client, a deal attracts activist activity or an industry goes under the relentless microscope of a class action.”

Congratulations to: Matt Axelrod, Amanda Aycock, Matt Benjamin, Ryan Bergsieker, Barry Berke, Robert Blume, Michael Bopp, Ted Boutrous, Reed Brodsky, Stephanie Brooker, David Burns, John Chesley, Jina Choi, Collin Cox, Lee Crain, M. Kendall Day, Stuart Delery, Mylan Denerstein, Michael Dore, Patrick Doris, Theane Evangelis, Douglas Fuchs, Brian Gilchrist, Nicola Hanna, Sacha Harber-Kelly, Dani James, Christopher Joralemon, Michael Martinez, Karin Portlock, Orin Snyder, Maurice Suh, and Debra Wong Yang.

The IAM (subscription required) article “UTSA v DTSA: How Claim Selection Is Steering Trade Secret Fight Dynamics” (February 26, 2025) features commentary by partner Angelique Kaounis.

In 2025, Gibson Dunn’s pro bono practice had yet another remarkable year. Our work spanned borders and disciplines, driven by our lawyers’ commitment to using their skills where they are most needed. Thanks to that commitment, we offered our pro bono clients the dignity that comes from top-notch legal representation and, often, life-changing results. Whether protecting individual rights, supporting underserved communities, or addressing pressing humanitarian and systemic challenges, our lawyers brought dedication, creativity, and excellence to their work. In total, more than 2,000 Gibson Dunn lawyers dedicated over 240,000 hours to pro bono work.

You can read more about the important work of our pro bono practice in our 2025 Pro Bono Report.

This briefing summarises the key changes and their implications for originators, sponsors and original lenders involved in securitisation transactions, with a particular focus on private, bilaterally negotiated securitisations.

On 17 February 2026, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) published parallel consultation papers (FCA CP26/6 and PRA CP2/26) setting out significant proposed reforms to the UK securitisation framework. These reforms aim to make the existing requirements more proportionate and less prescriptive whilst maintaining appropriate safeguards. The consultation period closes on 18 May 2026, with implementation expected in Q2 2027.

1. A Material Simplification of Transparency Requirements

The regulators are proposing a substantial overhaul of the transparency and disclosure regime, moving away from the highly prescriptive template-based approach currently in force. Key changes include:

Reduction in reporting templates: Several underlying exposure templates will be deleted, including those for commercial real estate, corporate exposures (other than CLOs), credit cards, and esoteric exposures. These will be replaced with a principles-based approach specifying the type of information to be disclosed without mandating a format.
Simplified templates for retained asset classes: Templates for residential real estate, automobile, consumer, leasing and non-performing exposures will be retained but simplified and aligned with the Bank of England’s loan level data templates. This alignment is expected to streamline regulatory reporting for manufacturers whose securitisations are pre-positioned with the Bank of England.
New CLO template: A new, simplified underlying exposures template specifically designed for CLOs will be introduced, with approximately 43% fewer data fields than the current corporate exposures template.
No more XML format: The requirement to produce templates in XML format will be removed; manufacturers will instead be required to provide information in any electronic and machine-readable format.

Implication for originators/sponsors: This represents a meaningful reduction in compliance burden and cost. The FCA estimates that manufacturers incur one-off costs of approximately £500,000 to comply with current transparency requirements, plus ongoing costs of £375,000 and £104,000 per asset class for template set-up. The reforms are expected to generate market-wide cost savings.

2. Removal of Securitisation Repository Reporting Requirement

Subject to HM Treasury laying a Statutory Instrument, the requirement for manufacturers to report information to regulated securitisation repositories will be removed. Market feedback indicates that investors do not regularly access data via these repositories and prefer to obtain information directly from manufacturers or through commercial data providers.

Under the proposed framework, manufacturers would instead be required to make information available in a manner that is accessible to investors and potential investors, with appropriate access arrangements at the manufacturer’s discretion.

Implication for originators/sponsors of private securitisations: This change is particularly beneficial for bilateral transactions, where information has historically flowed directly between originator and investor in any event. Originators will no longer need to duplicate reporting through a repository when the investor already receives information directly. This reduces costs and removes an administrative step that added little practical value for private transactions. Manufacturers may continue to use unregulated repositories if they choose, but this will no longer be mandated.

