Richard Manfredi, Author at Gibson Dunn

This update provides an overview of key class action-related developments from the third quarter of 2025 (July to September).

Table of Contents

Part I explores two divergent approaches to considering expert damages evidence at the class-certification stage.
Part II addresses recent federal appellate decisions regarding waiver or default of arbitration rights.
Part III highlights a deepening circuit split over certification in “total loss” cases against auto insurers.

I. The Seventh and Ninth Circuits Address District Court Engagement with Expert Evidence on Damages

For over a decade, the federal courts of appeals have split on whether expert evidence offered in support of (or opposition to) class certification must be admissible. In dueling decisions over this last quarter, the Seventh and Ninth Circuits took different approaches to how district courts should analyze expert evidence at certification, including with respect to whether a full Daubert analysis is appropriate and when the court must go beyond merely determining admissibility.

In Arandell Corp. v. Xcel Energy Inc., 149 F.4th 883 (7th Cir. 2025), the plaintiffs sought certification of a statewide class of industrial and commercial buyers of natural gas in a state-law price-fixing case. The parties submitted extensive expert evidence addressing whether the plaintiffs could prove antitrust impact with common evidence. The district court certified the class after ruling that the experts’ opinions were admissible, but it “did not expressly address or make findings about the defense arguments that the plaintiffs’ models were inadequate so as to defeat predominance.” Id. at 891. On interlocutory appeal under Rule 23(f), the Seventh Circuit vacated the certification order, emphasizing that “expert evidence can be admissible . . . but still fall short of proving the Rule 23 requirements for class certification.” Id. at 894. Accordingly, “where the defendants have offered admissible evidence that, if credited, would mean that individual questions would predominate over common questions,” courts must investigate and resolve those disputes, rather than punting them to the merits phase. Id. “Otherwise, any party would be able to obtain (or defeat) class certification just by hiring a competent expert.” Id.

The Ninth Circuit has previously held that district courts may rely on expert evidence in ruling on class certification even where the evidence is inadmissible. Lytle v. Nutramax Laby’s, Inc., 99 F.4th 557, 570-71 (9th Cir. 2024). The Ninth Circuit reaffirmed that approach this quarter in Noohi v. Johnson & Johnson Consumer Inc., 146 F.4th 854 (9th Cir. 2025), a consumer class action in which the plaintiffs claimed that a skin-care product was misleadingly labeled as “oil free.” In support of class certification, the plaintiffs offered testimony from an expert who proposed a survey to prove classwide damages—but by the time of certification, the expert still had not formulated questions for the survey, executed the survey, or calculated damages. Id. at 861. The district court certified the class anyway, and the Ninth Circuit affirmed. Id. The Ninth Circuit reasoned that plaintiffs need only “demonstrate that the proposed method will be viable as applied to the facts of” their case, and that the defendant’s challenges to the expert’s proposed model were “not ripe at the class certification stage.” Id. at 864.

Noohi also illustrates ongoing tension in Ninth Circuit case law. It arguably conflicts with the Ninth Circuit’s prior decision in Olean Wholesale Grocery v. Bumble Bee Foods, 31 F.4th 651 (9th Cir. 2022) (en banc), which held that plaintiffs “may use any admissible evidence” to satisfy their burden at class certification. Id. at 665 (emphasis added). More broadly, the Ninth Circuit’s recent decisions also conflict with case law from the Third, Fifth, and Seventh Circuits, which require admissible evidence in order to sustain class certification. Prantil v. Arkema Inc., 986 F.3d 570, 575-76 (5th Cir. 2021); In re Blood Reagents Antitrust Litig., 783 F3d 183, 186-88 (3d Cir. 2015); Am. Honda Motor Co. v. Allen, 600 F.3d 813, 815-16 (7th Cir. 2010). The Supreme Court granted review on this issue in Comcast Corp. v. Behrend, 567 U.S. 933 (2012), but did not resolve it, 569 U.S. 27 (2013).

II. Quartet of Decisions on Waiver or Default of Arbitration Rights

Four courts of appeals issued decisions this quarter addressing parties’ waiver or default of arbitration rights. These decisions provide invaluable guidance for parties looking to enforce arbitration agreements, including with respect to claims that might otherwise be lumped into class actions.

Beware of pressing forward with litigation. In Schnatter v. 247 Group, LLC, — F.4th —, 2025 WL 2612017 (6th Cir. 2025), the Sixth Circuit affirmed the denial of a motion to compel on the grounds that the defendant had defaulted on its right to arbitrate by litigating extensively in federal court before moving to compel.

The defendant (Laundry Service) moved to compel arbitration based on a nondisclosure agreement between the parties after litigating the case for four years and losing its motion for summary judgment, but the Sixth Circuit affirmed the district court’s ruling that Laundry Service had acted “inconsistently” with an intent to arbitrate. Id. at *8. The court of appeals emphasized that (1) Laundry Service had acknowledged its right to arbitrate in its second motion to dismiss; (2) the district court had warned Laundry Service at the hearing on that motion that, given how far the suit had progressed, it was at risk of forfeiting its right to compel arbitration; and (3) Laundry Service knew it could have moved to compel arbitration in the alternative to dismissal or summary judgment. Id. The court held that by “seeking complete victory on the merits in the district court without invoking its arbitration rights even in the alternative, Laundry Service manifested its intent to litigate rather than arbitrate this dispute.” Id.

No waiver unless the party knows or should have known that the right exists. The Sixth Circuit in In re Chrysler Pacifica Fire Recall Products Liability Litigation, 143 F.4th 718 (6th Cir. 2025), reversed the district court’s sua sponte ruling that Chrysler had waived its right to arbitrate through its participation in litigation.

After moving to dismiss, Chrysler discovered that 18 of the 69 relevant purchase agreements between the plaintiffs and car dealerships contained arbitration agreements and promptly moved to compel arbitration as to those plaintiffs. In opposing the motion to compel, the plaintiffs did not raise waiver as a ground for denial. The district court, however, denied the motion, ruling sua sponte that FCA had waived any right to arbitrate by acting “inconsistently” with its arbitration rights by first moving to dismiss. Id. at 722.

The Sixth Circuit reversed. Id. at 725. While the court acknowledged that constructive knowledge may give rise to a claim of waiver, it rejected the notion “that a party can waive its arbitration rights without first knowing those rights exist.” Id. at 724. To find waiver, “the district court first needed to determine that [Chrysler] knew or should have known that its arbitration rights existed when it moved to dismiss, but the district court believed that such knowledge was irrelevant.” Id. at 725. As a result, the Sixth Circuit concluded that the district court could not have found waiver because it had not attempted “to determine that [Chrysler] knew or should have known that its arbitration rights existed when it moved to dismiss.” Id.

Newly asserted claims can revive waived arbitration rights. In Lackie Drug Store, Inc. v. OptumRx, Inc., 144 F.4th 985 (8th Cir. 2025), the Eighth Circuit partially reversed a district court ruling denying OptumRx’s motion to compel arbitration, concluding that OptumRx had waived arbitration of three claims that had been pending before the district court for over two years. But the Eighth Circuit reversed as to two claims that had been recently added to the case via an amended complaint, holding that an arbitrator must determine whether those new claims were arbitrable. Id. at 999.

As to the newly pled claims, the Eighth Circuit held that because “a waiver of arbitral rights only applies to claims that were actually pled, not hypothetical ones not yet raised,” OptumRx could seek to compel arbitration as to the two newly added claims. Id. at 995. The Eighth Circuit also held, with respect to those claims, that any threshold disputes about arbitrability had been validly delegated to the arbitrators because the parties had included a clear and unmistakable delegation provision in their agreement. Id. at 998.

Lackie serves as a reminder not only that a party seeking to arbitrate should move to compel arbitration as early as possible (even if in the alternative), but also that a previous waiver of the right to arbitrate will not destroy arbitration rights with respect to claims that have not yet been asserted.

Use unmistakable language to delegate waiver issues to arbitration. Finally, in Lamonaco v. Experian Information Solutions, Inc., 141 F.4th 1343 (11th Cir. 2025), the Eleventh Circuit reversed the district court’s denial of Experian’s motion to compel arbitration under an online “clickwrap” agreement, which not only committed users to arbitration but also delegated threshold questions of arbitrability to the arbitrator.

The court of appeals first held that the district court erred in finding no obligation to arbitrate because Experian had presented a detailed declaration outlining the enrollment process that resulted in the asserted agreement. Id. at 1348. The Eleventh Circuit also reversed the district court’s alternative ruling that Experian had waived its right to compel arbitration, concluding that the parties had “clearly and unmistakably agreed to arbitrate” threshold arbitrability questions, including any issues with respect to waiver. Id. at 1349.

Lamonaco confirms that while waiver is presumptively a question for courts, the parties can commit the issue to arbitration, provided they do so in clear and unmistakable terms.

III. Circuit Split Deepens over Certification in “Total Loss” Cases

Plaintiffs around the country have brought class actions challenging how auto insurers resolve claims after a car is totaled. This quarter, the Third, Seventh, and Ninth Circuits rejected class certification in such “total loss” cases on the ground that individualized issues about to the fair market value of putative class members’ cars would overwhelm common questions—only for the Sixth Circuit to then depart from those courts’ reasoning in a divided opinion. These cases illustrate a persistent tension in class-action law about Rule 23’s rigorous requirements in cases involving valuation disputes.

In a trio of cases—Drummond v. Progressive Specialty Insurance Co., 142 F.4th 149 (3rd Cir. 2025), Schroeder v. Progressive Paloverde Ins. Co., 146 F.4th 567 (7th Cir. 2025), and Ambrosio v. Progressive Preferred Ins. Co., —F.4th—, 2025 WL 2628179 (9th Cir. 2025)—the Third, Seventh, and Ninth Circuits rejected class certification in cases challenging Progressive’s use of Projected Sold Adjustments (PSA), which are reductions to the advertised prices of comparable vehicles to account for the fact that dealers and buyers typically negotiate down to a lower sales price, in estimating the fair market value of their totaled vehicles. In each case, Progressive opposed class treatment on the ground that their policies promised to pay only the totaled car’s “actual cash value,” meaning each case would hinge on individualized proof as to the fair market value of each class member’s vehicle compared to the total payout they received.

The Third, Seventh, and Ninth Circuits sided with the insurer. In Drummond, the Third Circuit explained that because the plaintiffs’ theory of liability centered on Progressive’s “breach[ing] its insurance agreement with insureds by underpaying them,” 142 F.4th at 155, resolving the claims of all claims members would necessarily require the court to take highly individualized evidence of “the true [value] of the totaled vehicle” for each class member, id. at 158-62. Similarly, in Schroeder, the Seventh Circuit held that “individual questions overwhelm any common ones” because the insurer still could have paid class members the actual cash value for their cars, no matter the assertedly improper method used to reach that result. 146 F.4th at 571. The Ninth Circuit in Ambrosio expanded on this reasoning, holding that Progressive’s use of PSAs could not serve as common evidence because: (1) the insurance policies did not prohibit the use of PSAs; and (2) valuations based in part on PSAs could still result in an insurance payout that matched or exceeded the car’s true value, resulting in no injury. 2025 WL 2628179, at *10-12.

Then, a divided Sixth Circuit panel departed from those decisions in Clippinger v. State Farm Automobile Insurance Co., — F.4th —, 2025 WL 2861217 (6th Cir. 2025). As in the cases against Progressive, Clippinger involved an adjustment to account for typical dealer negotiation. Acknowledging that its decision conflicted with those of other circuits, the majority affirmed class certification, characterizing all individualized issues about whether the payments the policyholders received were less than the fair market value of their totaled cars as merely damages issues that could be tried separately. Id. at *10.

In dissent, Judge Murphy objected that the majority was creating a circuit split because five courts of appeals (the Fourth and Fifth Circuits, along with the Third, Seventh, and Ninth Circuits) rejected class certification in precisely this type of case. Id. at *14; see also Freeman v. Progressive Direct Ins. Co., 149 F.4th 461, 468-71 (4th Cir. 2025); Sampson v. USAA, 83 F.4th 414, 421-23 (5th Cir. 2023). Judge Murphy explained that a “jury would have to identify [each car’s] fair market value for each class member before it could resolve the primary two elements of that class member’s breach-of-contract claim,” including “whether State Farm breached the policy” at all. Clippinger, 2025 WL 2861217 at *20.

Gibson Dunn represents State Farm in connection with Clippinger v. State Farm Automobile Insurance Co., — F.4th —, 2025 WL 2861217 (6th Cir. 2025). Gibson Dunn also represents OptumRx in connection with Lackie Drug Store, Inc. v. OptumRx, Inc., 144 F.4th 985 (8th Cir. 2025).

The following Gibson Dunn lawyers contributed to this update: Lauren Fischer, Jessica Pearigen, Sophie White, 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)

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The establishment of the Real Property Division under the new ADGM Court Rules is a significant step toward supporting Abu Dhabi’s growing real estate market and addressing end-user requirements, with the Fast Track offering a route for the quick resolution of claims, providing parties with certainty and a way to resolve disputes efficiently.

Introduction

Gibson Dunn is proud to have partnered with the Abu Dhabi Global Market (ADGM) Courts for the Courts’ most significant reform project yet: the introduction of a new Real Property Division (including a simplified Short-Term Residential Lease procedure) and a Fast Track in the Commercial and Civil Division.

On 17 October 2025, the ADGM Courts published a series of amendments to their legislative and civil procedure framework, following the ten-fold geographical increase of the Court’s jurisdiction with the ADGM’s territorial expansion to Al Reem Island. The amendments introduce new Court rules and procedures designed to expedite and streamline court processes. These changes will allow the Court to more efficiently resolve real property and commercial disputes, and to implement an armoury of real property-specific remedies, for the benefit of practitioners and Court users.

Gibson Dunn is proud to have led this reform project, with an international team spanning our UAE, London, New York and Paris offices. The team, led by Nooree Moola, Lord Falconer, Robert Spano, Helen Elmer, and Praharsh Johorey, brought diverse experience which allowed the ADGM to benchmark against international best practices from a variety of jurisdictions.

The changes include:

a new Real Property Division, which will hear all real property claims. These changes create bespoke procedural rules that operate on a fast-track basis. They also provide for a range of important real property-specific remedies.

a new “Fast Track” for the Commercial and Civil Claims Division, which ensures that certain straightforward commercial and civil claims can be resolved efficiently and expeditiously, while also making the Court procedures more accessible and manageable.

a new practice direction for short-term residential lease claims, which sets out clear, user-friendly guidelines for resolving disputes relating to residential leases with a term of less than four years.

A summary of the amendments made in these instruments is set out below.

The Real Property Division

The ADGM’s geographical expansion into Al Reem Island in 2023 gave rise to a tenfold increase in its jurisdiction, and, unsurprisingly, larger volumes and new categories of claims and disputes bespoke to the residential and commercial property sector. Following this, the ADGM issued its “New Real Property Framework” in 2024, which expanded upon the types of property-specific claims and applications that could be made to the Court.[1]

To efficiently resolve these disputes, the updated ADGM Court Rules now establish a “Real Property Division” within the Court, which seeks to provide a streamlined and efficient service to the approximately 30,000 residents and 1,500 businesses that will need access to residential and commercial property dispute resolution. It provides bespoke and user-friendly procedures, practice directions and court forms.

Disputes that will be heard in the Real Property Division include:

The ADGM Courts did not previously have a specific procedural framework for real property claims and applications. With the current changes, a new Real Property Division has been introduced within the ADGM Court of First Instance, which has exclusive jurisdiction over all ADGM real property claims. This will serve as a “one-stop-shop” for resolving real property claims, allowing users to easily identify the procedures applicable to their real property claim. The Division has an inherently fast-tracked and easy-to-understand process, with procedures tailored specifically for real property claims and remedies.

Some of the key features of the Real Property Division are:

Short-Term Residential Lease Claims

The ADGM Courts have also introduced a bespoke, user-friendly process for “short-term residential lease claims”, i.e., claims arising from leases of residential property with a term of less than four years. These changes recognise the need to cater for higher volumes of relatively low-value disputes, as well as litigants-in-person. The framework is significantly streamlined, in that claims are intended to be disposed of within two months from start to finish. The framework also allows litigants to represent themselves with ease.

The key features are as follows:

“Fast Track” Procedure for Commercial and Civil Claims

New procedures have also been introduced in the Commercial and Civil Division. Key among these changes is the introduction of a “Fast Track” procedure, which will expedite the resolution of more straightforward commercial and civil claims.

The key features of the Fast Track procedure are set out in the Court Procedure Rules and the updated Practice Direction 2 and include:

Party choice: Parties can opt in to the Fast Track when filing their claim form or the acknowledgment of service, with the other Party having the opportunity to contest the allocation.

Flexible eligibility criteria: the amended PD 2 sets out detailed guidance on what cases might be suitable for the Fast Track, summarized below:

A case may be suitable for the Fast Track where, in the opinion of the party proposing the Fast Track, the case will require: a hearing of two days or fewer; no expert evidence; two fact witnesses or fewer per party; limited disclosure; and limited, if any, interlocutory applications.

A case that is suitable for the Fast Track may also have one or more of the following features (i) the case has a financial value of between US$ 100,000 and US$ 500,000, excluding interest; (ii) the case is straightforward, does not involve a substantial dispute of fact, and does not fall under the Small Claims, Employment or Real Property Divisions; (iii) and/or the case is urgent.

A case is also likely to be suitable for the Fast Track where it is a liquidated debt claim; an arbitration claim; a claim for declaratory or other relief which is unlikely to involve a substantial dispute of fact; an application for contempt of court; an application for extension of period for delivery of a charge; or an application for a freezing injunction, search order or interim remedy.

Certainty on timing: the Fast Track aims to resolve cases within six months of allocation, with specific timelines for filing pleadings, disclosure and witness statements.

Case management: the Fast Track includes provisions for CMCs, progress monitoring and pre-trial reviews to ensure efficient case progression. It also introduces a directions questionnaire and proposed directions tailored to Fast Track claims.

Document production: Parties must provide standard disclosure when filing their pleadings and parties may also seek specific disclosure. The procedure for the disclosure on the Fast Track dispenses with Redfern Schedules.

Mediation continues to be strongly encouraged at all stages of the claim.