3. Removal of Distinction Between Public and Private Securitisations

The regulators propose to delete the distinction between public and private securitisations for most transparency requirements. Currently, public securitisations (those traded on a UK regulated market) are subject to more stringent transparency requirements, including additional templates and repository reporting.

Under the proposed reforms, the same underlying exposure templates would apply to both public and private securitisations with similar underlying exposures. The distinction will be retained only for the purpose of private securitisation notifications to the FCA.

Implication for originators/sponsors of private securitisations: For participants in bilaterally negotiated private securitisations, this change is significant. The current distinction has created uncertainty about which requirements apply to different transaction types. Removing the distinction means that the same streamlined requirements will apply regardless of whether a securitisation is publicly listed or privately placed, reducing complexity in transaction structuring. Private securitisation notifications will now be submitted to the FCA only, with the PRA no longer receiving direct notifications.

4. Streamlined Treatment for Single-Loan Securitisations

The proposals include significant relief for single-loan securitisations, including loans under the UK Government’s Mortgage Guarantee Scheme (MGS) and similar private guarantee schemes:

Single-loan securitisations will be exempt from the requirement to complete prescribed underlying exposure templates.
The PRA proposes to exempt single-loan retail securitisations from detailed COREP reporting under templates C14.00 and C14.01.
Firms will remain subject to broader transparency requirements specifying the type of information to be disclosed, but without prescribed formats.

Implication for originators/sponsors: Industry feedback has consistently highlighted that the operational and cost burden of applying transparency requirements to MGS loans and similar products is disproportionate and can deter participation in these schemes. These reforms directly address that concern.

5. Investor Reports and Significant Event Disclosures: Templates Removed

The prescribed templates for investor reports and inside information/significant event disclosures will be deleted. Instead:

The requirement for investor reports will be retained, with rules specifying only the type of information that must be included (such as credit quality and performance data, relevant triggers, cash flow information, and risk retention details).
The template for inside information or significant event reporting will be replaced with a less prescriptive requirement to provide relevant information in a timely manner and accessible format.

Implication for originators/sponsors: Manufacturers have highlighted the cost and complexity of producing these templates, while investors have expressed a preference for bespoke reports tailored to the specific details of each securitisation. The new approach allows greater flexibility in report format while maintaining substantive disclosure standards. For private, bilateral securitisations, this is particularly welcome, as originators and their investor counterparties can agree bespoke reporting arrangements tailored to the specific transaction and the investor’s requirements, rather than being constrained by regulatory templates that may not be fit for purpose.

6. Introduction of L-Shaped Risk Retention Modality

The proposals introduce a new “L-shaped” risk retention modality, combining two existing approaches:

The L-shaped option allows retention of a percentage of the first loss tranche combined with a percentage of the nominal value of each other tranche sold to investors (the same percentage applied to each tranche), so that the combined retention is not less than 5% of the nominal value of the securitised exposures.

This new modality supplements the existing five options: vertical slice, seller’s share, randomly-selected exposures, first loss tranche, and first loss exposure in each asset.

Implication for originators/sponsors: The L-shaped modality is familiar to certain overseas investors, particularly in the US market. Its introduction could encourage participation by such investors in UK securitisation transactions, which may support manufacturers in better managing their capital and funding positions. The existing risk retention requirements otherwise remain unchanged for UK manufacturers.

7. Narrowed Resecuritisation Ban with Specific Exemptions

The general prohibition on resecuritisation will be maintained, but two specific exemptions are proposed for PRA-authorised firms:

Exemption 1: Resecuritisation of securitisations created by tranched credit protection on an individual exposure basis. This exemption covers products such as loans under the MGS, where the guarantee structure on each individual loan meets the definition of a securitisation. This exemption enables such loans to be included in securitisation structures for funding or credit risk management purposes.

Exemption 2: Resecuritisation of senior securitisation positions. Senior positions (the highest-ranking tranche) may be resecuritised, enabling firms to use these positions for capital management and liquidity purposes, including central bank liquidity.

Both exemptions are subject to safeguards including: the originator of the resecuritisation must be a PRA-authorised person; the originator must also be the originator and risk retainer of the underlying securitisation; the resecuritisation must be limited to a single round; and the underlying exposures must be homogeneous in terms of asset class.