Comparison of the Rule 27 and Fast Track Procedures

The Fast Track will result in case management on a significantly faster timescale than the traditional Rule 27 procedure. The Fast Track also effectively replaces the streamlined Rule 30 procedure, which has been repealed as part of the reforms. Below, we compare the Fast Track Procedure against the Rule 27 procedure:

Process	Rule 27 procedure	Fast Track procedure
ADR	ADR continues to be encouraged but not mandatory.
Claim form issued	Claimant requests that the Court issues claim form.	Claimant opts into Fast Track in claim form. The Court confirms the allocation when issuing the claim form. Parties must make standard disclosure when filing their pleadings.
AoS and ‘opt in’ to Fast Track	AoS must be filed within 14 days of service of claim form.	AoS must be filed within 7 days if the claim has been placed on the Fast Track. Defendant may agree or object to proposed Fast Track allocation in its AoS (or propose the Fast Track if not already proposed by Claimant). If there is party disagreement on Fast Track, the Court will determine the correct allocation on the papers.
Defence and Counterclaim	Filed within 28 days of claim form. Extendable by agreement by up to 28 days, or further with the Court’s permission.	To be filed within 21 days of claim form (extendable only by up to 14 days). Where the Court has reserved its decision on the allocation of the case to the Fast Track until after the defendant has answered the claim, the defendant must file and serve an answer to the claim within 28 days of being served with the claim form.
Reply and defence to Counterclaim	To be filed within 21 days of service of the defence.	To be filed within 14 days of service of the defence.
CMC	CMC convened within 14 days of close of pleadings.	CMC to be scheduled within 10 days of close of pleadings.
Trial timetable	Court sets trial timetable as soon as practicable after receiving the parties’ pre-trial checklist.	Fast Track claims will seek to be disposed of within 6 months from allocation of the case to the Fast Track.
Disclosure	Standard disclosure but with the ability to request Specific Disclosure.	Parties provide standard disclosure with their pleadings. Parties may make applications for specific disclosure.
Evidence	Evidence is served in accordance with timetable agreed in the CMC. Expert evidence with the permission of the Court.	Maximum 2 fact witnesses each, unless the Court directs otherwise. No expert evidence, unless the Court directs otherwise.
Option to decide the claim on the papers	At the Court’s general discretion.	At the Court’s general discretion.
The Hearing	At the Court’s general discretion.	Fast Tracked trials should generally be no more than 2 hearing days.
Costs and Appeals	The usual rules on costs and appeals for cases in the Commercial and Civil Division apply.

Other Changes in the Commercial and Civil Division

The updated CPR and Practice Direction 2 also provide several other key changes for Court users. Key among these are the following:

Removal of the Rule 30 procedure: the Rule 30 process has been removed. It is likely that any claim previously brought under the Rule 30 procedure can now be dealt with using the Fast Track process.

Removal of page limits: while claim forms in the Commercial and Civil Division were previously limited to 50 pages, this requirement has been removed. This does not reflect an intention that claim forms be longer than 50 pages; however the Court will not prescribe strict limits.

Extensions of time: the amendments provide greater certainty for parties when applying for an extension of time.

Commentary

The changes to the CPR and Practice Directions reflect the ADGM’s commitment to not only meet but surpass international best practices. They provide a robust and efficient legal framework for the resolution of disputes, particularly in the realm of real property and commercial claims, for the benefit of all Court users. The establishment of the Real Property Division under the new ADGM Court Rules is a significant step toward supporting Abu Dhabi’s growing real estate market and addressing end-user requirements, with the Fast Track offering a route for the quick resolution of claims, providing parties with certainty and a way to resolve disputes efficiently.

The Court has published Guidance Notes for the: (i) Fast Track; (ii) Real Property Division (other than Short-Term Residential Lease Claims); and (iii) Short-Term Residential Lease Claims. These Guidance Notes are on the Court’s website and can be accessed here.

[1] See primarily (i) Real Property Regulations 2024; (ii) Off-Plan Development Regulations 2024; (iii) Off-Plan and Real Property Professionals Regulations 2024; (iv) Off-Plan Development Regulations (Project Account) Rules 2024. Other disputes, claims and applications concerning real property (including commercial leases) are set out in the ADGM Courts, Civil Evidence, Judgments, Enforcement and Judicial Appointments Regulations 2015 as well as the Taking Control of Goods and Commercial Rent Arrears Recovery Rules 2015.

The following Gibson Dunn lawyers prepared this update: Nooree Moola, Helen Elmer, and Praharsh Johorey.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following practice leaders and members of Gibson Dunn’s global Litigation, Transnational Litigation, or International Arbitration practice groups:

Nooree Moola – Dubai (+971 4 318 4643, nmoola@gibsondunn.com)

Lord Falconer – London (+44 20 7071 4270, cfalconer@gibsondunn.com)

Robert Spano – London/Paris (+33 1 56 43 13 00, rspano@gibsondunn.com)

‘Shareholder activism was flavour of the month – while numerous P2P bidders continue to look and talk, rather than walk’

AIM traded glasses maker Inspecs Group became the latest target to catch the eye of multiple suitors: H2 Equity Partners, Safilo Group and a consortium comprising Risk Capital Partners and Ian Livingston.
Discussions between JTC and its potential bidders, Permira and Warburg Pincus, continue. Both are now working to the same PUSU deadline: they have until 7 November to put up or shut up.
BasePoint Capital has also been given additional time to finalise its financing for FTSE 250 constituent, International Personal Finance, which the IPF board “would be minded to recommend unanimously” if ultimately made. BasePoint has until 19 November to announce a firm offer or walk away.
Interest in the real estate and logistics sectors continues following the take private of Warehouse Reit earlier in the year, with Blackstone announcing it was in the early stages of considering a possible cash offer for Big Yellow Group, which sent BYG’s shares up 22%.

The three firm offers in October all came from overseas bidders:

TXSV-listed Sintana Energy Inc. announced a recommended all share offer for Challenger Energy Group. The bid is supported by irrevocables representing a healthy 34% and, to help win over shareholders, Sintana intends to seek a dual listing on AIM.
Six Swiss listed Cicor Technologies has also offered foreign scrip as part of its recommended cash and share offer for TT Electronics. 16.5% shareholder DBAY Advisors was quick off the block to say that they did not intend to vote in favour – notwithstanding the healthy 64.6% premium. This statement triggered the sensors of TT which disclosed it had received three unsolicited proposals from DBAY in the last three months.
Long Path Opportunities Fund announced a recommended all cash offer for software and data solutions provider Idox having been a “supportive and patient shareholder” for the last seven years. The Long Path funds currently hold approximately 12% of Idox and the offer values Idox at approximately £340 million.

The October Data

Offers Announced

Offers by Sector (YTD)

Bid Premia	Financial Advisor Fees (% deal value)

What’s Happened

Natara’s increased offer not sweet enough for Treatt’s shareholders

In our September edition, we trailed that natural ingredients producer Döhler had acquired a 10% holding in Treatt. Despite Natara raising its bid by 11.5% to 290 pence and declaring its offer final, Döhler continued to build an impressive 28% blocking stake. As a result, Treatt’s board found itself in the uncommon position of having its shareholders vote down their recommendation and reject the offer at Treatt’s shareholders’ meeting on Monday 3 November. The success of Döhler’s strategy highlights the challenges in fending off determined interlopers in circumstances where the original bidder is either unwilling or unable to switch to a contractual takeover bid with a lower minimum acceptance condition. It is made all the harder when an interloper stake builds to such a significant extent, as was the case here, that it can block any attempt to delist the target.

Canadian professional services firm, WSP Global, picks off Ricardo

Another company which saw stake-building activity earlier in the year was Ricardo. AIM-traded Science Group built a 20% stake and requisitioned a general meeting to oust Ricardo’s Chair. While Ricardo was grappling with activists, WSP made several indicative proposals to Ricardo. These culminated in WSP announcing a recommended cash offer for Ricardo and simultaneously entering into a share purchase agreement to acquire Science Group’s stake at the offer price ahead of the Scheme. The WSP offer was final from the outset. The Science Group shares did not form part of the Scheme, but it was still well supported by irrevocables in respect of more than 45% of Ricardo’s shares. With these in hand – even though WSP could not vote the shares – the Scheme was decisively approved by shareholders.

Magnum demerger temporarily on ice

The demerger of Unilever’s ice cream business, to be known as The Magnum Ice Cream Company N.V., was expected to complete on 8 November with shares in Magnum to commence trading on the NYSE, the LSE and Euronext Amsterdam on Monday 10 November. The general meeting to approve a simultaneous consolidation of Unilever’s shares went through smoothly on 21 October. The consolidation was being undertaken, as is common following a demerger, to counteract anticipated movements in Unilever’s share price resulting from the demerger. However, the on-going US Government shutdown has thrown a spanner in the works: the SEC has been unable to declare effective the US registration statement required for Magnum shares to be listed on NYSE. Unilever still expects the demerger to be implemented this year.

Looking Ahead

Predictions for November:

The focus this month is on Inspecs Group: Inspecs, which designs, manufactures and distributes eyewear frames, saw a major investor, Downing, attempt to requisition a shareholder meeting in the spring to remove then Executive Chair – founder Robin Totterman. Pressure has mounted on Inspecs this autumn following an announcement on 23 October that it had received indicative and unsolicited proposals from H2 Equity Partners and from a consortium comprising Risk Capital Partners and Ian Livingston. Each of these notably (and not surprisingly given the founder’s stake) included an unlisted securities alternative, continuing the recent trend for paper alternatives.

At the same time, Inspecs also announced it had received a proposal from fellow eyewear manufacturer, Safilo Group, to acquire parts of its business. First Seagull – which holds a 5.5% interest in Inspecs – has been quick to express its view that the Inspecs board should prioritise a ‘sum of the parts’ divestment and that it would not hesitate to requisition an EGM “to ensure that the necessary steps are taken by this Board or, if required, a refreshed Board”. The situation is complicated by the fact that founder Robin Totterman remains the largest shareholder with over 18% and, earlier in the year, Luke Johnson (of Risk Capital Partners) built a 5.9% stake.

November could be a busy month for the Inspecs independent directors.

EasyJet’s shares soared 12% after a report from Italian newspaper, Corriere Della Sera, that Swiss headquartered shipping company MSC was considering an offer for Europe’s second-largest budget airline. The founder of the FTSE100 airline, Stelios Haji-Ioannou, remains its biggest single shareholder, with a stake of about 15%. Dan Coatsworth, head of markets at AJ Bell, said that “EasyJet’s shares are cheap…and shareholders could be receptive to a bid if the price was right”.

The Financial Times reported that ITV’s shares dropped 8% after Liberty Global, its largest shareholder, sold half its stake in the British broadcaster. The FT said that Liberty’s large shareholding meant that it had been talked about as a potential buyer for ITV or as kingmaker in any takeover by one of the groups that have circled ITV in the past.

P2P Financing

The debt-raising environment for prospective bidders remains largely positive, with pricing in both the syndicated and private credit loan markets continuing to trend downwards. Substantial debt raisings for private acquisitions, including a €2.6 billion loan for GCTR’s acquisition of generic pharmaceuticals company Zentiva, were over-subscribed and priced lower than the initial guidance. However, signs appeared in October of a bifurcated market, with the best prices and terms reserved for high quality credits while lenders adopted a more hesitant approach to borrowers in less-favoured industries.

Absorbing the shock of the First Brands collapse in the US, the loan markets have become more cautious, and a prospective deal for specialty chemicals company Nouryon, which was seeking an extension of its existing loans as a bridge to a potential IPO, was pulled after its 8 October commitment deadline. Lenders cited concern about the company’s high leverage, but other chemicals borrowers also struggled and it is likely that broader concerns about the sector’s exposure to tariffs played a role. While highly-rated software borrower Verisure was able to borrow at Euribor plus 2.25%, Rovensa, a Portugese chemicals issuer, priced its loan at Euribor plus 5%.

This volatility means that lenders might think twice before entering into the relatively lengthy underwriting commitments necessary to finance P2P acquisitions. However, the issuance of leveraged loans and bonds in 2025 is nevertheless on track for a record year, with lenders’ ‘dry powder’ far exceeding M&A supply, so any public to private deal for a target with a compelling credit story is still likely to be well received by the market.

Equity Capital Markets

The IPO activity that started in September with Beauty Tech Group and Fermi Inc. (see our September update), continued into October, with Princes Group and Shawbrook Group announcing London listings.

Princes Group, best known for its eponymous brand of tuna and Napolina tomatoes, priced its London IPO on 31 October at 475p (vs a 475p – 590p price range) implying a market capitalisation of c. £1.1 billion. Admission is due to occur on 5 November. The all primary offer raised £395 million to fund future acquisitions. NewPrinces S.P.A, the 100% owner pre-IPO, and related interests subscribed for £255 million of the offer. NewPrinces S.P.A is known for an expansive acquisition strategy, with the company finalising a deal to takeover Carrefour Italia for EUR 1 billion in 2025.

The shares ended the first day of conditional (i.e. pre-Admission) dealings at the offer price, meaning that the underwriter acting as stabilising manager will have been able to purchase shares to stabilise the share price. Such purchases are permitted at or below the offer price. The extent of stabilisation purchases should become clear when it is announced whether the over-allotment option (“OAO”, aka the “greenshoe”) has been exercised, as the OAO exercise will typically decrease by the volume of stabilsation purchases that are made. The OAO is 5% of the offer size vs the usual 15%.

Shawbrook Group, the UK digital bank, priced its IPO on 30 October at 370p, in the middle of the 350p – 390p price range, giving it a market capitalisation of c. £1.92 billion. Admission is due to occur on 4 November. Its private equity backers, BC Partners and Pollen Street, partially exited their investment, receiving c. £350m (assuming the OAO is exercised in full), while the company issued c. £50m in new shares and received net proceeds of c. £28m. The listing comes after the PE firms took the bank private in 2017, in a deal valuing the lender at c. £868 million.

Key Contacts:

Will McDonald Partner, Corporate	Chris Haynes Partner, Corporate	David Irvine Partner, Finance	Kavita Davis Partner, Finance
James Addison Of Counsel, Corporate	Thomas Barker Of Counsel, Corporate	Sarah Leiper-Jennings Of Counsel, Corporate	Pete Usher Associate, Corporate

In re Novartis Pharmaceuticals Corp., No. 24-0239 – Statement Issued October 24, 2025

On October 24, 2025, two Texas Supreme Court Justices issued a statement respecting the denial of mandamus, urging defendants to re-raise constitutional challenges to Texas qui tam in the new Fifteenth Court of Appeals.

“This case presents weighty issues worthy of our full attention . . . . But the decision to deny the petition is understandable given that there is a new statewide appellate court that has already held that it has jurisdiction over disputes like this one.”

Statement Respecting Denial of Petition

Background:

Texas’s Health Care Program Fraud Prevention Act (previously called the Texas Medicaid Fraud Prevention Act) is the State’s primary anti-fraud tool for Medicaid and related programs. Like the federal False Claims Act, it permits private relators to bring qui tam suits on the State’s behalf and seek civil penalties for both the State and the relator. Tex. Hum. Res. Code §§ 36.51–55, .101. The State can intervene, but the relator may proceed even without the State’s participation. Id. § 36.104(b).

In 2020, a relator corporation sued Novartis under the Act. After the State declined to intervene, Novartis moved to dismiss, arguing that (1) the relator lacked standing because it suffered no injury, and (2) the Act’s qui tam provisions violate the Texas Constitution’s separation-of-powers clause. The trial court denied the motion. Novartis sought mandamus in the Texarkana Court of Appeals, which denied relief without analysis. Novartis then petitioned the Texas Supreme Court.

While Novartis’s petition was pending, the newly created Fifteenth Court of Appeals—vested with exclusive jurisdiction over civil appeals involving the State—began its inaugural term and held that its exclusive jurisdiction extends to qui tam suits under the Act, whether or not the State has intervened. In re Sanofi-Aventis U.S. LLC, 711 S.W.3d 732 (Tex. App.—15th Dist. 2025).

On October 24, 2025, the Texas Supreme Court denied Novartis’s mandamus petition. Justices Young and Sullivan wrote separately respecting the denial.

Statement Respecting Denial:

The two Justices began by recognizing that Novartis’s challenges to the Act presented “weighty issues worthy of [the Court’s] full attention.” Statement at 1. But they agreed that Novartis should first raise its challenges in the new Fifteenth Court because “that court’s view of the issues presented may assist this Court in its eventual and inevitable consideration of the constitutional concerns surrounding qui tam litigation” under the Act. Id.

Although the two Justices didn’t weigh in on the merits of the constitutional challenges, they did provide helpful guidance about the interplay between the Texas statute and the federal False Claims Act and how those similarities and differences may impact the analysis.

Standing. The Justices indicated that although the federal cases analyzing standing were a good starting point, the Texas Act, unlike the federal statute, doesn’t provide for the recovery of damages—it only authorizes civil penalties. Id. at 3–4. The Justices seemed skeptical that the State could assign its interest in collecting penalties to a private litigant. Id. at 4.

Separation of powers.The Justices directed litigants to the separate opinions of several U.S. Supreme Court justices questioning the federal qui tam’s constitutionality. The Justices noted that although the Texas Constitution’s separation-of-powers provision “uses very different language” from the federal Constitution, “that may just generate different constitutional doubts about qui tam litigation.” Id. at 5.

What It Means:

Whether in this case or another one like it, the Texas Supreme Court appears poised to take up “the constitutional concerns surrounding qui tam litigation” in Texas and settle those issues “once and for all.” Statement at 1, 10.
The statement by Justices Young and Sullivan gives defendants a Texas-specific roadmap for standing and separation-of-powers arguments likely to gain traction in Texas courts.
Litigants should tailor their strategy to the new Fifteenth Court—which has ruled that it’s the proper forum for appeals and mandamus in Texas qui tam cases.

The Court’s opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Texas Supreme Court. Please feel free to contact the following practice group leaders:

Appellate and Constitutional Law

Thomas H. Dupree Jr. +1 202.955.8547 tdupree@gibsondunn.com	Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com	Julian W. Poon +1 213.229.7758 jpoon@gibsondunn.com
Brad G. Hubbard +1 214.698.3326 bhubbard@gibsondunn.com

Related Practice: Texas General Litigation

Trey Cox
+1 214.698.3256
tcox@gibsondunn.com

Collin Cox
+1 346.718.6604
ccox@gibsondunn.com

Andrew LeGrand
+1 214.698.3405
alegrand@gibsondunn.com

Related Practice: False Claims Act/Qui Tam Defense

Winston Y. Chan
+1 415.393.8362
wchan@gibsondunn.com

Jonathan M. Phillips
+1 202.887.3546
jphillips@gibsondunn.com

This alert was prepared by Texas of counsel Ben Wilson and associates Elizabeth Kiernan, Stephen Hammer, and Rebecca Roman.

Gibson Dunn’s Immigration Task Force is available to help clients understand what these and other expected policy changes will mean for them and how to comply with new requirements.

On October 29, 2025, the United States Department of Homeland Security (DHS) announced an interim final rule ending the decade-long practice of automatically extending Employment Authorization Documents (EADs) for certain non-citizens upon timely renewal filing.[1] The rule affects certain non-citizens who file to renew their EAD on or after October 30, 2025, as well as their U.S. employers.[2]

Background & History

Non-citizens may obtain authorization to work in the U.S. depending on their immigration status. For example, a person seeking asylum may apply for employment authorization while in the U.S. after their claim has been pending for 180 days.[3] The spouse of an H-1B visa holder may be eligible to do the same.[4] Although some immigration statuses may confer employment authorization past the date of expiration of an EAD, most statuses do not allow a person to work in the U.S. if their EAD expires.

Most non-citizens with EADs are able to apply to renew their EAD 180 days before it expires. Historically, USCIS has been unable to process a timely filed renewal within that timeframe.[5] This often resulted in a lapse of work authorization for non-citizens despite timely filing for renewal.[6] To deal with that, certain non-citizens have been afforded a 540-day “automatic extension” of their EAD if they timely filed their renewal application.[7] DHS first implemented a version of the automatic extension rule in 2016, and subsequently increased the automatic extension period in 2022 and 2024.[8] Thus, automatically extending EADs was intended to help avoid gaps in employment for applicants and to stabilize operations for U.S. employers where USCIS could not timely review renewal requests.[9]

The new rule ends this practice. DHS will no longer automatically extend EADs for renewal applications timely filed on or after October 30, 2025. The rule does not prevent EAD holders from seeking to renew their EADs, and it does not apply to renewal applications filed prior to October 30, 2025—those EADs continue to benefit from the 540-day automatic extension. Some of the people affected by this change include: refugees, asylees and asylum-seekers, spouses of E- or L-nonimmigrants, spouses of H-1B nonimmigrants, certain petitioners under the Violence Against Women Act, family members of legal permanent residents, and certain applicants for legal permanent residency.

DHS’s stated rationale for the new rule is to “prioritize the proper vetting and screening of aliens before granting a new period of employment authorization.”[10] DHS acknowledged that the new rule may cause a “disruption” and be “detrimental” to certain non-citizens, their families, and their employers when EADs temporarily lapse.[11] However, DHS stated that it believes “the weight of these interests is significantly diminished by various factors,” including that the automatic extension “poses a security vulnerability that could allow bad actors to continue to work and generate income to potentially finance nefarious activities that pose an imminent threat to the American public.”[12] DHS stated that it could not predict the impact of the rule on future EAD renewal processing times.[13] Although, it stated that it “does not anticipate a further influx of initial and renewal EAD applications that will overwhelm USCIS adjudicative resources” because of other actions DHS and the Trump Administration have taken to limit eligibility for work authorization and other immigration relief.[14] DHS also noted that it would “continue to work to reduce frivolous, fraudulent or otherwise non-meritorious EAD filings,” although it is unclear at this time what additional vetting or screening, if any, USCIS will undertake in considering applications to obtain or renew an EAD.[15]

Effect of the New Rule

This new rule may impact both non-citizens with an EAD and their U.S. employers. Non-citizens may face a temporary lapse or loss of their authorization to work in the United States, even if they timely file a renewal application. In some cases, this lapse might be quite lengthy given the current processing times for renewal applications. U.S. employers of EAD holders may also face lapses of employment as a result. As a result, impacted non-citizens may be unable to earn an income or might have to grapple with disrupted employment. Similarly, employers of non-citizens may lose coverage for work responsibilities or incur costs related to replacing workers with unexpectedly lapsed EADs.

USCIS cautioned that the longer a non-citizen “waits to file an EAD renewal application, the more likely it is that they may experience a temporary lapse in their employment authorization or documentation.”[16] Accordingly, USCIS recommends that EAD holders properly file a renewal application up to 180 days before their EAD expires.[17]

[1] DHS Ends Automatic Extension of Employment Authorization, U.S. Citizenship and Immigration Services, available at https://www.uscis.gov/newsroom/news-releases/dhs-ends-automatic-extension-of-employment-authorization.

[2] See Removal of the Automatic Extension of Employment Authorization Documents, 90 Fed. Reg. 48799 (Oct. 30, 2025).

[3] See 8 C.F.R. § 208.7(a)(1).

[4] See 8 C.F.R. § 274a.12(c)(26).

[5] In FY 2023, for example, the 80th percentile processing time for all renewal EAD applications was 14.2 months. 89 Fed. Reg. 24682, 24644 (Apr. 8, 2024).

[6] USCIS Increases Automatic Extension Period of Work Permits for Certain Applicants, U.S. Citizenship and Immigration Services, available at https://www.uscis.gov/archive/uscis-increases-automatic-extension-period-of-work-permits-for-certain-applicants.

[7] See Increase of the Automatic Extension Period of Employment Authorization and Documentation for Certain Employment Authorization Document Renewal Applicants, 90 Fed. Reg. 101208 (Dec. 13, 2024) (final rule); Temporary Increase of the Automatic Extension Period of Employment Authorization and Documentation for Certain Renewal Applicants, 87 Fed. Reg. 26614 (May 4, 2022) (temporary final rule).

[8] See 8 C.F.R. 274a.13(d) (2016); Temporary Increase of the Automatic Extension Period of Employment Authorization and Documentation for Certain Renewal Applicants, 87 Fed. Reg. 26614 (May 4, 2022) (temporary final rule); Increase of the Automatic Extension Period of Employment Authorization and Documentation for Certain Employment Authorization Document Renewal Applicants, 90 Fed. Reg. 101208 (Dec. 13, 2024) (final rule).

[9] USCIS Increases Automatic Extension Period of Work Permits for Certain Applicants, U.S. Citizenship and Immigration Services, available at https://www.uscis.gov/archive/uscis-increases-automatic-extension-period-of-work-permits-for-certain-applicants.

[10] Removal of the Automatic Extension of Employment Authorization Documents, 90 Fed. Reg. 48799, 48800 (Oct. 30, 2025).

[11] Id. at 48809.

[12] Id. at 48808–09.

[13] Id. at 48816.

[14] Id. at 48809.

[15] Id. at 48817.

[16] DHS Ends Automatic Extension of Employment Authorization, U.S. Citizenship and Immigration Services, available at https://www.uscis.gov/newsroom/news-releases/dhs-ends-automatic-extension-of-employment-authorization.

[17] Id.

The following Gibson Dunn lawyers prepared this update: Katie Marquart, Matt Rozen, Laura Raposo, Ariana Sañudo, and George Khoury.

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, the authors, any leader or member of the firm’s Pro Bono, Public Policy, Administrative Law & Regulatory, Appellate & Constitutional Law, or Labor & Employment practice groups, or the following members of the firm’s Immigration Task Force:

Stuart F. Delery – Co-Chair, Administrative Law & Regulatory Practice Group,
Washington, D.C. (+1 202.955.8515, sdelery@gibsondunn.com)

Naima L. Farrell – Partner, Labor & Employment Practice Group,
Washington, D.C. (+1 202.887.3559, nfarrell@gibsondunn.com)

Nancy Hart – Partner, Litigation Practice Group,
New York (+1 212.351.3897, nhart@gibsondunn.com)

Katie Marquart – Partner & Chair, Pro Bono Practice Group,
Los Angeles (+1 213.229.7475, kmarquart@gibsondunn.com)

Laura Raposo – Associate General Counsel,
New York (+1 212.351.5341, lraposo@gibsondunn.com)

Matthew S. Rozen – Partner, Appellate & Constitutional Law Practice Group,
Washington, D.C. (+1 202.887.3596, mrozen@gibsondunn.com)

Ariana Sañudo – Associate, Pro Bono Practice Group,
Los Angeles (+1 213.229.7137, asanudo@gibsondunn.com)

Betty X. Yang – Partner & Co-Chair, Trials Practice Group,
Dallas (+1 214.698.3226, byang@gibsondunn.com)

We are pleased to provide you with the October 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) requested comment on two proposals aimed at enhancing the transparency and accountability of its annual supervisory stress test. The first proposal, “Enhanced Transparency and Public Accountability of the Supervisory Stress Test Models and Scenarios” (Enhanced Transparency NPR), requests comment on the Federal Reserve’s supervisory stress test models and related revisions intended to increase the transparency of its stress test scenario design. It also proposes a new public comment process for material model changes and annual stress test scenarios. The second proposal, “Request for Comment on Scenarios for the Board’s 2026 Supervisory Stress Test” (the 2026 Scenarios), seeks input on the stress test models, the scenario design framework, and the hypothetical scenarios for the upcoming 2026 stress test. Comments on the 2026 Scenarios are due by December 1, 2025 and comments on the Enhanced Transparency NPR are due by January 22, 2026.
Continuing their efforts to focus supervision on material financial risks, the Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC) issued a proposed rule to define the term “unsafe or unsound practice” and revise the supervisory framework for issuing matters requiring attention (MRAs) and other supervisory communications. The proposal, aimed at sharpening supervisory focus on material financial risks, could significantly reduce the number of MRAs issued and lessen the frequency of CAMELS rating downgrades. The Federal Reserve did not join and has not issued a corresponding proposal—though the OCC’s and FDIC’s proposal closely aligns with many elements of Vice Chair for Supervision Michelle Bowman’s agenda. Comments are due on the proposal by December 29, 2025.
The OCC continued its assessment of the agency’s supervisory framework to reduce unnecessary regulatory burden, proposing to rescind its “Guidelines Establishing Standards for Recovery Planning by Certain Large Insured National Banks, Insured Federal Savings, and Insured Federal Branches” (12 C.F.R. Part 30, Appendix E) which apply to “covered institutions” with $100 billion or more in total assets.
The OCC continued its regulatory and supervisory tailoring efforts for community banks (now defined as institutions with up to $30 billion in assets) by issuing supervisory guidance and proposed rules intended to reduce the regulatory and supervisory burden for community banks in the areas of examinations, model risk management and licensing.
The OCC and FDIC formalized prior actions prohibiting the use of reputation risk in bank supervision, issuing a proposed rule to eliminate formally reputation risk as a supervisory consideration. The proposal would prohibit the agencies from criticizing or taking adverse action against an institution based on reputation risk and would prohibit the agencies from requiring or encouraging “debanking” of customers due to their “political, social, cultural, or religious views or beliefs, constitutionally protected speech, or solely on the basis of politically disfavored but lawful business activities perceived to present reputation risk.” Comments are due on the proposal by December 29, 2025.
In a speech at the Federal Reserve’s Payments Innovation Conference, Federal Reserve Board Governor Christopher Waller outlined the concept of what he called a “payment account” or “skinny” master account. Waller explained that such accounts would not include “all the bells and whistles of a master account” but could allow national trust companies or other novel charter types to benefit from a streamlined review process for these “lower-risk payment accounts.”
The Senate Banking Committee held a hearing on the nomination of Acting Chairman Travis Hill to serve as Chairman of the FDIC Board. In his opening statement, Acting Chairman Hill highlighted the agency’s recent initiatives and underscored the FDIC’s ongoing regulatory reform and modernization efforts.

DEEPER DIVES

Federal Reserve Issues Stress Testing Proposals. On October 24, 2025, the Federal Reserve approved, by a 6-1 vote (Governor Barr dissenting), the Enhanced Transparency NPR and 2026 Scenarios. Vice Chair for Supervision Bowman emphasized the importance of these proposals, highlighting that “[i]n an effort to avoid litigation, the Board committed to make significant improvements in the transparency of the stress tests. These proposals take a necessary step toward fulfilling that commitment, and would promote due process.”

Enhanced Transparency NPR

The proposal would revise the disclosure process by, among other things:

Publishing proposed stress test scenarios by October 15 of the year prior to the test (with a minimum 30-day comment period) and final scenarios by February 15 of each test cycle;
Publishing comprehensive model documentation by May 15 of the year in which the stress test is conducted;
Identifying all material model changes and responding to substantive public comments before implementation;
Defining what constitutes a “model change” and the “materiality” thereof; and
Modifying the “jump-off date” (i.e., the “as-of” date) for both supervisory and company-run stress tests from December 31 to September 30.

Changes to Scenario Design Policy Statement

Proposed changes to the Scenario Design Policy Statement include:

Clarifying that two macroeconomic scenarios (baseline and severely adverse) would be published, along with a description of the underlying macroeconomic model to support these scenarios.
Adding scenario “guides” for an expanded set of financial market variables in the macroeconomic scenario, which would inform the calibration of these variables in connection with the supervisory severely adverse scenario released each year.
Providing additional detail on the framework used to construct the global market shock component.

2026 Stress Test Modeling Changes

The Federal Reserve also proposed revisions to the models for the 2026 stress test, as summarized on the Federal Reserve’s website.

Insights. Overall, these changes are expected to result in less volatile, but more risk-sensitive, capital requirements; however, the Federal Reserve highlighted that it does not expect a material change to the capital requirements for covered firms.
The proposals follow litigation filed on December 24, 2024, by the Bank Policy Institute, Ohio Chamber of Commerce, Ohio Bankers League, American Bankers Association and U.S. Chamber of Commerce (represented by Gibson Dunn). That case challenged the legality of the current stress testing framework, alleging it violated the Administrative Procedure Act and constitutional due process and was the product of unreasonable decision-making at the time the framework was established. The suit also alleged that the current Federal Reserve stress tests produce unjustified volatility in bank capital requirements, forcing banks to hold more capital than warranted with adverse effects on the economy as a whole. After preliminary briefing, the case was stayed pending release of the proposals that were issued last week.

In response to these proposals, the Bank Policy Institute, Ohio Chamber of Commerce, Ohio Bankers League, American Bankers Association and U.S. Chamber of Commerce issued a joint statement noting that the proposal “sets the Federal Reserve on a path toward permanent improvements to the models and the Federal Reserve’s process for conducting annual stress tests.”

OCC and FDIC Issue Proposal to Focus Supervisory Resources on Material Financial Risks. On October 7, 2025, the OCC and FDIC issued a proposed rule that would (1) define the term “unsafe or unsound practice” under Section 8 of the Federal Deposit Insurance Act (FDIA) and (2) revise the supervisory framework governing the issuance of supervisory communications such as MRAs. If adopted substantially as proposed, the rule could significantly reduce the number of MRAs issued and lessen the frequency of CAMELS composite ratings downgrades.

Unsafe or Unsound Practices

The proposed rule would define the term “unsafe or unsound practice” as a “practice, act, or failure to act, alone or together with other practices, acts, or failures to act, that:

(1) is contrary to generally accepted standards of prudent operation; and

(2)(i) if continued, is likely to (A) materially harm the financial condition of an institution; or (B) present a material risk of loss to the DIF; or (ii) materially harmed the financial condition of the institution.”

The definition is intended to promote consistency in supervisory findings and focus examiner attention on material financial risks rather than nonfinancial concerns such as policies, processes, documentation or other nonfinancial risks. The preamble clarifies that certain nonfinancial risks (e.g., cybersecurity deficiencies) could, in limited cases, be deemed unsafe or unsound practices, but not reputation risks unrelated to financial condition. The agencies note it would be rare to find an unsafe or unsound practice based solely on procedural or documentation deficiencies absent significant weaknesses in an institution’s financial condition.

The OCC and FDIC also emphasize tailoring of supervisory and enforcement actions, noting that the threshold for finding an unsafe or unsound practice would be “a much higher bar” for community banks than for larger institutions. The same principle would apply to actions involving institution-affiliated parties.

Matters Requiring Attention

The proposal also would establish uniform standards for when and how the agencies may issue MRAs and other supervisory communications. Under the proposed rule, an examiner may only issue an MRA for a “practice, act, or failure to act, alone or together with one or more other practices, acts, or failures to act, that:

(1)(i) is contrary to generally accepted standards of prudent operation; and (ii)(A) if continued, could reasonably be expected to, under current or reasonably foreseeable conditions, (1) materially harm the financial condition of the institution; or

(2) present a material risk of loss to the DIF; or (B) has already caused material harm to the financial condition of the institution; or (2) is an actual violation of a banking or banking-related law or regulation.”

This represents a major shift from current practice, under which MRAs may address deficiencies unrelated to an institution’s financial condition. Violations of law would be limited to violations of banking and consumer financial protection laws, but would not include violations of nonbanking laws and regulations, such as tax laws. Examiners could not issue MRAs solely for weaknesses in policies, procedures or internal controls unless the regulatory standard for an MRA were met. The agencies would tailor the issuance of MRAs based on an institution’s size and risk profile.

Composite Rating Downgrades

The preamble clarifies the agencies’ expectations that a downgrade to a less-than-satisfactory composite rating would only occur where the institution receives:

an MRA that meets the standard outlined in the proposed rule; or
an enforcement action pursuant to the agencies’ enforcement authority.

Downgrades based solely on a violation of law would be appropriate only if the violation of law also is likely to cause (or has caused) material financial harm to the financial condition of the institution or is likely to present a material risk of loss to the DIF.

Insights. For banks and their management teams, the proposal signals (again) regulators continued shift to supervision focused on material financial risks that threaten safety and soundness rather than supervision that tends to “overemphasize or become distracted by relatively less important procedural and documentation shortcomings.” (“Taking a Fresh Look at Supervision and Regulation”, Vice Chair for Supervision Bowman, June 6, 2025). Banks should anticipate fewer and more targeted MRAs and may wish to reassess how they track, prioritize and remediate MRAs in light of this material financial risk focus. While examiners may still offer informal, non-binding suggestions/recommendations to improve policies, practices, condition or operations, they would not be permitted to require an action plan to track adoption or implementation of such suggestions/recommendations.
Although the Federal Reserve did not join this proposed rulemaking, the proposal aligns closely with Vice Chair for Supervision Bowman’s stated priorities: a pragmatic supervisory approach; supervision focused on material financial risks; tailoring; linking supervisory ratings and financial condition; and changes to the ratings framework.

OCC Proposes Rescinding Recover Planning Guidelines for Large Banks. On October 27, 2025, the OCC issued a proposal to rescind its “Guidelines Establishing Standards for Recovery Planning by Certain Large Insured National Banks, Insured Federal Savings, and Insured Federal Branches” (12 C.F.R. Part 30, Appendix E) which apply to “covered institutions” with $100 billion or more in total assets. Originally adopted in 2016 and subsequently amended, the Guidelines required covered institutions to develop and maintain a recovery plan and outline related management and board responsibilities with respect thereto. According to the proposals, the OCC now views the Guidelines as imposing an “unnecessary regulatory burden” because institutions already maintain dynamic risk-management frameworks required under existing safety and soundness standards, including in times of stress. Comments on the proposal are due 30 days after publication in the Federal Register.

Insights. The OCC’s proposed rescission of the Guidelines would remove prescriptive recovery-plan requirements for covered institutions, reducing documentation burdens and restoring discretion to bank management. Large institutions will still be expected to maintain dynamic, risk-based processes under existing safety and soundness standards and continuously “assess and adjust their operations to adapt to evolving risk factors and conditions.” Stakeholders also are expected to assess how internal contingency planning aligns with broader supervisory expectations.