Implication for originators/sponsors: These exemptions will enable firms to access additional funding sources and liquidity, including Bank of England facilities, and to use securitisation more effectively for credit risk management. Note that these exemptions apply only to PRA-authorised originators and sponsors, though FCA-regulated institutional investors will be permitted to invest in such resecuritisations.

8. Clarification of Credit-Granting Requirements

The proposals clarify the credit-granting criteria applicable to originators, sponsors and original lenders. The key clarifications are:

Sound and well-defined criteria for credit-granting apply to any exposure to be securitised, irrespective of whether non-securitised exposures exist.
The comparison requirement (applying the same standards to securitised and non-securitised exposures) now refers to “comparable assets remaining on the balance sheet, if any” rather than “non-securitised exposures”.
The phrase “if any” caters for situations where no comparable assets remain on the balance sheet.

Implication for originators/sponsors: These clarifications better reflect the policy intent of ensuring minimum underwriting standards and minimise the proliferation of poor-quality originations, while removing ambiguity in the current rules.

9. Implications for Your Investors

Whilst this briefing focuses on the position of originators and sponsors, it is important to understand how the parallel changes to investor due diligence requirements will affect the investor landscape for your transactions:

Simplified due diligence requirements: The proposals substantially simplify due diligence requirements for institutional investors. Prescriptive verification requirements will be removed, including the requirement to verify compliance with credit-granting criteria, risk retention requirements, availability of specific information, and STS criteria.

Principles-based approach: Instead of prescriptive checklists, investors will be required to undertake due diligence proportionate to the risk profile of the securitisation position, ensuring they have a comprehensive and thorough understanding of the risks involved.

Alignment of interest for non-UK structures: For non-UK securitisations, investors will no longer be required to verify that originators comply with Article 6 risk retention standards specifically. Instead, investors must be satisfied that the originator, sponsor or original lender maintains “sufficient and appropriate alignment of commercial interest” with investors in the performance of the securitisation. This alignment does not necessarily need to be the 5% risk retention standard but can be demonstrated through alternative means, such as management fees linked to performance.

Implication for originators/sponsors of private securitisations: For bilateral transactions, the simplified due diligence requirements should make it easier for a wider range of institutional investors to participate. Where previously the prescriptive verification requirements may have deterred smaller investors or those new to the asset class, the principles-based approach allows for due diligence proportionate to the investment. This could broaden the potential counterparty pool for your transactions. Additionally, UK investors will gain greater flexibility to invest in non-UK structures (such as US CLOs) that may not comply with UK risk retention modalities but demonstrate alignment of interest through other means.

10. A note on European Securitisations

For securitisations that are subject to both the European Union (the EU) and UK securitisation regimes, the practical impact of the UK reforms will depend on equivalent developments in the EU. Whilst both sets of proposals are broadly moving towards more proportionate, less prescriptive frameworks, market participants operating across both the EU and UK will need to monitor developments in each regime closely as the prospect of full regulatory alignment between the EU and UK frameworks remains uncertain.

Timeline

Milestone	Date
Consultation papers published	17 February 2026
Consultation closes	18 May 2026
Final rules expected	H2 2026
Implementation	Q2 2027

The following Gibson Dunn lawyer prepared this update: Michelle Kirschner and Rebecca West.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. If you wish to discuss any of the matters set out above, please contact the authors or any leader or member of Gibson Dunn’s Financial Regulatory practice group:

Michelle M. Kirschner – London (+44 20 7071 4212, mkirschner@gibsondunn.com)

Rebecca West – New York/London (+1 212.351.5213, rwest@gibsondunn.com)

A team at Gibson, Dunn & Crutcher led by Harris Mufson secured an injunction for insurance client Marsh against U.K. broker Howden and seven former Marsh managers and account executives based in Florida who left to launch Howden’s Sunshine State operations. According to court filings, Marsh has seen 160 Marsh employees and more than 80 clients move to Howden as part of a mass hire launched last year. U.S. District Judge Jennifer Rochon in Manhattan held this week that Marsh was likely to succeed on its breach-of-contract claims against the former employees and its tortious interference claims against Howden. Rochon barred further solicitation of Marsh employees and clients, or misuse of confidential Marsh information, which she ordered to be returned. The judge, however, stopped short of barring Howden and the former employees from servicing former Marsh clients presently at Howden, finding that such a move would deny customers the brokers of their choice, without any evidence that the customers would return to Marsh.

The Gibson team representing Marsh includes partner Brian Richman and of counsel Amanda Machin.

To read complete article visit Law.com (subscription required)

Reprinted with permission from the February 27, 2026 edition of “The AmLaw Litigation Daily” © 2026 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.

Gibson Dunn advised the shareholders in connection with the sale of Aicuris Anti-infective Cures AG to Asahi Kasei, through its subsidiary Veloxis Pharmaceuticals, Inc. The acquisition price amounts to 780 million euros (approximately $920 million USD).

Our M&A team was led by partners Dr. Dirk Oberbracht and Sonja Ruttmann and included partner Ryan Murr, of counsel Dr. Aliresa Fatemi, and associates Simon Stöhlker, Andreas Rief, Tim Windfelder, and David Lübkemeier. Partners Dr. Lars Petersen and Kai Gesing and associate Yannick Oberacker advised on regulatory and antitrust issues. Partners Benjamin Rapp and Sean Feller and associates Daniel Reich and Nicolas von Wallis advised on tax. Of counsel Dr. Peter Gumnior advised on labor law aspects.

The proposed rule would rescind the Biden Administration’s 2024 interpretation and readopt the first Trump Administration’s 2021 interpretation.

Today, the U.S. Department of Labor issued a proposed rule regarding its interpretation of who qualifies as an “independent contractor” under the Fair Labor Standards Act (FLSA). Independent contractors are not subject to the FLSA’s minimum wage and overtime requirements as the statute applies only to “employees.” The proposed rule would rescind the Department of Labor’s 2024 interpretation adopted during the Biden Administration—which narrowed the definition of independent contractor—and replace it with the 2021 Rule the Department previously adopted during the first Trump Administration. Interested parties will have until April 28, 2026, to submit comments on the proposed rule.

Like the 2021 Rule, the proposed rule would codify five factors for determining who qualifies as an independent contractor: (1) the nature and degree of control over the work, (2) the individual’s opportunity for profit or loss, (3) the amount of skill required for the work, (4) the degree of permanence of the working relationship between the individual and the potential employer, and (5) whether the work is part of an integrated unit of production. The proposed rule would recognize the control and opportunity for profit or loss factors as “core factors” that “typically carr[y] greater weight.”

Although the proposed rule is nearly identical to the 2021 Rule, there are slight changes. First, the proposed rule provides additional clarity on the factors, explaining the inquiry looks to “the dependence that a typical employee has on an employer for work, as opposed to an individual who has more of the nature and character of a business owner who has a separate business.” It also explains that the analysis “does not focus on the amount of income the worker earns, or whether the worker has some other sources of income.” Second, the proposed rule provides additional examples for how the skills factor would be applied: a worker whose job does not require specialized skills but who develops those skills over time is likely to be classified as an employee. By contrast, a worker who has specialized skills, secures work by touting those skills, and does not receive specialized training from the company is more likely to be classified as an independent contractor.

If adopted, the proposed rule would rescind the 2024 Rule, which had replaced the 2021 Rule. The 2024 Rule codified six factors and did not assign special weight to any of the factors. The 2024 Rule also had adjusted how the traditional factors were applied. For example, it considered the worker’s investments relative to the employer’s investments. It also considered whether the worker’s activity is important or central to the business’s operations, an approach that tended to favor employee status in many cases.

Currently there are several lawsuits challenging the 2024 Rule, all of which have been stayed pending completion of the Department’s new rulemaking. On May 1, 2025, the Department announced that it will not “apply the 2024 Rule’s analysis when determining employee versus independent contractor status in FLSA investigations.”[1]

The terms of the Department’s final rule will depend on its response to comments submitted by interested parties during the notice-and-comment period. New legal challenges are possible once a final rule is adopted.