OCC Announces Several Actions to Reduce Regulatory Burden for Community Banks. On October 6, 2025, the OCC announced a series of guidance documents and proposed rulemakings intended to reduce the regulatory and supervisory burden for community banks, defined as institutions with up to $30 billion in assets.

Guidance/Proposed Rule	Key Takeaways
OCC Bulletin 2025-24, “Examinations: Frequency and Scope for Community Banks”	Effective January 1, 2026, the OCC will eliminate mandatory policy-based examination requirements for community banks and adopt a fully risk-based examination approach. Examiners will determine the scope, frequency and depth of on-site exams for community banks based on each bank’s size, complexity and risk profile rather fixed procedural requirements. The OCC reaffirmed that examiners will continue quarterly monitoring of financial risk indicators and leverage bank-provided reports and may leverage a community bank’s audit, risk management, reporting and other functions, where appropriate. Note: The 12-18 month examination cycle required by statute remains in place.
OCC Bulletin 2025-25, “Retail Nondeposit Investment Products: Exam Procedures for Community Banks”	The OCC will discontinue the use of the Retail Nondeposit Investment Products (RNDIP) booklet for community bank examinations. Going forward, examiners will assess community banks’ RNDIP activities solely under the core assessment standards in the Community Bank Supervision booklet of the Comptroller’s Handbook.
OCC Bulletin 2025-26, “Model Risk Management: Clarification for Community Banks”	Community banks may tailor their model risk management practices to their size, business activities, model complexity and risk exposure. The OCC clarified that full annual model validations are not required. Model validation frequency and scope should be commensurate with the level of model risk present, and the OCC will not issue negative supervisory feedback solely because a community bank has chosen a less frequent validation schedule when that approach is reasonable.
Community Bank Licensing Amendments: Notice of Proposed Rulemaking	The proposed rule would expand the existing expedited or reduced filing procedures to community banks that satisfy certain conditions: (1) less than $30 billion in total assets and is not an affiliate of a depository institution or foreign bank with $30 billion or more in total assets, (2) well capitalized, and (3) not subject to a cease and desist order, consent order, or formal written agreement requiring corrective action. Note: The current definition of “eligible bank” for expedited or reduced filing procedures requires: (1) well capitalized; (2) CAMELS composite rating of 1 or 2; (3) CRA rating of “Outstanding” or “Satisfactory”; (4) consumer compliance rating of 1 or 2 under the Uniform Interagency Consumer Compliance Rating System; and (5) not subject to a cease and desist order, consent order, or formal written agreement requiring corrective action.

Insights. The OCC’s initiatives underscore its continued commitment to regulatory tailoring for community banks. The agency noted that additional reforms are under consideration, including adjustments to the community bank leverage ratio framework and a simplified strategic plan process for Community Reinvestment Act compliance. Collectively, these efforts aim to streamline supervision, reduce unnecessary compliance costs and promote flexibility in community bank operations.

Speech by Governor Waller on Payments. On October 21, 2025, Federal Reserve Board Governor Christopher Waller gave a speech titled “Embracing New Technologies and Players in Payments.” In his speech, Governor Waller previewed the concept of what he called a “payment account” or “skinny” master account. According to Governor Waller, the payment account would grant limited access to the Federal Reserve’s payment rails and operate under “tight constraints”—including no interest on balances, possible balance caps, no overdraft privileges, no discount window access, and no access to other Federal Reserve payment services that create risk of daylight overdrafts. Payment accounts, presumed to be “lower-risk,” would benefit from a streamlined review process. Waller emphasized the idea remains exploratory and under review by Federal Reserve staff, noting that “all interested stakeholders” will be able to provide input on the potential benefits and drawbacks, concluding, “You will be hearing more about this shortly.”

Insights. Governor Waller explained the “payment account” would be “available to all institutions that are legally eligible for an account and could be beneficial for those focused primarily on payments innovations.” Under existing law, the Federal Reserve may grant master accounts only to firms that meet the statutory definition of member bank or depository institution, designated financial market utilities, certain government-sponsored enterprises, the U.S. Treasury, and certain official international organizations. While “nonbank” payments firms would not qualify for such accounts, national trust banks (which are required by law to become members of the Federal Reserve System) and other novel charter types could potentially benefit under current statutory authority (assuming the latter meets the statutory definition of depository institution). According to Governor Waller, such “lower-risk payment accounts” could benefit from a streamlined review process.

NYDFS Issues Guidance on Third-Party Service Providers. On October 21, 2025, the New York State Department of Financial Services (NYDFS) issued Guidance on Managing Risks Related to Third-Party Service Providers (TPSPs) to clarify expectations under the NYDFS’ Cybersecurity Regulation (23 NYCRR Part 500). The Guidance does not create new requirements but reinforces that “covered entities” remain fully responsible for compliance, even when outsourcing to vendors or affiliates. The Guidance urges boards and senior officers to take an active role in cybersecurity risk management, including approving cybersecurity policies annually and ensuring management decisions regarding vendors are subject to credible challenge. The Guidance outlines a lifecycle approach to TPSP management: performing risk-based due diligence and classification during onboarding, embedding strong contractual protections (e.g., access controls, data encryption requirements, incident-notification clauses, data-use restrictions), conducting ongoing monitoring and reassessment, and ensuring secure offboarding with verified data destruction and access revocation. The Guidance cautions that the NYDFS will consider weak TPSP governance, deficient oversight, or attempts to delegate compliance obligations to vendors as potential supervisory or enforcement issues.

Insights. The NYDFS is clear that third-party risk management is a core component of cybersecurity compliance. Institutions should review and strengthen their vendor-management frameworks, focusing on board engagement, risk-tiering of vendors, contractual controls and continuous oversight. The Guidance underscores the NYDFS’ increasing attention to technology dependencies and signals that examination scrutiny of TPSP governance will intensify in upcoming supervisory cycles.

OTHER NOTABLE ITEMS

Remarks by Vice Chair for Supervision Bowman on Community Banking. On October 7, 2025, Vice Chair for Supervision Bowman gave welcome remarks at the 2025 Community Banking Research Conference. In her remarks, Bowman highlighted several Federal Reserve initiatives currently underway toward building a more effective community banking regulatory framework, including: refocusing supervisory efforts on core material financial risks; reviewing the CAMELS ratings framework; revising the community bank leverage ratio; considering ways to improve the treatment of mutual banks; and prioritizing the fight against fraud.

Speech by Governor Barr on Community Banking. On October 8, 2025, Federal Reserve Board Governor Michael Barr gave a speech titled “Community Banking: The Cornerstone of Building Communities” at the 2025 Community Banking Research Conference. In his speech, Governor Barr noted that advancing technologies pose both opportunities and risks for community banks, requiring investments and careful oversight. He also warned against rolling back regulatory standards for large banks and the threat, in his opinion, any rollback posed to smaller community banks.

Speech by Vice Chair for Supervision Bowman on Community Banking. On October 9, 2025, Vice Chair for Supervision gave the opening remarks and a speech titled “Community Banking: Looking Toward the Future” at the Federal Reserve’s Community Bank Conference, discussing her support of community banks and identifying specific actions that federal bank regulators have taken with respect to community banks to “right-size regulation and apply appropriate supervisory standards, specifically in identifying the appropriate definition of a community bank, in establishing appropriately tailored regulatory thresholds, and in approaching supervision focused on material financial risk.” She also highlighted the Federal Reserve’s issuance of frequently asked questions (FAQs) and templates for mutual banks to use as they consider engaging in raising capital.

Federal Reserve Releases FAQs, Templates to Help Mutual Banks Raise Capital. On October 8, 2025, the Federal Reserve issued FAQs and two templates that mutual banks can use as they consider engaging in raising capital. The FAQs clarify the process for Federal Reserve-regulated mutual banking organizations to issue capital instruments that qualify as regulatory capital. The FAQs include template term sheets (here and here) that a mutual banking organization can reference when considering the issuance of qualifying regulatory capital instruments. Following the Federal Reserve’s action, Comptroller of the Currency Jonathan Gould issued a statement in support of the Federal Reserve, noting the OCC recently authorized a federal mutual savings association to issue an “innovative form of mutual capital certificate that qualifies as regulatory capital.”

Remarks by Vice Chair for Supervision Bowman on Regulatory Reform at the EGRPRA Outreach Meeting. On October 30, 2025, Vice Chair for Supervision Bowman gave the opening remarks at the third public outreach meeting hosted by the federal banking agencies related to the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA). In addition to the areas of regulation highlighted in her October 7, 2025 remarks at the 2025 Community Banking Research Conference, Vice Chair for Supervision Bowman highlighted more specific issues identified in the current EGRPRA review that also are “areas of regulation that I have targeted for revisiting,” including “outdated guidelines on loans to insiders, bank activities, and anti-money laundering requirements … the excessive burden created by information and regulatory data collections, with an emphasis on the Call Report and other information collections.”

Update on CFPB Open Banking Rule Litigation. On October 29, 2025, the Eastern District of Kentucky issued a preliminary injunction halting enforcement and compliance deadlines for the CFPB’s open banking rule, finding the plaintiffs were “likely to succeed on the merits” and that the CFPB is reconsidering the rule, so banks should not have to prepare for compliance.

OCC and FDIC Issue Proposal to Prohibit Use of Reputation Risk by Regulators. On October 7, 2025, the OCC and FDIC issued a proposed rule to eliminate formally reputation risk from their supervisory programs. The proposed rule would prohibit the agencies from criticizing or taking adverse action against an institution based on reputation risk and would prohibit the agencies from requiring or encouraging “debanking” of customers due to their “political, social, cultural, or religious views or beliefs, constitutionally protected speech, or solely on the basis of politically disfavored but lawful business activities perceived to present reputation risk.” In conjunction with the proposed rule, the FDIC announced the removal of references to reputation risk from its guidance, policy documents, and examination manuals to memorialize the agency’s instruction to examiners not to use reputation risk as a basis for supervisory criticism. Comments are due on the proposal by December 29, 2025.

FinCEN Issues New FAQs. On October 9, 2025, FinCEN—jointly with federal bank regulators—issued answers to FAQs regarding suspicious activity report (SAR) filing requirements. The FAQs address four issues: SAR filings for potential structuring; continued activity reviews; the timeline for continuing activity reviews; and whether financial institutions need to document the decision not to file a SAR. The FAQs specifically state that they “do not alter existing BSA legal or regulatory requirements or establish new supervisory expectations,” but also signal attempts by regulators to “enabl[e] institutions to focus resources on activities that produce the greatest value to law enforcement agencies and other authorized government users of Bank Secrecy Act (BSA) reporting.”

Federal Banking Agencies Withdraw Climate-Related Financial Risk Management Principles. On October 16, 2025, the federal banking agencies announced they rescinded the interagency Principles for Climate-Related Financial Risk Management for Large Financial Institutions (Climate Principles), which had applied to institutions with more than $100 billion in total assets. In withdrawing the Climate Principles, the agencies explained that existing safety and soundness standards already require large financial institutions to maintain effective risk management frameworks that are commensurate with the size, complexity and risk profile of their activities. These frameworks obligate institutions to identify, measure, monitor and control all material risks in their operating environment, including emerging risks such as those related to climate change. According to the agencies, the decision reflects the view that current supervisory expectations and regulatory requirements provide a sufficient basis for ensuring that large financial institutions continue to manage all material risks in a safe and sound manner, without the need for separate climate-specific principles. The OCC previously withdrew its participation in the principles on March 31, 2025.

Governors Waller and Barr Speak at DC Fintech Week. At DC Fintech Week, Federal Reserve Board Governor Christopher Waller gave a speech titled “Innovation at the Speed of AI” and Federal Reserve Board Governor Michael Barr gave a speech titled “Exploring the Possibilities and Risks of New Payment Technologies.”

Speech by FDIC Acting Chairman Hill on Bank Resolutions. On October 15, 2025, FDIC Acting Chairman Hill gave a speech titled “Resolution Readiness and Lessons Learned from Recent Large Bank Failures.” In his speech, Acting Chairman Hill reiterated his position that the primary goal for resolution planning for large regional banks “should be to maximize the likelihood of the optimal resolution outcome, which is generally a weekend sale.” He then highlighted the steps the FDIC is taking to effect this outcome, including signaling that amendments to the FDIC’s resolution planning requirements are forthcoming. He also highlighted that the FDIC’s efforts, “consistent with the objective of maximizing the likelihood of a quick sale,” to enhance the FDIC’s own failed-bank marketing process so that the agency is better prepared to “rapidly market a failed institution, even with little advance notice.”

Comptroller Gould Issues Statement at FDIC Board Meeting. At the October 7, 2025 FDIC Board meeting, Comptroller Gould issued a statement highlighting his areas of focus in his capacity as an FDIC Board member, including improving the agency’s resolution execution capabilities, clarifying the agency’s approach to the management of the DIF, reforming the agency’s process for evaluating deposit insurance applications, supporting state bank preemption rights and addressing issues on bank funding.

Federal Reserve and FDIC Release Public Sections of Large Bank Resolution Plans. On October 23, 2025, the Federal Reserve and FDIC released the public sections of resolution plans for fifteen large banking organizations (five domestic and 10 foreign banking organizations).

FDIC to Update Strategic Plan. On October 24, 2025, the FDIC announced its required update to its long-range strategic plan and invited comments on its draft 2026-2030 FDIC Strategic Plan. Comments on the draft 2026-2030 FDIC Strategic Plan are due by November 7, 2025.

Federal Reserve Announces Expanded Operating Days for Fedwire and National Settlement Service. On October 9, 2025, the Federal Reserve announced it will expand the operating hours for the Fedwire Funds Service and National Settlement Service (NSS) to include Sundays and weekday holidays. Reserve Banks are expected to implement this expansion in 2028 or 2029 to ensure technological, operational, and industry readiness. The initial expansion to 22×6 operating hours serves as an interim step to expand operating hours up to 22x7x365 in the future, no sooner than two years after the Reserve Banks implement 22×6 operations.

Comptroller Gould Issues on Federal Reserve’s Stress Test Proposal. On October 27, 2025, Comptroller of the Currency Gould issued a statement following the Federal Reserve’s request for comment on its stress test models and other elements of the stress test process.

FDIC Updates List of PPE. On October 24, 2025, the FDIC updated the list of companies that have submitted notices for a Primary Purpose Exception under the 25% or Enabling Transactions test.

The following Gibson Dunn lawyers contributed to this issue: Jason Cabral, Ro Spaziani, Rachel Jackson, and Sam Raymond.

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

From the Derivatives Practice Group: This week, President Trump nominated Michael Selig for the role of CFTC Chairman.

New Developments

White House Nominates Michael Selig for CFTC Chairman. On October 25, President Trump nominated Michael Selig, chief counsel for the SEC’s crypto task force, for the role of CFTC Chairman. [NEW]

New Developments Outside the U.S.

Cyber Risk and Digital Resilience Will Drive the Agenda of ESMA’s Union Strategic Supervisory Priorities for 2026. On October 24, ESMA welcomed the strong initial engagement by National Competent Authorities on cyber risk and digital resilience and calls for continued efforts on the Union Strategic Supervisory Priorities. ESMA said it promoted cyber and digital resilience as a strategic supervisory priority starting January 2025 in direct alignment with the entry into application of the Digital Operational Resilience Act. According to ESMA, this allows enhanced coordination of EU supervisors’ efforts toward strengthening firms’ ICT risk management and improves the digital resilience of the EU securities market. [NEW]

ESMA Finds EU Carbon Markets Functioning Smoothly in New Report. On October 22, ESMA published its annual market report on EU carbon markets. Looking at the data for 2024, ESMA has not identified any significant issue in the integrity or transparency of EU carbon markets. Emission allowance auctions and secondary markets trading dynamics remain largely unchanged, with the market organized in a way that facilitates the flow of allowances from financial intermediaries to non-financial firms with compliance obligations. The analysis of trading and derivatives positions in the non-financial sector further highlights that the market accommodates different acquisition strategies, reflecting the different needs and capabilities of participants.

ESMA Publishes Implementing Rules on Loan-originating AIFs. On October 21, ESMA published the draft Regulatory Technical Standards (RTS) on open-ended loan-originating AIFs (OE LO AIFs). The draft rules determine the requirements with which LO AIFs must comply to maintain an open-ended structure. Those requirements include a sound liquidity management system, the availability of liquid assets and stress testing, as well as an appropriate redemption policy having regard to the liquidity profile of OE LO AIFs. The RTS also set out a list of factors AIFMs shall consider to determine the redemption policy and assess the liquidity of OE LO AIFs.

ESMA Publishes Second Consolidated Report on Sanctions. On October 16, ESMA published its second consolidated report on sanctions and measures imposed in Member States in 2024. Building on this report, ESMA will further foster discussions between national securities markets authorities on the effective and consistent implementation of capital markets rules and continue working towards ensuring that similar breaches lead to similar enforcement outcomes across the EU, irrespective of where they have been initiated.

ESAs’ Joint Committee Publishes Work Program for 2026. On October 16, the Joint Committee of the European Supervisory Authorities (ESAs) presented its 2026 Work Program, outlining key areas of collaboration for the coming year. The Program aims to strengthen the financial system’s digital operational resilience, ensure the continued protection of consumers, and identify risks that could undermine financial stability.

New Industry-Led Developments

ISDA Opens General Adherence Phase for the ISDA 2025 – 2002 Equity Derivatives Definitions Protocol. On October 27, ISDA opened the general adherence phase for its 2025 – 2002 Equity Derivatives Definitions (Versionable Edition) Protocol. The protocol enables adherents to amend the terms of their equity derivatives master confirmation agreements to incorporate the 2002 ISDA Equity Derivatives Definitions (Versionable Edition) in place of the 2002 ISDA Equity Derivatives Definitions, with an effective date of October 26, 2026. [NEW]

ISDA Publishes Paper on Derivatives Markets. On October 24, ISDA published a paper titled “Ensuring Safe, Efficient Derivatives Markets: Policy Ideas to Enhance Market Liquidity and Risk Management.” ISDA said that it has identified several recommendations for consideration by policymakers, market participants, and others as part of its mission to foster safe and efficient derivatives markets to facilitate effective risk management for all users of derivatives products. [NEW]

ISDA Comments on US Treasury Regulations under Executive Order 14219. On October 23, ISDA’s North American Tax Working Group (NATWG) submitted comments in response to the US Department of the Treasury and Internal Revenue Service statement regarding taxpayer recommendations on regulations identified under Executive Order 14219: “Ensuring Lawful Governance and Implementing the US President’s Department of Government Efficiency Deregulatory Initiative.” In its response, the NATWG proposed to (1) modify the regulations under Section 871(m)3 and preserve the current framework under Notice 2024-44, and (2) withdraw the proposed regulations that would treat “basket contracts” as “listed transactions” within the meaning of Section 6011. [NEW]

ISDA and Trade Associations Call on the EC to Delay Application of Third-Country CCP Reporting under EMIR 3.0. On October 21, ISDA and nine other trade associations – the Alternative Investment Management Association, the European Association of Co-operative Banks, the European Association of Corporate Treasurers, the European Banking Federation, the European Fund and Asset Management Association, the European Principal Traders Association, the European Venues and Intermediaries Association, FIA and the Managed Funds Association – wrote to the European Commission (EC) to ask that it provide guidance that counterparties are not required to report information on clearing activity on third-country central counterparties (CCPs) under Article 7d of the European Market Infrastructure Regulation (EMIR 3.0) until the corresponding regulatory technical standards and implementing technical standards are applicable.