[1] https://www.dol.gov/sites/dolgov/files/WHD/fab/fab2025-1.pdf.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or the following leaders of the firm’s Labor & Employment or Administrative Law & Regulatory practice groups:

Eugene Scalia – Co-Chair, Administrative Law & Regulatory Practice Group,
Washington, D.C. (+1 202.955.8210, escalia@gibsondunn.com)

Jason C. Schwartz – Co-Chair, Labor & Employment Practice Group,
Washington, D.C. (+1 202.955.8242, jschwartz@gibsondunn.com)

Katherine V.A. Smith – Co-Chair, Labor & Employment Practice Group,
Los Angeles (+1 213.229.7107, ksmith@gibsondunn.com)

Helgi C. Walker – Co-Chair, Administrative Law & Regulatory Practice Group,
Washington, D.C. (+1 202.887.3599, hwalker@gibsondunn.com)

Table of Contents

Part I explores two major decisions from the Sixth and Eighth Circuits that shed light on Rule 23(b)(3)’s predominance requirement.
Part II addresses a landmark Ninth Circuit opinion addressing absent class members’ burden to prove Article III injury at summary judgment.
Part III discusses further new case law from the federal courts of appeals addressing whether Rule 23 embodies an implicit ascertainability requirement.
Part IV highlights notable appellate commentary on the standards governing grants of interlocutory review of class-certification decisions under Rule 23(f).
And Part V covers developing case law on section 1 of the Federal Arbitration Act, which exempts certain contracts from the FAA’s mandate.

I. The Sixth and Eighth Circuits Take Up Predominance Issues, Including in Rare En Banc Proceeding

Predominance under Rule 23(b)(3) continues to be a significant focus for appellate review of class-certification decisions. We report on two notable developments from the Sixth and Eighth Circuits that will be of interest to class-action practitioners in those circuits.

In a previous update, we highlighted the Sixth Circuit’s divided decision in Clippinger v. State Farm Automobile Insurance Co., 156 F.4th 724 (6th Cir. 2025), which created a 5–1 circuit split involving class certification in “total loss” auto-insurance cases. There, the panel majority affirmed certification of a Tennessee insured’s class challenging the defendant’s practice of adjusting advertised prices of used vehicles to account for typical negotiation, treating many valuation- and injury-related disputes as mere damages issues that could be deferred until later in the litigation. Id. at 738-45.

Late last month, the Sixth Circuit granted rehearing en banc and vacated the panel opinion, restoring the case to the docket and directing supplemental briefing and argument. 165 F.4th 1028 (6th Cir. 2026). The Sixth Circuit’s grant of rehearing en banc suggests the court may be willing to engage with the Rule 23 issues at the heart of “total loss” cases—particularly predominance disputes over whether individualized vehicle valuation questions can be resolved on a classwide basis. The Sixth Circuit’s grant of rehearing en banc, which remains relatively rare for that circuit, comes on the heels of its en banc opinion in Speerly v. General Motors, LLC, 143 F.4th 306 (6th Cir. 2025), another notable class-action decision we covered in a prior update. The Clippinger en banc argument is scheduled for mid-March. (Gibson Dunn represents the defendant in Clippinger.)

Elsewhere, a recent Eighth Circuit decision underscored the challenges plaintiffs face in satisfying Rule 23(b)(3)’s predominance requirement when liability and injury turn on what individual consumers saw, understood, and relied on. In In re Folgers Coffee Marketing, 159 F.4th 1151 (8th Cir. 2025), the Eighth Circuit reversed certification of a Missouri consumer-fraud class challenging statements on canisters of Folgers that the canisters would produce “up to” a certain number of cups of coffee. The court of appeals held that individualized questions of causation, consumer interpretation, and consumer experience would overwhelm any common issues, recognizing that many consumers likely did not read, rely on, or care about the “up to” statements. Id. at 1156.

The Eighth Circuit reiterated that consumer-fraud claims are often insusceptible to class treatment because proof varies as to what representations consumers received and whether the consumers relied on them. Folgers, 159 F.4th at 1155. The court of appeals also rejected a “price premium” theory that would have allowed consumers who were not deceived to recover on the ground that other consumers’ deception increased overall demand and prices, reasoning that such an approach would permit uninjured purchasers to “piggyback” on others’ injuries. Id. at 1157-58.

Folgers demonstrates that Rule 23(b)(3)’s predominance requirement often will not be satisfied even when the case involves products with uniform statements on their labels or packaging, particularly where the claims present issues relating to exposure, interpretation, causation, and injury. (Gibson Dunn represented The J. M. Smucker Company, which sells Folgers coffee, on appeal.)