IOSCO Reviews Implementation of Recommendations for Crypto and Digital Asset Markets. On October 16, IOSCO published its report on its Thematic Review Assessing the Implementation of IOSCO Recommendations for Crypto and Digital Asset Markets. In recognition of the rapid development and growth of crypto-asset markets, IOSCO and other relevant bodies, including the Financial Stability Board, have developed comprehensive policy frameworks for the regulation and oversight of crypto-assets and global stablecoins.

ISDA Publishes New Report that Shows the Importance of Derivatives to Japan’s Asset Management Ambitions. On October 16, ISDA published a report drawing on discussions with 20 senior asset managers based in Japan. The report revealed that reducing barriers in the market would enable them to utilize derivatives more efficiently, which, in turn, could enhance Japan’s competitiveness in the global market.

ISDA Expands Digital Regulatory Reporting Solution to Cover Hong Kong’s Revised Reporting Rules. On October 15, ISDA has expanded its Digital Regulatory Reporting solution to support revised derivatives reporting rules in Hong Kong, enabling in-scope firms to implement the changes cost-effectively and accurately. The amendments from the Hong Kong Monetary Authority and the Securities and Futures Commission came into effect on September 29.

The following Gibson Dunn attorneys assisted in preparing this update: Jeffrey Steiner, Adam Lapidus, Marc Aaron Takagaki, Hayden McGovern, Karin Thrasher, and Alice Wang*.

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 )

Hayden K. McGovern, Dallas (214.698.3142, hmcgovern@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)

*Alice Wang, a law clerk in the firm’s Washington, D.C. office, is not admitted to practice law.

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 October 27, Brittany Panuccio was sworn in as a Commissioner for the Equal Employment Opportunity Commission (“EEOC”). Panuccio’s swearing in has restored the Commission’s three-member quorum, which allows it to vote on policy and regulatory matters, issue guidance, and authorize certain lawsuits. The Commission has not had a quorum since January 2025. Following Panuccio’s confirmation earlier this month, Acting EEOC Chair Andrea Lucas stated in a post on X that “Now the agency is empowered to deliver fully on our promise to advance the most significant civil rights agenda in a generation under [President Trump] on behalf of the American worker.” Under Lucas, the Commission has signaled interest in pursuing litigation challenging diversity, equity, and inclusion programs.

On October 16, a Cornell University professor and founder of the Equal Protection Project, William Jacobson, sent a complaint letter to the Department of Health and Human Services (“HHS”) Office of Civil Rights, alleging that three HHS grant programs violate the Trump administration’s bans on racial preferences in federal funding for higher education. The programs were each launched by the Biden administration in September 2024, with the goal of dispensing $5.7 million in minority fellowships for Black, Hispanic and Indigenous students training to become counselors and social workers. The grants pay for fellows to complete mental health, addiction counseling, and social work credentials. The complaint letter alleges that the grant programs “violate the federal civil rights laws and constitutional guarantees of equal protection, including Title VI and the Fifth Amendment” and “Executive Order 141731, which, among other directives, requires executive departments to eliminate racial and other unlawful preferences.” The complaint letter seeks the immediate cancellation of the grants. An HHS spokesperson confirmed Monday that the agency had received the complaint. For more information, see the Washington Times’s October 21, 2025 report.

On September 30, the U.S. Department of Transportation (“DOT”) issued guidance regarding an Interim Final Rule, effective October 3, 2025, which revises fundamentally how DOT’s Disadvantaged Business Enterprise (“DBE”) and Airport Concession Disadvantaged Business Enterprise (“ACDBE”) programs operate. Recipients of highway, transit, and airport funding are subject to the requirements of the DBE and ACDBE programs, which have been in operation for nearly 40 years and are intended to “level the playing field” for small businesses owned and controlled by “socially and economically disadvantaged individuals.” Under the rules previously governing the programs, women and members of certain racial and ethnic groups were “‘presumed’ to be disadvantaged.” However, in September 2024, the U.S. District Court for the Eastern District of Kentucky determined that the DBE program’s race- and sex-based presumptions likely do not comply with Equal Protection principles, granting a preliminary injunction prohibiting DOT from mandating the use of presumptions with respect to contracts on which the two plaintiff entities bid. (Mid-America Milling Co. v. U.S. Department of Transportation, No. 3:23-cv-00072 (E.D. Ky. 2024)). DOT also cited President Trump’s executive orders on DEI and memoranda issued by the Attorney General as support for the new rule.

The revised rule changes the definition of “socially and economically disadvantaged individual” to remove the race- and sex-based presumptions previously in place under both programs. Under the revised rule, any individual seeking to demonstrate that he or she is a “socially and economically disadvantaged individual” will be required to make an individualized showing of disadvantage, regardless of race or sex. The revised rule also requires reevaluation of any currently certified DBE, recertification of any DBE that meets the new certification standards, and decertification of any DBE that does not meet the new certification standards or “fails to provide additional information required for submission.” The revised rule also eliminates the recordkeeping requirements for obtaining and maintaining demographic information from ACDBEs. In accordance with the Administrative Procedure Act, the DOT invites the public to comment on the rule during a 30-day period, which expires on November 3, 2025.

Media Coverage and Commentary:

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

Law360, “Columbia Says Feds Must Release Info on DEI Law Firm Deals” (October 23): Grace Elletson of Law360 reports on a lawsuit filed by the Knight First Amendment Institute at Columbia University to obtain information about deals made between nine law firms and the Trump Administration in relation to their DEI policies and programs. The Knight Institute submitted a Freedom of Information Act (“FOIA”) request to the Department of Justice (“DOJ”) and the Office of Management and Budget (“OMB”) on May 14, 2025, seeking copies of the agreements. It also sought communications concerning the agreements between the EEOC, DOJ and OMB . OMB did not respond to the FOIA request. DOJ reported that the request had been assigned to the “complex track” and would need extended time to respond to the request. The Knight Institute sued DOJ and OMB in the U.S. District Court for the Southern District of New York, asking the Court to order the agencies to immediately process the FOIA requests.
The Hill, “Trump administration pauses $18 billion NYC infrastructure projects over DEI” (October 1): Brett Samuels of The Hill reports that the Trump Administration has paused roughly $18 billion in federal funding for New York City infrastructure projects. Samuels writes that Office of Management and Budget Director Russell Voight said that the freeze was “put on hold to ensure funding is not flowing based on unconstitutional DEI principles.” Samuels reports that the Department of Transportation is reviewing whether “unconstitutional practices are occurring” in two major projects, the Hudson Tunnel project and work on the Second Avenue subway.
Bloomberg Law, “Boardroom Diversity Commitments Fade Amid Broad DEI Retreat” (October 1): Drew Hutchinson of Bloomberg Law reports that PricewaterhouseCoopers’ latest annual survey of 638 public company directors indicates that fewer corporate boards plan to add women or people of color to their director pools to increase board diversity in the coming year. Hutchinson reports that only 9% of respondents to the survey plan to intentionally increase board gender diversity, down from 21% last year, while only 6% plan to intentionally increase racial diversity, compared to 13% in 2024. The article also notes that board diversity across new director appointments began falling prior to the second Trump Administration.
AP News, “Atlanta forfeits $37.5M in airport funds after refusing to agree to Trump’s DEI ban” (September 26): The Associated Press reports that Atlanta’s Hartsfield-Jackson International Airport declined to certify to the Federal Aviation Administration (“FAA”) that the airport does not operate DEI programs that violate federal anti-discrimination laws. The AP reports that the FAA made certain funding contingent on this certification, and that the airport’s decision prompted the FAA to withhold $57 million, with the possibility of receiving $19 million in the next fiscal year if the airport agrees to the certification then. According to a spokesperson for the mayor, the city is evaluating its options for continued receipt of federal funding.
New York Times, “3 School Districts to Lose $65 Million Over Gender and D.E.I. Policies” (September 25): Troy Closson of The New York Times reports that the Trump administration has pledged to withhold over $65 million in federal grants from magnet schools in New York City, Chicago, and Fairfax, Virginia. The decision to withhold funding under the Magnet Schools Assistance Program follows the districts’ refusals to modify policies related to diversity, equity, and inclusion. According to Closson, the administration requested that New York City and Fairfax revise policies related to gender identity and that Chicago schools eliminate a Black Student Success Plan, an initiative aimed at doubling the number of Black male teachers hired and enrolling more Black students in advanced courses. Closson quotes Julia Hartman, spokesperson for the U.S. Department of Education, as stating that the districts’ policies “blatantly discriminate against students based on race and sex.”
HR Dive, “3 Charts That Show What Has Happened to DEI Roles – and DEI Pros” (September 23): HR Dive’s Kate Tornone reports a notable decline in available DEI positions and highlights the evolving roles of DEI professionals. Drawing on data from Revelio Labs, which analyzed Russell 3000 companies (the 3,000 largest publicly traded U.S. companies), Tornone notes that the number of roles related to DEI peaked at 13,000 in 2022 but has dropped to approximately 11,000 in late 2025. Among those who left DEI roles since 2022, Tornone reports that more than half transitioned to non-DEI roles at different companies, about one-third moved into non-DEI roles within the same company, and just 7% took on another DEI role. Revelio’s analysis suggests that the expertise of former DEI professionals is being “redirected into other parts of the organization,” indicating that while the use of the term “DEI” has dwindled, the work of “building equitable and inclusive environments continues to find new avenues to persist.” Tornone reports that Revelio’s research found that organizations with dedicated DEI teams demonstrated higher levels of employee satisfaction and higher ratings of workplace culture.

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

Bradley, et al. v. Gannett Co. Inc., 1:23-cv-01100 (E.D. Va. 2023): On August 18, 2023, plaintiffs—a group of individuals who had performed work for the newspaper publisher Gannett Co., Inc. and who sought to represent a class of similarly situated individuals—sued Gannett over its alleged “Reverse Race Discrimination Policy,” claiming Gannett’s expressed commitment to having its staff demographics reflect the communities it covers violates Section 1981. After motions practice resulting in the Plaintiff filing an amended complaint and a second amended complaint, Gannett again moved to dismiss. In opposing the motion, the plaintiffs argued that their second amended complaint clarified several of their arguments and sufficiently alleged a class that could meet the requirements for class certification. The plaintiffs also argued that Gannett improperly failed to acknowledge the Fourth Circuit’s decision in Duvall v. Novant Health, Inc., an “on point intervening decision” that held policies similar to Gannett’s were discriminatory. On September 3, 2025, the court granted in part and denied in part Gannett’s motion to dismiss, holding that all but one of the named plaintiffs failed to state a claim for relief under Section 1981. The court found that the Fourth Circuit’s decision in Duvall did “not require that [the] Court deny the Motion [to Dismiss] based on Plaintiffs’ conclusory allegations of policy alone” because Duvall was a Title VII case and, in its ruling, the Fourth Circuit did not rely on the alleged diversity policy alone but considered the diversity policy in conjunction with other facts. Additionally, the court ordered the class allegations struck from the second amended complaint due to the lack of ascertainability and commonality. On September 17, Gannett filed its answer to the amended complaint, asserting six affirmative defenses. Among them, Gannett contends that the complaint fails to state a claim upon which relief may be granted and maintains that it “acted in good faith and without discriminatory intent.”
- Latest update: On October 3, 2025, the plaintiffs filed a notice of appeal of the court’s orders dismissing their claims and striking their class allegations.
Students for Fair Admissions v. United States Coast Guard et al., 5:25-cv-00284 (N.D. Fla. 2025): On October 7, 2025, Students for Fair Admissions, an advocacy group, filed a lawsuit against the United States Coast Guard, challenging the constitutionality of its College Student Pre-Commissioning Initiative. The complaint alleges that the program violates equal protection principles in the Due Process Clause of the Fifth Amendment because it unlawfully restricts applicants to those attending either a federally designated Minority-Serving Institution or a school selected by the Coast Guard where less than fifty percent of the student body is white and thereby “facially discriminates based on race and ethnicity.”
- Latest update: The docket does not yet reflect that the Coast Guard has been served.

2. Employment discrimination and related claims

Ardalan v. Wells Fargo, 3:22-cv-03811 (N.D. Cal. 2022): On June 28, 2022, a putative class of Wells Fargo stockholders brought a class action against the bank related to an internal policy requiring that half of the candidates interviewed for positions that paid more than $100,000 per year be from an underrepresented group. The plaintiffs alleged that the bank conducted sham job interviews to create the appearance of compliance with this policy and that this was part of a fraudulent scheme to suggest to shareholders and the market that Wells Fargo was dedicated to DEI principles. On August 23, 2024, Wells Fargo answered the amended complaint, admitting that the bank had “Diverse Slate Guidelines” to promote diversity but denying the allegations of unlawful conduct. On April 25, 2025, the court granted a motion for class certification.
- Latest update: On September 25, 2025, the parties notified the court that they had reached an agreement-in-principle to resolve the matter. On October 15, 2025, Plaintiffs filed an unopposed motion for preliminary approval of settlement. Under the proposed settlement, the defendants will pay $85,000,000 in cash to be distributed among class members who submit valid claims in accordance with the plan of allocation set forth by the parties or a plan of allocation approved by the court. The class consists of all persons and entities who purchased or otherwise acquired Wells Fargo common stock between February 24, 2021 and June 9, 2022. On October 28, 2025, the court ordered that the parties submit a joint supplemental response by November 3, 2025 that provides a breakdown of litigation costs and estimated recovery per claimant, among other things.
Chislett v. New York City Department of Education et al., 1:21-cv-09650 (S.D.N.Y 2021), on appeal 0:24-cv-00972 (2nd Cir. 2024): On October 1, 2019, Leslie Chislett, a white woman, sued her former employer, the New York City Department of Education, and its then chancellor, alleging race discrimination. The plaintiff originally brought claims under Section 1983 and the New York City Human Rights Law, asserting that the Department implemented a “race-based policy” that made race a determinative factor in employment decisions, resulting in adverse action taken against her. The plaintiff further alleged that mandatory participation in implicit bias trainings and meetings created a hostile work environment that led to her constructive discharge. On June 16, 2023, the defendants moved for summary judgment arguing that the plaintiff failed to establish individual liability necessary to support municipal liability and did not demonstrate the existence of a race-based policy. On March 14, 2024, the district court granted the defendants’ motion for summary judgment and dismissed the complaint. The court found that the Department had legitimate and non-discriminatory reasons for the adverse actions taken against the plaintiff and that she failed to present sufficient evidence demonstrating that the Department had adopted a policy under which race was a “determinative factor” in employment decisions affecting employees like her. The court further found that the record lacked factual support showing that the implicit bias trainings created a hostile work environment or that they were directly connected to the alleged “race-based policy” on which the plaintiff sought to establish liability. The plaintiff appealed the decision.
- Latest update: The Second Circuit affirmed the district court’s decision granting summary judgment on the plaintiff’s adverse employment action claims. However, it vacated the district court’s ruling on the plaintiff’s hostile work environment claim and remanded the case for further proceedings. The Second Circuit found that the plaintiff had raised genuine disputes of material fact regarding whether the workplace was racially hostile and whether that hostility stemmed from a municipal policy. The Second Circuit further concluded that the plaintiff presented sufficient evidence showing that her supervisors were aware of the alleged racial harassment but failed to intervene, thereby supporting the inference that the conduct was attributable to municipal policy. A settlement conference is scheduled for December 19, 2025.
De Piero v. Pennsylvania State University, et al., No. 2:23-cv-02281 (E.D. Pa. 2023): A white male professor sued his employer, Penn State University, claiming that university-mandated DEI trainings, discussions with coworkers and supervisors about race and privilege in the classroom, and comments from coworkers about his “white privilege” created a hostile work environment that led him to quit his job. He claimed that after he reported this alleged harassment and published an opinion piece objecting to the impact of DEI concepts in the classroom, the University retaliated against him by investigating him for bullying and aggressive behavior towards his colleagues. The plaintiff alleged harassment, retaliation, and constructive discharge in violation of Title VI, Title VII, Section 1981, Section 1983, the First Amendment, and Pennsylvania civil rights laws. The parties filed cross-motions for summary judgment. On March 6, 2025, the court granted summary judgment in favor of the University on the plaintiff’s hostile work environment claims. The court found that the behaviors complained of by the plaintiff, including “campus wide emails” pertaining to racial injustice, “being invited to review scholarly materials,” and “conversations about harassment levied by and against [the plaintiff],” could not reasonably be found to rise to the level of severe harassment. As to the “pervasive” conduct prong, the court explained that of the 12 incidents in the complaint, no “racist comment” was directed at the plaintiff and “only a few” involved actions that were directed at the plaintiff at all. On March 20, 2025, the plaintiff filed a supplemental brief in support of his remaining claims, arguing that these claims should proceed to trial. He presented what he asserted were undisputed facts to support his claims, including that he was reported for “micro aggressions” after objecting to racial harassment, that colleagues lodged false claims against him, and that he faced retaliatory disciplinary action and salary claw backs. On March 27, 2025, the University filed its own supplemental brief in support of summary judgment, arguing that the plaintiff’s putative Title VII and PHRA retaliation claims failed as a matter of law because the plaintiff cannot prove the University took adverse employment action against him, or there is no causal link between his alleged protected activity and adverse actions taken by the University. On April 17, 2025, the court granted summary judgment for the University on the plaintiff’s remaining retaliation claims, concluding that none of the alleged acts by the University constituted adverse employment actions. On May 15, 2025, the plaintiff filed a notice of appeal as to the orders granting the University’s motions for summary judgment.
- Latest update: On August 13, 2025, the plaintiff filed his opening brief with the Third Circuit arguing that his hostile work environment claims should have gone to trial, the record supports his statutory retaliation claim under Title VII and Pennsylvania law, and the district court erred in dismissing his First Amendment retaliation claim. On August 20, 2025, the Equal Protection Project of the Legal Insurrection Foundation sought leave to file an amicus brief in support of the plaintiff, which the Third Circuit granted on September 4, 2025. The Equal Protection Project argued that the district court erred in disregarding the possibility that the “racial demonization” accompanying DEI programming is harmful to white persons and that Diemert v. City of Seattle, which the district court relied upon, was wrongly decided. On September 26, 2025, the University filed its response brief arguing that the plaintiff failed to allege protected speech, failed to demonstrate severe or pervasive conduct to support a hostile work environment claim, and never asserted or preserved discrete claims for retaliation.
Do No Harm v. Cunningham, No. 25-cv-00287 (D. Minn. 2025): On January 24, 2025, Do No Harm sued Brooke Cunningham, Commissioner of the Minnesota Department of Health, challenging a state law that requires the Commissioner to consider race in appointing members to the Minnesota Health Equity Advisory and Leadership Council. Specifically, Do No Harm alleges that the state law requiring that the board include representatives from either “African American and African heritage communities,” “Asian American and Pacific Islander communities,” “Latina/o/x communities,” and “American Indian communities and Tribal governments and nations,” violates the Fourteenth Amendment. Plaintiffs seek a permanent injunction and declaratory relief. On February 20, 2025, Cunningham answered the complaint, denying all allegations related to the violation of the plaintiff’s constitutional rights. She asserted five affirmative defenses: (1) the complaint fails to state a claim; (2) the plaintiff lacks standing; (3) the claims are unripe, (4) the plaintiff has suffered no harm or damages as a result of the Defendant, and (5) the claims are barred by sovereign immunity.
- Latest Update: On September 22, 2025, the parties filed a joint stipulation of dismissal.
Grande v. Hartford Board of Education et al., 3:24-cv-00010-JAM (D. Ct. 2024): On January 3, 2024, John Grande, a white male physical education teacher in the Hartford school district, filed suit against the Hartford School Board after allegedly being forced to attend mandatory DEI trainings. He claimed that he objected to the content of a mandatory professional development session focused on race and privilege, stating that he felt “white-shamed” after expressing his political disagreement with the training’s purposes and goals, and that he was thereafter subjected to a retaliatory investigation and was wrongfully threatened with termination. He claimed the school’s actions constitute retaliation and compelled speech in violation of the First Amendment. On February 5, 2025, the defendants filed a motion for summary judgment, arguing that the plaintiff’s objections to the trainings were made in the course of his official duties as a District employee and therefore were not protected by the First Amendment. They further argued that the District’s interest in effectively administering its professional development sessions outweighed the plaintiff’s speech interests. On March 5, 2025, the plaintiff filed an opposition to the defendant’s motion for summary judgment. The plaintiff argued that summary judgment is improper because material facts, such as whether the plaintiff was speaking as a private citizen about a matter of public concern and the nature of plaintiff’s statements, are in dispute. The plaintiff also argued that he sufficiently pled a First Amendment retaliation claim against the defendants.
- Latest update: On September 9, 2025, the court denied in part the summary judgment motion, allowing the plaintiff’s First Amendment claim to go forward against two of the three defendants: school board officials sued in their official capacities. The court found that two of the officials did not have qualified immunity because there existed issues of fact as to whether their motivations were retaliatory. As to the merits of the First Amendment claim, the court held that there remained a dispute of material fact about whether the plaintiff’s statements about DEI trainings were made in the scope of his duties as a school district employee and whether those statements pertained to matters of public concern. The court granted summary judgment as to the plaintiff’s compelled speech claim, concluding that it was undisputed that the plaintiff was not required to speak during the relevant breakout session at which he made the statement. On September 16, 2025, defendants filed a motion for reconsideration, arguing that the court erred in not granting qualified immunity to the two individual defendants.
Martin v. Sedgwick Claims Management Services, Inc., No. 2:25-cv-02275 (W.D. Tenn. 2025): On March 11, 2025, a former employee of Sedgwick Claims Management Services, Inc., filed a complaint against the company alleging race discrimination and sexual harassment, as well as retaliation for complaints made regarding discrimination. The plaintiff’s complaint asserts that he was subjected to a hostile work environment and discriminatory practices because he is Caucasian and heterosexual. In part, he alleges that Sedgwick’s DEI training materials were offensive and discriminatory towards white, heterosexual males. The plaintiff claims that after he complained about the discriminatory DEI content and sexual harassment by his supervisor, he faced retaliation, including being falsely accused of recording conversations with management, which led to his termination on March 25, 2024. He asserts that Sedgwick failed to conduct a meaningful investigation into his complaints and that his discharge was pretextual.
- Latest update: On September 15, 2025, the plaintiff filed a notice of settlement, and the parties filed a stipulation of dismissal. The court dismissed the case on September 16, 2025.

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

Glass, Lewis & Co., LLC v. Ken Paxton, 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, required 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. Also on July 24, 2025, Glass Lewis contemporaneously moved for a preliminary injunction to prevent Texas Senate Bill 2337 from going into effect on September 1, 2025, contending that Glass Lewis will suffer “irreparable harm” if the Act becomes effective. On August 19, 2025, the Attorney General filed an opposition to the preliminary injunction motion, asserting that (1) the plaintiffs lack standing, having pled no actionable injury in fact, (2) the law does not violate the U.S. Constitution nor is it preempted by federal law, and (3) there is no irreparable harm. Also on August 19, the Attorney General filed a motion to dismiss, arguing that the plaintiffs lack standing; sovereign immunity bars the suits; proxy advisor speech is commercial in nature and thus subject only to rational basis or intermediate scrutiny; SB 2337 is not vague and requires factual disclosures; and, to the extent provisions were problematic, they could be severed while leaving the statute intact. The court held an evidentiary hearing on August 29, 2025. During the hearing, the court granted the preliminary injunction motion, reasoning that the law compels speech likely in violation of the First Amendment. On September 9, 2025, Glass Lewis filed an amended complaint.
- Latest update: On September 18, 2025, the Attorney General appealed the district court’s order granting the preliminary injunction. On September 23, 2025, the Attorney General filed an answer to the amended complaint. The answer generally denies all of Glass Lewis’s allegations. It also asserts the following defenses: sovereign immunity; failure to state a claim for which relief can be granted; failure to join an indispensable party; ripeness; and equitable doctrines such as laches, estoppel, unclean hands, and waiver.
Khatibi v. Hawkins, No. 23-cv-06195-MRA-E (C.D. Cal. 2023), appealed No. 24-3108 (9th Cir. 2024): On August 1, 2023, doctors Azadeh Khatibi and Marilyn M. Singelton, along with Do No Harm, sued officials of the Medical Board of California, alleging that the Board unconstitutionally compelled their speech in violation of the First Amendment. Plaintiffs challenged a California law that, since January 1, 2022, has required all Continuing Medical Education (“CME”) courses to “contain curriculum that includes the understanding of implicit bias.” Khatibi and Singelton allege that, but for this law, they would never include implicit bias training in their medical curriculum because it is unrelated to their courses. On May 2, 2024, the court granted the defendants’ motion to dismiss without leave to amend, accepting their argument that the requirements do not violate the First Amendment because teaching CME courses constitute government speech that is part of a state licensing scheme, and, much like teachers of a state-mandated public school curriculum, the doctor-educators are not associated with the contents of their course. On May 15, 2024, the plaintiffs appealed to the United States Court of Appeals for the Ninth Circuit.
- Latest update: The Ninth Circuit heard oral argument on the plaintiffs’ appeal on March 27, 2025, and the court issued its opinion on July 25, 2025, affirming the district court’s dismissal of the action. The court held that CME courses eligible for credit by the Medical Board of California are government speech. The court reasoned that the public would attribute CME speech to the government rather than to CME instructors because California has a longstanding tradition of regulating the medical profession and California controls the content of CME courses. Because CME courses are government speech, the court held they are immune from certain strictures of the First Amendment. The appellants filed a petition for panel rehearing on August 8, 2025, arguing that the panel decision (1) conflicts with decisions of the Supreme Court of the United States, (2) diverges from the holdings of other circuit courts, and (3) presents questions of exceptional importance, including whether continuing professional education courses are government speech. The appellees filed a response to the appellants’ petition on September 23, 2025, asserting that the Ninth Circuit’s decision does not conflict with either Supreme Court precedent or the rulings of other circuits, and no questions of exceptional importance exist because the decision was narrow and context-specific and therefore does not raise concerns about government control over other forms of speech.
Nat’l Urban League et al., v. President Donald J. Trump, et al., 1:25-cv-00471 (D.D.C. 2025): On February 19, 2025, the National Urban League, National Fair Housing Alliance, and AIDS Foundation of Chicago sued President Donald Trump challenging EO 14151, EO 14168, EO 14173, and related agency actions, as ultra vires and in violation of the First and Fifth Amendments and the Administrative Procedure Act. The plaintiffs allege that these orders penalize them for expressing viewpoints in support of diversity, equity, inclusion, accessibility, and transgender people. They also claim that, because of these orders, they are at risk of losing federal funding. The complaint seeks a declaratory judgment holding that the EOs at issue are unconstitutional, as well as a preliminary injunction enjoining enforcement of these EOs. On June 27, 2025, the National Fair Housing Alliance voluntarily dismissed its claims without prejudice. On June 30, 2025, the remaining plaintiffs filed an amended complaint, again requesting declaratory and injunctive relief. On August 8, 2025, the defendants moved to dismiss the amended complaint, arguing that the plaintiffs lacked standing to sue, including because the plaintiffs failed to assert that they were injured by the challenged executive orders. The defendants further argued that the court lacked jurisdiction to review challenges to funding provisions under the Tucker Act (which permits individuals to sue the U.S. government for monetary damages in the Court of Federal Claims), and that the plaintiffs’ claims failed on the merits.
- Latest update: On September 12, 2025, the plaintiffs filed an opposition to the defendants’ motion to dismiss, arguing that they adequately alleged standing as to all eight of the challenged EO provisions, including because certain of the executive orders reduced the plaintiffs’ access to funding and others chilled the plaintiffs’ speech. The plaintiffs further argued that the Tucker Act does not affect the court’s jurisdiction to adjudicate their constitutional claims. Finally, the plaintiffs contended that they sufficiently alleged First Amendment violations, arguing that the executive orders “coerce[d] Plaintiffs to abandon disfavored speech concerning DEIA and transgender rights.”
Rhode Island Latino Arts v. National Endowment for the Arts, 1:25-cv-00079 (D. R.I. 2025): On March 6, 2025, four arts non-profits filed a complaint in the United States District Court for the District of Rhode Island against the National Endowment for the Arts (“NEA”) and its acting chair, seeking to enjoin the NEA from incorporating Executive Order 14168 into its application criteria for NEA grants. Specifically, on February 6, 2025, the NEA amended its grant application to say, “The applicant understands that federal funds shall not be used to promote gender ideology, pursuant to Executive Order No. 14168.” The plaintiffs alleged that, because their art involves themes that could be considered “gender ideology,” the application of EO 14168 “effectively bar[s] [them] from receiving NEA grants.” The NEA’s actions, the plaintiffs alleged, are thus contrary to the NEA’s governing statute, arbitrary and capricious under the Administrative Procedure Act (“APA”), and in violation of the First and Fifth Amendments. On March 7, 2025, the NEA rescinded the language about “gender ideology” in its funding criteria pending further review and extended the application deadline for the grants in question. On May 12, 2025, the plaintiffs filed an amended complaint to account for the NEA’s rescission of the EO language from its funding criteria, alleging that the perception that a project “promotes gender ideology” may still impact the grantmaking process, even if the NEA did not formally apply the EO to grantmaking decisions. On May 27, 2025, the defendants answered the amended complaint and presented five affirmative defenses, including that the court lacked subject matter jurisdiction, that the complaint failed to state a claim upon which relief may be granted, and that the NEA “was acting in good faith, with justification, and pursuant to authority.” On June 30, 2025, the plaintiffs filed a motion for summary judgment, asserting that the NEA’s implementation of EO 14168 constitutes viewpoint-based discrimination, exceeds the agency’s statutory authority under the APA, and fails to provide fair notice while permitting arbitrary and discriminatory decision-making. On July 16, 2025, the defendants filed their opposition and cross-motion for summary judgment, arguing that the agency’s selection of arts projects for funding constitutes government speech and is therefore not subject to scrutiny under the First and Fifth Amendments. The defendants further contended that the alleged vagueness is not substantial in the context of “public patronage of the arts,” and that the rescission of the certification requirement mitigated any constitutional concerns.
- Latest update: On September 19, 2025, the court granted summary judgment in favor of the plaintiffs on their First Amendment claim and three APA claims. The court reasoned that the NEA’s notice of its final decision regarding the implementation of the EO imposed a viewpoint-based restriction on private speech, thereby violating the First Amendment. The court also held that the NEA exceeded its statutory authority, and that the notice was arbitrary and capricious. At the same time, the court ruled that NEA’s notice was not unconstitutionally vague. The court’s ruling enjoined the defendants from disfavoring applicants deemed “to promote gender ideology” and from enforcing compliance with EO 14168 when using NEA funds.

4. Actions against educational institutions

Students Against Racial Discrimination v. Regents of the University of California et al., No. 8:25-cv-00192 (C.D. Cal 2025): On February 3, 2025, Students Against Racial Discrimination sued the Regents of the University of California, alleging that UC schools discriminate against Asian American and white applicants by using “racial preferences” in admissions in violation of Title VI and the Fourteenth Amendment of the U.S. Constitution. The plaintiff alleged it has student members who are ready and able to apply to UC schools but are “unable to compete on an equal basis” because of their race. On August 14, 2025, the defendants moved to dismiss the complaint. The defendants argued that the plaintiffs lacked standing and that the complaint makes, at most, indiscriminate “barebones allegations” as to “every undergraduate, law, and medical school across all UC campuses.” The defendants also argued that the chancellor of each UC campus is entitled to sovereign immunity under the Eleventh Amendment.
- Latest update: On September 26, 2025, the plaintiffs filed their opposition to the defendants’ motion to dismiss. The plaintiffs asserted that they adequately alleged standing because their members are part of a genuine membership organization and are “able and ready to apply” for admission to the University of California, but “will encounter racial discrimination if they do so.” They further argued that the amended complaint “alleges all that is needed to state a claim” because it includes allegations that “each of the University of California’s undergraduate colleges, law schools, and medical schools discriminates in favor of blacks and Hispanics and against Asian-Americans and whites when admitting students.” On September 28, 2025, the parties filed their joint Rule 26(f) report. Defendants proposed a discovery schedule that anticipated a trial date in October 2027. The court held a conference on October 28, 2025 in which it took the motion to dismiss under submission and set a bench trial for October 2027.

Legislative Updates

U.S. House Bill 5315: On September 11, 2025, U.S. House Representatives Harriet Hageman (R-WY) and Barry Moore (R-AL) introduced U.S. House Bill 5315: the Fair Artificial Intelligence Realization Act of 2025. The bill would require federal government agencies, if procuring large language models, to procure only those that “do not manipulate responses in favor of ideological dogmas such as diversity, equity, and inclusion.”

U.S. House Bill 5399: On September 16, 2025, U.S. House Representatives Sydney Kamlager-Dove (D-CA), Nydia Velazquez (D-NY), Cleo Fields (D-LA), Suzanne Bonamici (D-OR), Eleanor Norton (D-DC), Shri Thanedar (D-MI), Maxwell Frost (D-FL), and Veronica Escobar (D-TX) introduced U.S. House Bill 5399: the Equitable Arts Education Enhancement Act. The bill would direct the U.S. Secretary of Education to establish a competitive grant program to support arts education at minority-serving institutions of higher education. The bill notes that minority-serving institutions are “uniquely positioned to produce a diverse generation of art professionals and help bring much needed attention to works by BIPOC (Black, Indigenous, People of Color) artists.”

The Secretary’s Direction included a proposed draft Advanced Notice of Proposed Rulemaking for FERC’s consideration, with a deadline for FERC to respond no later than April 30, 2026.

I. Introduction

On October 23, 2025, Secretary of Energy Chris Wright directed the Federal Energy Regulatory Commission (FERC or the Commission) to initiate rulemaking procedures to standardize the interconnection of large loads to the transmission system.[1] Secretary Wright noted in the Direction that the ability of “large loads, including AI data centers, served by public utilities… to connect to the transmission system in a timely, orderly, and non-discriminatory manner” was an “urgent issue.”[2] The Direction included a proposed draft Advanced Notice of Proposed Rulemaking (ANOPR) for FERC’s consideration, with a deadline for FERC to respond no later than April 30, 2026.

Importantly, the Secretary’s authority under Section 403 of the Department of Energy Organization Act empowers the Secretary to “propose rules, regulations, and statements of policy of general applicability” but does not require FERC to implement such “propose[d]” rules and regulations.[3] The Commission is required under Section 403 to “consider and take final action on any [such] proposal.”[4] Under Section 403, the Secretary’s proposal is only the start of agency action and consideration, not the conclusion. However, FERC has already taken initial action on the proposal, filing a Notice Inviting Comments on October 27, 2025 with a deadline for comments on the Secretary’s proposed ANOPR by November 14.[5]

In addition, it is important to note that the proposal is in the form of an ANOPR. It is not a proposed rulemaking. An ANOPR is the first step in the agency rulemaking process, which, if it proceeds, is then followed by a Proposed Rulemaking, and ultimately a Final Rule. Hence the proposed ANOPR is brief and offers high-level principles and ideas for further consideration. An ANOPR is intended to solicit comments and views from interested parties on the rulemaking concepts set forth. The details of any such rulemaking, if it proceeds, would be set forth in a Proposed Rulemaking issued by the Commission. Such a Rulemaking would allow opportunity for interested parties to file comments on the proposal.

Secretary Wright’s Direction first asserts that FERC has jurisdiction over interstate transmission and the interconnection of all generation and loads to the transmission system and then proposes an ANOPR under which FERC can establish rules asserting this scope of jurisdiction. In particular, the Direction argues that FERC has jurisdiction over the interconnection of large loads to interstate transmission, a departure of sorts from FERC’s current practice, which has been to leave load-related issues to state regulation. The ANOPR asserts that this newly asserted jurisdiction is analogous to FERC’s existing jurisdiction over generator interconnection. It argues that, like generator interconnection, load interconnection directly affects wholesale rates and is necessary for open-access transmission. Because matters directly affecting wholesale rates and open-access transmission are within FERC’s jurisdiction under the Federal Power Act, the Direction argues FERC can assert jurisdiction over load interconnection.[6]

Second, based on this newly asserted jurisdiction, the Direction provides “a series of principles” for a rule “intended to ensure efficient, timely, and non-discriminatory load interconnections.”[7] In essence, the Secretary is asking FERC to issue a rulemaking to establish a standard approach for the interconnection of large loads to the transmission system, analogous to FERC’s issuance of Order No. 2003, in which FERC first established standardized procedures and a standard agreement for the interconnection of generation to the transmission system. Presumably, this standard process for load interconnection would be incorporated into the Open Access Transmission Tariffs (OATTs) of all FERC-jurisdictional transmission service providers. The Direction sets forth high-level governing “principles” for this proposed standard load interconnection process, but not the details that the Commission would require transmission service providers to incorporate into their OATTs. Those details would be developed in a Proposed Rulemaking issued by the Commission. The principles in the Secretary’s proposed ANOPR—14 in total—lay a groundwork for large loads to be connected to the transmission grid, but FERC will need to fill in the details of these principles as part of the rulemaking process.