II. Ninth Circuit Clarifies Absent Class Members’ Article III Burden at Summary Judgment

Last month, the Ninth Circuit issued a significant decision holding that absent class members must demonstrate Article III standing before trial, at least as early as summary judgment. Healy v. Milliman, Inc., 164 F.4th 701, 710 (9th Cir. 2026). The decision confirms that Article III standing is relevant not only at the final judgment phase, when class members would stand to recover individual damages, but also at earlier stages of litigation.

In reaching that holding, the Ninth Circuit explicitly rejected the idea that “the standing inquiry for unnamed class members” could be deferred until the final stage of a damages action. Healy, 164 F.4th at 708. The court of appeals clarified, however, that although absent class members must present evidence of Article III standing at summary judgment, this evidence is assessed under traditional summary-judgment standards, and the burden may be satisfied through circumstantial as well as direct evidence. Id. at 710.

Because Healy directly addresses only summary judgment, parties in 2026 likely will debate its consequences for class certification (or decertification). What is certain is that Healy will remain on the books—no petition for rehearing en banc was filed there.

III. Tenth Circuit Joins Majority View on “Ascertainability”

For years, federal courts of appeals have been grappling with whether Rule 23 embodies an implicit requirement of “ascertainability” or “administrative feasibility”—i.e., that a class should not be certified unless the plaintiff proves that it will be possible to identify class members in an objective, manageable manner. The courts have splintered into three camps. On one end is the Ninth Circuit, which has held that Rule 23 does not embody any freestanding ascertainability requirement (although questions relating to individual class members may well affect other Rule 23 requirements). Briseno v. ConAgra Foods, Inc., 844 F.3d 1121, 1123 (9th Cir. 2017). On the other end is the Third Circuit, which has recognized a strong version of the ascertainability requirement, requiring a showing of administrative feasibility using objective evidence. E.g., Byrd v. Aaron’s Inc., 784 F.3d 154, 163 (3d Cir. 2015). Between those poles are the majority of circuits to have addressed the question—including the Second, Seventh, and Eighth—which recognize an ascertainability requirement but reject the sort of administrative-feasibility formulation endorsed by the Third Circuit. E.g., In re Petrobras Sec., 862 F.3d 250, 265 (2d Cir. 2017); Mullins v. Direct Digital, LLC, 795 F.3d 654, 658 (7th Cir. 2015); Sandusky Wellness Ctr., LLC v. Medtox Sci., Inc., 821 F.3d 992, 996 (8th Cir. 2016).

In Cline v. Sunoco, Inc. (R&M), 159 F.4th 1171 (10th Cir. 2025), the Tenth Circuit joined the majority view. Cline involved a certified class of people entitled to royalties who received late payments. The defendant argued that the proposed class flunked the administrative-feasibility test because not all class members who were entitled to royalties could be identified from its records. The Tenth Circuit rejected this argument, holding that Rule 23 requires only that the class be defined clearly and objectively (rather than being based on subjective criteria, such as a person’s state of mind). Id. at 1196. As the court of appeals put it, under that view, ascertainability under Rule 23 requires “reasonable—but not perfect—accuracy” in identifying class members. Id.

IV. Sixth Circuit Issues Rare Peek into Standards for Rule 23(f) Review

Rule 23(f) permits litigants to seek permission from the court of appeals to challenge interlocutory orders granting or denying class certification. Rule 23(f) itself does not cabin how courts of appeals should exercise their discretion to grant or deny review. And since Rule 23(f)’s adoption in 1998, commentary from the courts of appeals on the standards for Rule 23(f) review has remained relatively rare, especially since most courts decide Rule 23(f) petitions through unreasoned or nonprecedential orders.

A recent decision by the Sixth Circuit provides helpful guidance. In In re Humana, Inc., 163 F.4th 376 (6th Cir. 2025), the defendant filed a Rule 23(f) petition seeking to appeal the district court’s order certifying a class under the Telephone Consumer Protection Act. The defendant urged review because, among other arguments, the class-certification decision was a “death knell,” meaning “the costs of continuing litigation … present such a barrier that later review is hampered.” Id. at 380. In support, the defendant pointed to “hundreds of millions of dollars in damages” it faced and cited “other TCPA class action suits” as evidence that it faced “undue pressure to settle.” Id. at 384. But the Sixth Circuit was not persuaded and faulted the defendant for failing to “submit any financial data to support its claim of potential financial harm.” Id. The defendant also cited a split among lower courts on whether “consent can be established on a class-wide basis in a TCPA.” Id. That too did not support an interlocutory appeal, the Sixth Circuit explained, because the defendant did not establish that “a one-size-fits-all approach” to “fact-specific” issues of certification in TCPA cases would be possible. Id.