The Secretary has asked the Commission to consider the proposal and take “final action” by no later than April 30, 2026, six months from now. Such “final action” would presumably be issuance of a Final Rule by the Commission within the requested six-month timeframe.

II. FERC’s Proposed Jurisdiction over Large Load Interconnection

Secretary Wright’s Direction first argues that FERC has jurisdiction to address the interconnection of large loads to the interstate transmission system. The central point of this jurisdictional argument is based on FERC’s current authority to assert jurisdiction over the interconnection of generation facilities. Most basically, the Direction argues that if FERC has jurisdiction over interconnection of generation facilities to the transmission system, then it should also have jurisdiction over interconnection of large load facilities to the transmission system.

The Direction sets forth two main jurisdictional bases for large load interconnection. The first basis for jurisdiction is that “minimum terms and conditions” for large load interconnections are necessary “to ensure non-discriminatory transmission service.”[8] Citing FERC’s Order No. 2003 that deemed standard interconnection procedures for large generators “a critical component of open access transmission service,” the Direction asserts the same need for standard interconnection procedures for large loads to connect to the grid.[9]

The second basis for jurisdiction for large load interconnection is that these interconnections directly affect wholesale electricity rates. The Supreme Court has previously affirmed FERC’s jurisdiction over “rules or practices” that “directly affect wholesale prices.”[10] The Federal Power Act grants FERC authority to ensure that “the sale of electric energy at wholesale in interstate commerce” takes place at “just and reasonable” rates.[11] Because the interconnection of large loads is a practice that directly affects rates, the Secretary argues that FERC can assert jurisdiction over the interconnection of large loads to the transmission system.

The Direction also makes clear it is not intended to “impinge on States’ authority over retail electricity sales,” preserving state’s exclusive jurisdiction over retail sales to large loads as well as the siting, expansion, and modification of generation facilities.[12]

III. Summary of the ANOPR

Secretary Wright’s Direction lays out 14 guidelines for a proposed rule in the form of fourteen “principles . . . that should inform the Commission’s rulemaking procedures.”[13] The ANOPR clarifies that standardized interconnection for loads would also apply to “hybrid” facilities, which are facilities which “seek[] to share a point of interconnection with new or existing generation facilities.”[14] The 14 guidelines provided by the Secretary for the new rule are:

Limiting the Commission’s newly asserted jurisdiction to only interconnections directly to interstate transmission facilities.
Applying the reforms only to new loads greater than 20MW, though the ANOPR seeks comment on this threshold.
Studying load and hybrid facilities together with generation facilities, which would allow for efficient siting and “minimize the need for costly network upgrades.”
Subjecting load and hybrid facilities to “standardized study deposits, readiness requirements, and withdrawal penalties” that would provide transmission providers with more useful information to forecast demand on their systems. The ANOPR seeks comment on how existing study deposits, readiness requirements, and withdrawal penalties can be adopted.
Studying hybrid facilities should be based on the net injection or withdrawal rather than their total load to “provide[] incentives for co-location with new generation facilities and ensure[] efficient buildout of the transmission system.”
Requiring hybrid facilities “to install system protection facilities” to prevent exceeding respective rights. The ANOPR seeks comment on operational limitations, minimum technical requirements for system protection facilities, and penalties for unauthorized injections or withdrawals.
Expediting interconnection for large loads that agree to be curtailable, in addition to hybrid facilities that agree to be curtailable and dispatchable. The ANOPR seeks comment on “appropriate deadlines for the expedited study process, including whether the studies can be completed in 60 days.”
Eighth, load and hybrid facilities “should be responsible for 100% of the network upgrades they are assigned through the interconnection studies.” The ANOPR seeks comment on whether such costs to large loads and hybrid facilities “should be offset through a crediting mechanism,” as was done in Order No. 2003, and thus rolled into the transmission rates paid by all transmission customers.
Ninth, if the interconnecting load customer is not the transmission owner, the customer “shall be afforded the same option to build as currently provided to” a interconnecting generator customer. This is the “option to build” process that the Commission has established for generator interconnections to the transmission system.
Tenth, colocation of new loads at existing generation facilities will require a system support resource (SSR) or a reliability must run (RMR) study. The study will consider load growth for three years after a generator’s proposed partial suspension to serve the collocated load, and any necessary network upgrades will be the responsibility of the generating facility. This will look at the implications of removing existing generation from the transmission system and what it means for transmission system reliability.
Eleventh, utilities should be responsible for transmission service to the large loads “based on their withdrawal rights.” This appears to indicate that if a large load is collocated with generation and states that it will be withdrawing nothing from the transmission system, the large load will be deemed to take no transmission service and will not be charged for transmission service. This principle, and the twelfth principle, appear to be setting the groundwork for how rates for transmission service for large loads will be determined.
Twelfth, utilities should be responsible for providing auxiliary services, a part of transmission service, services based on peak demand, without consideration of any collocated generation. This appears to indicate that large loads would be charged for the auxiliary service component of transmission service based on their “peak demand,” rather than their “withdrawal rights,” unlike the eleventh principle. This principle also appears to be setting the stage for how transmission service rates for large loads will be determined.
Thirteenth, the Direction calls for a transition plan to implement the proposed reforms and seeks comments on how to treat large loads that are already being studied for interconnection to the transmission system.
Fourteenth, utilities serving large loads must meet all applicable NERC reliability standards and OATT provisions. NERC is already considering the implications of the interconnection of large loads to the transmission system, including large load registration requirements.

IV. Takeaways

Secretary Wright’s 14 principles leave room for FERC to fill in details as part of the rulemaking process but they make clear his intention that certain rights are afforded to large loads seeking to interconnect to the interstate transmission system. The principles repeatedly address so-called “hybrid” facilities and seek to allow collocated generation to be subtracted from the overall proposed load for purposes of interconnection. The Direction also seeks to expedite connection for large loads that agree to be curtailable, essentially “non-firm” large load interconnections, and floats a 60-day timeline as a proposal for expedited interconnection studies for such “curtailable” large load facilities.

While FERC has traditionally asserted jurisdiction over the interconnection of generation to the interstate transmission system, the ANOPR contemplates extending this Commission authority to the interconnection of large loads. Commentators have noted that utilities are likely to oppose the principles set forth in the ANOPR as proposed by the Secretary, as it would detract from their traditional authority to control when and how demand is connected to the transmission grid.[15]

Secretary Wright’s Direction is the latest development in a years-long discussion of how to power data center expansion. Following a technical conference last November,[16] a large class of stakeholders—federal and state regulators, local utilities, and grid operators—had not yet reached alignment on how data center interconnection should move forward. Friday’s Direction makes clear that FERC, spurred by the Department of Energy, may play a larger role in this process, potentially elbowing out and superseding the mix of authorities that currently control the gates to providing power to data centers.

[1] Letter from Chris Wright, Secretary of Energy, to the Federal Energy Regulatory Commission, “Secretary of Energy’s Direction that the Federal Energy Regulatory Commission Initiate Rulemaking Procedures and Proposal Regarding the Interconnection of Large Loads Pursuant to the Secretary s Authority Under Section 403 of the Department of Energy Organization Act” [hereinafter “Direction”] [https://www.energy.gov/sites/default/files/2025-10/403%20Large%20Loads%20Letter.pdf].

[2] Id.

[3] 42 U.S.C. § 7173(a)

[4] 42 U.S.C. § 7173(b)

[5] Notice Inviting Comments, Docket No. RM26-4-000 (Oct. 27, 2025).

[6] Id. at 9.

[7] Id. at 2.

[8] Id. at 9.

[9] Id. (quoting Standardization of Generator Interconnection Agreements and Procedures, Order No. 2003, 104 FERC ¶ 61,103 (July 24, 2003)).

[10] FERC v. Electric Power Supply Ass’n, 577 U.S. 260, 278-79 (2016).

[11] Id. at 277 (citing 16 U.S.C. §§ 824(b)(1), 824d(a)).

[12] Direction, 9.

[13] Id. at 10.

[14] Id. at 9.

[15] See Diana DiGangi, In ‘unusual’ move, DOE proposes rule to expand FERC’s authority over large loads. [https://www.utilitydive.com/news/in-unusual-move-doe-proposes-rule-to-expand-fercs-authority-over-large/803717/].

[16] See generally Gibson Dunn, “FERC Technical Conference Puts Challenges of Powering Data Centers at Center Stage.” [https://www.gibsondunn.com/ferc-technical-conference-puts-challenges-of-powering-data-centers-at-center-stage/].

The following Gibson Dunn lawyers prepared this update: William R. Hollaway, Ph.D., Tory Lauterbach, Janine Durand, Jess Rollinson, and John Weed*.

Gibson Dunn lawyers are available to assist in addressing any questions you may have about these developments. To learn more about these issues or for assistance with data center energy supply issues, such as preparing comments to be filed in the above-discussed proceedings, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Energy Regulation and Litigation practice group, or the following members of the firm’s Energy team:

Energy Regulation and Litigation:
William R. Hollaway, Ph. D – Washington, D.C. (+1 202.955.8592, whollaway@gibsondunn.com)
Tory Lauterbach – Washington, D.C. (+1 202.955.8519, tlauterbach@gibsondunn.com)

Power and Renewables:
Peter J. Hanlon – New York (+1 212.351.2425, phanlon@gibsondunn.com)
Nicholas H. Politan, Jr. – New York (+1 212.351.2616, npolitan@gibsondunn.com)

Cleantech:
John T. Gaffney – New York (+1 212.351.2626, jgaffney@gibsondunn.com)
Daniel S. Alterbaum – New York (+1 212.351.4084, dalterbaum@gibsondunn.com)
Adam Whitehouse – Houston (+1 346.718.6696, awhitehouse@gibsondunn.com)

Oil and Gas:
Michael P. Darden – Houston (+1 346.718.6789, mpdarden@gibsondunn.com)
Rahul D. Vashi – Houston (+1 346.718.6659, rvashi@gibsondunn.com)

*John Weed, a law clerk in the firm’s Washington, D.C. office, is not yet admitted to practice law.

Join Gibson Dunn lawyers as they explore the evolution of global whistleblower regimes around the world, including across the United States and Europe, in this recorded webcast. They discuss new initiatives, the protections that have been afforded whistleblowers and companies under these regimes, and how companies can take steps to ensure they are complying with their statutory obligations while mitigating enforcement risk.

MCLE CREDIT INFORMATION:

Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact CLE@gibsondunn.com to request the MCLE form.

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.0 hour in the General category.

California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.

PANELISTS:

Michael S. Diamant is a Washington, D.C.–based partner in Gibson Dunn’s White Collar Defense and Investigations group. He leads internal investigations, defends corporations and executives in criminal and regulatory matters (including FCPA work), and advises on compliance program design and privilege strategy in high-stakes environments.

Katharina E. Humphrey is a partner in Gibson Dunn’s Munich office and a member of the firm’s White-Collar Defense and Investigations practice. She advises clients on internal investigations and compliance matters across Europe and beyond, with particular expertise in anti-bribery (including German laws and the U.S. FCPA), sanctions, AML, and the design and evaluation of compliance management systems.

Poonam G. Kumar is a partner in Gibson Dunn’s Los Angeles office and a member of the firm’s White-Collar Defense and Investigations practice. A former Assistant U.S. Attorney with substantial trial and prosecutorial experience, she leads internal and regulatory investigations and defends clients—across industries such as healthcare, financial services, and technology—in high-stakes matters.

Greta B. Williams is co-partner in charge of Gibson Dunn’s Washington, D.C. office and a member of the firm’s Litigation Department, Labor & Employment Practice, and Media, Entertainment & Technology Practice. She has deep experience conducting sensitive workplace investigations and advising clients on a wide range of employment issues.

From the Derivatives Practice Group: This week, ESMA and ISDA were particularly active, especially regarding carbon markets and loan-originating Alternative Investment Funds (AIFs). Due to the federal government shutdown, regulatory activity continues to stall in the U.S.

New Developments

No New Developments in the U.S.

New Developments Outside the U.S.

EBA and ESMA Recommend Targeted Revisions to the Investment Firms’ Prudential Framework Investor Protection. On October 15, the European Banking Authority (EBA) and ESMA have issued their technical advice in response to the European Commission’s Call for Advice on the Investment Firms Regulation and Investment Firms Directive. They propose limiting significant changes to the framework, which has proven to be fit-for-purpose, as confirmed by stakeholder feedback during the joint consultation.

New Industry-Led Developments

The following Gibson Dunn attorneys assisted in preparing this update: Jeffrey Steiner, Adam Lapidus, Marc Aaron Takagaki, Hayden McGovern, Karin Thrasher, and Alice Wang*.

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 )

Hayden K. McGovern, Dallas (214.698.3142, hmcgovern@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)

*Alice Wang, a law clerk in the firm’s Washington, D.C. office, is not admitted to practice law.

Final provisions of the DOJ’s audit, recordkeeping, and reporting obligations came into effect on October 6, 2025; accordingly, companies are now expected to have fully implemented and operationalized a DSP compliance program relating to access by countries of concern to U.S. bulk sensitive personal data.

While many of these requirements apply specifically to companies who engage in restricted transactions, notably, reporting requirements for rejected transactions that involve data brokerage apply to all U.S. Persons – making an understanding of the October 6th obligations critical to the compliance efforts of all U.S. companies.

Background

On December 27, 2024, the Department of Justice (DOJ) issued a final rule pursuant to Executive Order 14117 that established a new federal regulatory framework imposing restrictions on transactions that could provide certain persons with access to “bulk sensitive personal data” and “United States government-related data.”[1] This regulatory framework, which came into effect on April 8, 2025, is referred to by DOJ as the Data Security Program (DSP).[2]
The DSP restricts or prohibits certain transactions that could involve access to bulk U.S. sensitive personal data or U.S. government data by covered persons and countries of concern (most notably, China), and imposes diligence, security, audit, and recordkeeping requirements.

Violations of the DSP carry significant potential penalties, including civil penalties up to the greater of $377,700 or twice the value of the transaction and/or criminal penalties up to $1 million and 20 years’ imprisonment for willful violations.

A 90-day de-prioritization of civil enforcement for entities making “good faith” compliance efforts expired on July 8, 2025. DOJ now expects that “individuals and entities should be in full compliance with the DSP and should expect [the DOJ National Security Division] to pursue appropriate enforcement with respect to any violations.”[3]

Requirements as of October 6, 2025

As of October 6, 2025, DSP provisions have come into effect requiring companies engaging in restricted transactions to meet certain ongoing operational compliance obligations, including audit program implementation, reporting and certification requirements, and long-term recordkeeping.

Key requirements for U.S. companies engaged in restricted transactions that are now in effect include:

Audits for restricted transactions: All U.S. Persons that engage in restricted transactions on or after October 6, 2025, must conduct a comprehensive audit, using an independent auditor that is neither a covered person nor from a country of concern.
- The audit must be scoped to cover (1) the restricted transactions; (2) assessment of the data compliance program (discussed in detail below) and its implementation; (3) review of relevant records; and (4) examination of required security controls.
- The audit must be conducted by an independent auditor. This independent auditor “should be objective, fact-based, nonpartisan, and nonideological with regards to both the U.S. person and to the transactions that are subject to the audit.”[4] While DOJ permits U.S. companies to use internal auditors to audit compliance with the DSP, it cautions that many internal audits in the national security, criminal, and other contexts lack the necessary independence of external audits.[5] Even when a U.S. company uses an external auditor, DOJ could reasonably question the objectivity of such an audit if the company uses the same firm to build and audit its compliance program.
- The audit must be completed once for each calendar year in which the U.S. person engages in any restricted transactions and must cover the preceding 12 months, in addition to certain other requirements with respect to the scope and auditor qualifications.[6] For those companies who have engaged in a restricted transaction since the DSP regulations first came into effect in April 2025, this means that an audit must be completed by the end of the 2025 calendar year.
- The audit must be maintained by the company for a period of 10 years, but is not automatically required to be submitted to DOJ.[7]
Recordkeeping: U.S. Persons must also preserve the records associated with any restricted transactions for at least 10 years, including the due diligence conducted to verify restricted transaction data flows, the types and volume of data involved, the transaction parties, the dates of the transaction, the method of data transfer and other details of the transaction and end-use of the data. In addition, records must be retained regarding required compliance measures, including copies of applicable data compliance program policies, audit results, and any relevant licenses or advisory opinions.[8]
Annual reports for companies partially owned by a covered person or country of concern and that engage in restricted cloud computing transactions: As of October 6, 2025, U.S. Person companies that (1) engage in restricted transactions involving cloud computing services, and (2) are 25% or more owned by a country of concern or covered person, must file annual reports with DOJ. This report, among other requirements, must include detailed information on the transacting entity, the restricted transaction, and any relevant documentation created in connection with the transaction.[9]

U.S. Person companies that engage in restricted transactions must have a fully implemented data compliance program, including:

Risk-based procedures for verifying data flows involved in any restricted transaction, and for verifying and logging certain key metrics and data points;
For transactions involving vendors, risk-based procedures for verifying the identity of vendors;
A written policy that describes the data compliance program and that is annually certified by an officer, executive, or other employee responsible for compliance; and
A written policy that describes the implementation of necessary security requirements and that is annually certified by an officer, executive, or other employee responsible for compliance.[10]

In addition to the newly effective requirements for U.S. Persons engaging in restricted transactions, all U.S. Persons are required to report prohibited transactions that they reject and that involve data brokerage. Specifically, any U.S. Person that has received and affirmatively rejected an offer from another person to engage in a prohibited transaction involving data brokerage on or after October 6, 2025, must report that transaction to DOJ within 14 days of the rejection. The report must include information on the rejecting entity and a detailed description of the transaction.[11]

Summary Requirements:

To achieve DSP compliance, companies engaged in restricted transactions should:

Create and implement a data compliance program that includes risk-based procedures to understand data flows and track vendor identities.
Develop written policies that outline the company’s data compliance program and describe implementation of Cybersecurity and Infrastructure Security Agency (CISA) security requirements. These written policies must be certified annually by an officer, executive, or other employee responsible for compliance at the U.S. Entity.[12]
Conduct and document independent audits that examine the company’s restricted transactions, data compliance program, required records, and implementation of CISA security requirements.
Maintain relevant records for 10 years.