After Humana, petitioners seeking review under Rule 23(f) in the Sixth Circuit should consider submitting evidence of the magnitude of financial harm that a certification order is likely to cause. Humana also suggests petitioners would benefit from showing not only the existence of an intra-circuit split, but also that an interlocutory ruling from the court of appeals would provide clear and useful “guidance” to other courts facing similar issues. Id.

V. Courts Continue to Debate the Scope of the FAA Section 1 Exemption

The Federal Arbitration Act contains a broad mandate requiring agreements to arbitrate to be enforced like any other contract. But section 1 of the FAA exempts from the Act’s arbitration-enforcement mandate “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1. The scope of this exemption has been hotly contested in recent years, and that trend continues with recent and upcoming decisions by the Second Circuit and the U.S. Supreme Court.

In Silva v. Schmidt Baking Distribution LLC, 162 F.4th 354 (2d Cir. 2025), a truck driver originally employed by a baked goods company later formed his own corporation and entered into a distributor agreement with his former employer. The agreement included a mandatory arbitration clause and class action waiver. Id. at 357. When a dispute arose, the driver sought to evade arbitration based on the exemption in FAA section 1, which has been construed to cover “transportation workers” akin to seamen and railroad employees. Id. at 358.

The Second Circuit in Silva reversed the district court’s order compelling arbitration. In doing so, it highlighted a less frequently litigated aspect of the section 1 exemption—whether the contract containing the obligation to arbitrate is one “of employment.” 162 F.4th at 360. In the court of appeals’ view, the mere fact that the distributor agreement was “signed by business entities” did not mean it was “not a ‘contract of employment.’” Id. Instead, the employment nature of the agreement was evidenced by the nature of the duties performed under the contract—i.e., the arranged pickup and delivery of goods by the driver. Id. at 362-63.

The Supreme Court, which has had two cases in recent years addressing section 1’s exemption for transportation workers, is also poised to return to the issue in a third case. In Flowers Foods v. Brock, No. 24-935, the Court will consider whether drivers “who deliver locally goods that travel in interstate commerce” but who “do not transport the goods across borders nor interact with vehicles that cross borders” are exempt under section 1. Cert. Pet. at i, Brock, 2025 WL 3555100 (U.S. Dec. 4, 2025). Oral argument in Brock is scheduled for March 25, 2026. (Gibson Dunn represented the Independent Bakers Association and the American Bakers Association in filing a brief as amici curiae in Brock in support of the petitioners.)

The following Gibson Dunn lawyers contributed to this update: Shaquille Grant, Kory Hines, Tim Kolesk, Matt Aidan Getz, Wesley Sze, Lauren Blas, Bradley Hamburger, Kahn Scolnick, and Christopher Chorba.

Gibson Dunn attorneys 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 in the firm’s Class Actions, Litigation, or Appellate and Constitutional Law practice groups, or any of the following lawyers:

Theodore J. Boutrous, Jr. – Los Angeles (+1 213.229.7000, tboutrous@gibsondunn.com)

Christopher Chorba – Co-Chair, Class Actions Practice Group, Los Angeles
(+1 213.229.7396, cchorba@gibsondunn.com)

Theane Evangelis – Co-Chair, Litigation Practice Group, Los Angeles
(+1 213.229.7726, tevangelis@gibsondunn.com)

Lauren R. Goldman – Co-Chair, Technology Litigation Practice Group, New York
(+1 212.351.2375, lgoldman@gibsondunn.com)

Kahn A. Scolnick – Co-Chair, Class Actions Practice Group, Los Angeles
(+1 213.229.7656, kscolnick@gibsondunn.com)

Bradley J. Hamburger – Los Angeles (+1 213.229.7658, bhamburger@gibsondunn.com)

Michael Holecek – Los Angeles (+1 213.229.7018, mholecek@gibsondunn.com)

Lauren M. Blas – Los Angeles (+1 213.229.7503, lblas@gibsondunn.com)

Wesley Sze – Palo Alto (+1 650.849.5347, wsze@gibsondunn.com)