Key Best Practices:

Given that the DSP regulatory requirements are now fully in effect, companies potentially subject to the DSP should consider whether their compliance programs adhere to best practices, including:

Understand Organizational Data Flows: Review whether persons associated with countries of concern may have direct or indirect access to covered data. Map data flows and confirm access controls and logs are in place.
Evaluate Vendors, Customers, Employees, and Affiliates: Identify relationships that may involve restricted or prohibited transactions under the DSP.
Implement a DSP Compliance Program: Develop and implement appropriate policies and procedures, including aligning roles and responsibilities, to achieve initial and on-going compliance with the DSP.
Implement Security Measures: U.S. Person entities engaged in restricted transactions must implement CISA-specified cybersecurity measures, which effectively operate to fully restrict access by covered persons.
Train Staff and Document Controls: Ensure internal teams understand DSP obligations and can evidence proactive compliance, especially in policies and incident response protocols.
Review Public Disclosures: SEC registrants should periodically revisit risk factors and cybersecurity governance disclosures in light of DSP requirements and attendant business impact.

Current Enforcement Posture:

As of this writing, DOJ has not publicly announced any DSP-specific enforcement actions, license denials, or advisory opinions. However, on September 24, 2025, DOJ updated its FAQ regarding the process and financial incentives for reporting possible violations of the DSP, which suggests that the rule and its enforcement remain on DOJ’s radar.[13] DOJ may also begin enforcement with non-public inquiries or informal outreach, consistent with how other national security and export-control regimes operate. U.S. Person companies—particularly those undertaking restricted transactions or with significant data exposure to countries of concern—would be prudent to assume that they could be asked for information or documentation related to possible restricted transactions at any time.

Self-Test for DSP Compliance:

Some preliminary questions to help guide analysis of DSP compliance, particularly with respect to the key audit, recordkeeping, and reporting obligations that recently came into effect, include:

Do we know whether we, our vendors, or our data processors provide access to covered data to covered persons?
For companies not engaged in restricted transactions:
- Have we documented the procedures by which we confirmed that the company does not engage in restricted transactions or is at low risk of engaging in restricted transactions?
- Do we have measures in place to periodically affirm that this remains the case, and to monitor for any material changes in risk profile?
- Do we have contractual provisions for suppliers, vendors, or other third parties with access to company data prohibiting the onward transfer or resale of government-related data or bulk U.S. sensitive personal data to countries of concern or covered persons?
- Is there a named officer or governance body accountable for DSP compliance?
For companies engaged in restricted transactions:
- Can we produce documentation of compliance measures, including security measures, implemented since April 8, 2025, or at least October 6, 2025?
- Is there a named officer or governance body accountable for DSP compliance?
- Are our audit, monitoring, and (as appropriate) reporting tools live and tested—not just drafted?
- Can we log and trace covered transactions, access rights, and training efforts?

[1] Exec. Order No. 14117, “Preventing Access to Americans’ Bulk Sensitive Personal Data and U.S. Government-Related Data by Countries of Concern,” 89 Fed. Reg. 15421 (issued Feb. 28, 2024; published Mar. 1, 2024).

[2] See Preventing Access to U.S. Sensitive Personal Data and Government-Related Data by Countries of Concern, 90 Fed. Reg. 1636 (Jan. 8, 2025); Pertaining to Preventing Access to U.S. Sensitive Personal Data and Government-Related Data by Countries of Concern, 90 Fed. Reg. 16466 (Apr. 18, 2025) (codified at 28 C.F.R. §§ 202 et seq.); see also Dep’t. of Justice, DSP Compliance Guide (Apr. 11, 2025), https://www.justice.gov/opa/media/1396356/dl; Dep’t. of Justice, DSP: Frequently Asked Questions (Sept. 24, 2025), https://justice.gov/nsd/media/1415006/dl; Dep’t. of Justice, DSP: Implementation and Enforcement Policy Through July 8, 2025 (Apr. 11, 2025), https://www.justice.gov/opa/media/1396346/dl?inline.

[3] Dep’t. of Justice, DSP: Implementation and Enforcement Policy Through July 8, 2025, at p. 3 (Apr. 11, 2025), https://www.justice.gov/opa/media/1396346/dl?inline.

[4] Dep’t. of Justice, DSP Compliance Guide (Apr. 11, 2025) at 15, https://www.justice.gov/opa/media/1396356/dl.

[5] Dep’t. of Justice, DSP: Frequently Asked Questions (Sept. 24, 2025) at 35 (Question 85), https://justice.gov/nsd/media/1415006/dl.

[6] Audits for restricted transactions, 28 C.F.R. § 202.1002 (2025), https://www.ecfr.gov/current/title-28/section-202.1002.

[7] Records and recordkeeping requirements, 28 C.F.R. § 202.1101 (2025), https://www.ecfr.gov/current/title-28/section-202.1101.

[8] Records and recordkeeping requirements, 28 C.F.R. § 202.1101 (2025), https://www.ecfr.gov/current/title-28/section-202.1101.

[9] Annual reports, 28 C.F.R. § 202.1103 (2025), https://www.ecfr.gov/current/title-28/section-202.1103.

[10] Due diligence for restricted transactions, 28 C.F.R. § 202.1001 (2025), https://www.ecfr.gov/current/title-28/section-202.1001.

[11] Reports on rejected prohibited transactions, 28 C.F.R. § 202.1104 (2025), https://www.ecfr.gov/current/title-28/section-202.1104.

[12] See Dep’t. of Justice, DSP Compliance Guide (Apr. 11, 2025) at 17, https://www.justice.gov/opa/media/1396356/dl.

[13] Dep’t. of Justice, DSP: Frequently Asked Questions (Sept. 24, 2025) at 39–40 (Question 106), https://justice.gov/nsd/media/1415006/dl.

The following Gibson Dunn lawyers prepared this update: Vivek Mohan, Stephenie Gosnell Handler, Mellissa Campbell Duru, Melissa Farrar, Christine Budasoff, Hugh Danilack, and Sarah Pongrace.

Gibson Dunn lawyers are advising clients across sectors in building and validating their DSP compliance programs. We remain closely engaged with evolving guidance and agency posture and are available to assist in addressing any questions you may have about these developments and your own DSP readiness. Please contact the Gibson Dunn lawyer with whom you usually work, any of the following leaders and members of the firm’s DOJ DSP Task Force or its Privacy, Cybersecurity & Data Innovation, International Trade Advisory & Enforcement, or Securities Regulation & Corporate Governance practice groups, or the authors:

Vivek Mohan – Palo Alto (+1 650.849.5345, vmohan@gibsondunn.com)
Stephenie Gosnell Handler – Washington, D.C. (+1 202.955.8510, shandler@gibsondunn.com)
Mellissa Campbell Duru – Washington, D.C. (+1 202.955.8204, mduru@gibsondunn.com)
Melissa Farrar – Washington, D.C. (+1 202.887.3579, mfarrar@gibsondunn.com)
Christine Budasoff – Washington, D.C. (+1 202.955.8654, cbudasoff@gibsondunn.com)
Hugh N. Danilack – Washington, D.C. (+1 202.777.9536, hdanilack@gibsondunn.com)
Sarah L. Pongrace – New York (+1 212.351.3972, spongrace@gibsondunn.com)

Privacy, Cybersecurity & Data Innovation:
Ashlie Beringer – Palo Alto (+1 650.849.5327, aberinger@gibsondunn.com)
Keith Enright – Palo Alto (+1 650.849.5386, kenright@gibsondunn.com)
Cassandra L. Gaedt-Sheckter – Palo Alto (+1 650.849.5203, cgaedt-sheckter@gibsondunn.com)
Svetlana S. Gans – Washington, D.C. (+1 202.955.8657, sgans@gibsondunn.com)
Stephenie Gosnell Handler – Washington, D.C. (+1 202.955.8510, shandler@gibsondunn.com)
Jane C. Horvath – Washington, D.C. (+1 202.955.8505, jhorvath@gibsondunn.com)
Vivek Mohan – Palo Alto (+1 650.849.5345, vmohan@gibsondunn.com)
Hugh N. Danilack – Washington, D.C. (+1 202.777.9536, hdanilack@gibsondunn.com)

International Trade Advisory & Enforcement:
Matthew S. Axelrod – Washington, D.C. (+1 202.955.8517, maxelrod@gibsondunn.com)
Adam M. Smith – Washington, D.C. (+1 202.887.3547, asmith@gibsondunn.com)
David P. Burns – Washington, D.C. (+1 202.887.3786, dburns@gibsondunn.com)
Stephenie Gosnell Handler – Washington, D.C. (+1 202.955.8510, shandler@gibsondunn.com)
Christopher T. Timura – Washington, D.C. (+1 202.887.3690, ctimura@gibsondunn.com)
Michelle A. Weinbaum – Washington, D.C. (+1 202.955.8274, mweinbaum@gibsondunn.com)
Roxana Akbari – Orange County (+1 949.475.4650, rakbari@gibsondunn.com)
Karsten Ball – Washington, D.C. (+1 202.777.9341, kball@gibsondunn.com)
Sarah L. Pongrace – New York (+1 212.351.3972, spongrace@gibsondunn.com)
Anna Searcey – Washington, D.C. (+1 202.887.3655, asearcey@gibsondunn.com)

Securities Regulation & Corporate Governance:
Aaron Briggs – San Francisco (+1 415.393.8297, abriggs@gibsondunn.com)
Mellissa Campbell Duru – Washington, D.C. (+1 202.955.8204, mduru@gibsondunn.com)
Elizabeth Ising – Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com)
Thomas J. Kim – Washington, D.C. (+1 202.887.3550, tkim@gibsondunn.com)
Brian J. Lane – Washington, D.C. (+1 202.887.3646, blane@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)
Michael A. Titera – Orange County (+1 949.451.4365, mtitera@gibsondunn.com)
Geoffrey E. Walter – Washington, D.C. (+1 202-887-3749, gwalter@gibsondunn.com)
Lori Zyskowski – New York (+1 212.351.2309, lzyskowski@gibsondunn.com)

Gibson Dunn joins the broader legal community in celebrating Pro Bono Week. During this week we recognize the incredible work of our lawyers on behalf of their pro bono clients, while also acknowledging our continued professional obligation to use our unique skillsets to enhance access to justice for the most marginalized members of our communities.

This year, it has been inspiring to see lawyers across the firm answer the call to service by taking on pro bono matters large and small. From impact litigation to nonprofit advice work to one-day clinics, these matters change lives and help everyone — not just the privileged few — access the justice system and exercise their rights. Lawyers across the firm have dedicated more than 184,000 hours to pro bono work this year, putting us on pace for our highest-ever pro bono totals.

Domestic C corporations will now count as domestic shareholders for purposes of the Domestically Controlled REIT Qualification Test.

On October 20, 2025, the IRS and Treasury issued proposed regulations removing the “look-through” rule for a domestic C corporation for purposes of determining whether a real estate investment trust (a REIT)[1] qualifies as a “domestically controlled qualified investment entity” (a DREIT) and the proposed regulations, the “2025 Proposed Regulations”). The 2025 Proposed Regulations would modify certain provisions of the final regulations issued by the IRS and Treasury on April 25, 2024 (the “2024 Final Regulations”), detailed in our previous Client Alert.

Background

Subject to certain exceptions discussed below, section 897 [2] and related sections added to the Code by the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) require foreign persons that recognize gain from the sale or disposition of a United States real property interest (a USRPI) to file U.S. federal income tax returns reporting that gain and pay U.S. federal income tax on that gain at regular graduated rates, even if the gain is not otherwise effectively connected with the conduct of a U.S. trade or business.

The definition of a USRPI is broad. In addition to including a wide array of interests in U.S. real estate (which itself is defined broadly) and in disregarded entities and certain partnerships that own U.S. real estate, USRPIs include equity interests in domestic corporations that are or have been during a specified look-back period United States real property holding corporations (USRPHCs).[3] Generally, a USRPHC is any corporation, including a REIT, if the value of its USRPIs represents at least 50 percent of the aggregate value of its real estate (both U.S. and non-U.S.) and business assets.[4]

Even though an equity interest in a domestic USRPHC generally is a USRPI, section 897(h)(2) provides that an interest in a DREIT is not a USRPI. Under section 897(h)(4), a REIT is a DREIT if less than 50 percent of the value of its stock is held “directly or indirectly” by “foreign persons” at all times during the shorter of (1) the 5-year period ending on the relevant determination date and (2) the period during which the REIT was in existence (the “Testing Period”). Importantly, gain recognized by a foreign person on the disposition of an interest in a DREIT is not subject to U.S. federal income tax under FIRPTA, even if the DREIT is a USRPHC.[5] Foreign persons seeking to invest in U.S. real estate generally prefer a DREIT structure because they can exit the investment via a sale of DREIT stock without being subject to FIRPTA.

Previous Regulations

Prior to December 2022, informal IRS guidance treated a domestic C corporation as a non-foreign owner of a REIT for purposes of determining DREIT status.[6] However, in December 2022 the IRS and Treasury issued proposed regulations (the “2022 Proposed Regulations”) that included a broad look-through rule for purposes of determining when the stock of a REIT owned by one person was treated as held “indirectly” by another person for DREIT testing purposes (the “Look-Through Rule”).[7] The Look-Through Rule applied to various types of passthrough and quasi-passthrough entities, including REITs, partnerships (other than publicly traded partnerships), S corporations, and RICs.

The Look-Through Rule in the 2022 Proposed Regulations also applied to any non-publicly traded domestic C corporation if foreign persons held directly or indirectly 25 percent or more of the value of the domestic C corporation’s outstanding stock, applying certain look-through rules (a “foreign-owned domestic corporation”).[8] Thus, under the 2022 Proposed Regulations, a foreign-owned domestic corporation was not treated as a domestic owner of a REIT; rather, ownership of the REIT’s stock was imputed to the owners of the foreign-owned domestic corporation to determine if the REIT qualified as a DREIT. The 2022 Proposed Regulations applied to dispositions of interests in REITs that occurred after the date on which the 2022 Proposed Regulations were finalized. However, the preamble indicated that “the IRS may challenge positions” taken by taxpayers that were contrary to the 2022 Proposed Regulations prior to the regulations’ being finalized.[9]

The 2022 Proposed Regulations were finalized by the 2024 Final Regulations on April 25, 2024. The 2024 Final Regulations generally maintained the Look-Through Rule for domestic C corporations, but increased the threshold of foreign ownership that would cause a domestic C corporation to be a foreign-controlled domestic C corporation from 25 percent or more to more than 50 percent.[10] Generally, the Look-Through Rule and other provisions of the 2024 Final Regulations applied to transactions (e.g., sales of REIT shares) occurring on or after April 25, 2024.[11] Importantly, however, the 2024 Final Regulations did not apply the Look-Through Rule to existing REITs until April 24, 2034, provided certain requirements were satisfied (the “Transition Rule”).[12]

2025 Proposed Regulations

The 2025 Proposed Regulations eliminate the Look-Through Rule entirely for domestic C corporations. As a result, a domestic C corporation that owns REIT stock is treated as a non-foreign person in determining whether that REIT is a DREIT, regardless of the domestic C corporation’s ownership. The 2025 Proposed Regulations make conforming changes to Treas. Reg. § 1.897-1(c) to account for the removal of the Look-Through Rule for domestic C corporations, including eliminating the Transition Rule.

Effective Date

The 2025 Proposed Regulations, upon finalization, would apply to all transactions occurring on or after October 19, 2025 and, if a taxpayer chooses, to transactions occurring on or after April 25, 2024 (or before April 25, 2024 as a result of a check-the-box election filed on or after April 25, 2024).[13] The preamble to the 2025 Proposed Regulations provides that taxpayers may rely on the 2025 Proposed Regulations for transactions occurring before the date the 2025 Proposed Regulations are finalized. As a result, taxpayers can effectively elect to treat domestic C corporations as non-foreign owners of REIT stock for purposes of DREIT qualification.

Takeaways

Investment in U.S. real estate will be more attractive to foreign investors due to simpler DREIT administration and reduced legal uncertainty.
Gibson Dunn can assist sponsors and investors in structuring U.S. real estate investments using DREITs.
Sponsors and investors should evaluate whether existing REITs that may have lost or not qualified for DREIT status under the 2024 Final Regulations now qualify under the 2025 Proposed Regulations.
Sponsors and investors should consider evaluating the impact of the 2025 Proposed Regulations to transactions occurring before April 25, 2024.
Sponsors and investors in existing REITs should consider lifting any limitations on the acquisition of new USRPIs put in place to comply with the former Transition Rule.

[1] The rules also apply to certain registered investment companies (RICs). In our discussion, however, we focus on REITs and DREITs because foreign persons are more likely to invest in U.S. real estate through REITs than through RICs.

[2] Unless indicated otherwise, all “section” references are to the Internal Revenue Code of 1986, as amended (the “Code”), and all “Treas. Reg. §” references are to the Treasury regulations promulgated under the Code.

[3] Section 897(c)(4)(B), (c)(1)(A)(ii).

[4] Section 897(c)(2).

[5] Section 897(h)(2).

[6] See, e.g., PLR 200923001. See our previous Client Alert for a discussion of the available guidance before the promulgation of the Proposed Regulations.

[7] Prop. Treas. Reg. § 1.897-1(c)(3)(ii)(B) (2022).

[8] Prop. Treas. Reg. § 1.897-1(c)(3)(v)(B) (2022).

[9] 87 F.R. 80103 (Dec. 29, 2022)

[10] Although the 2022 Proposed Regulations refer to these entities as “foreign-owned domestic corporations,” the 2024 Final Regulations refer to these entities as “foreign-controlled domestic corporations.” 89 F.R. 31621 (April 25, 2024); Treas. Reg. § 1.897-1(c)(3)(v)(B).

[11] Treas. Reg. § 1.897-1(a)(2).

[12] Treas. Reg. § 1.897-1(c)(3)(vi).

[13] Prop. Treas. Reg. § 1.897-1(a)(2).

The following Gibson Dunn lawyers prepared this update: Jennifer Fitzgerald, Emily Leduc Gagné, Evan Gusler, Brian Kniesly, Kate Long, Hayden Theis, Letian Wang*, and Daniel Zygielbaum.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding this proposed legislation. To learn more about these issues or discuss how they might impact your business, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any member of the firm’s Tax, Tax Controversy and Litigation, or Real Estate Investment Trust (REIT) practice groups:

Tax:
Sandy Bhogal – Co-Chair, London (+44 20 7071 4266, sbhogal@gibsondunn.com)
Evan M. Gusler – New York (+1 212.351.2445, egusler@gibsondunn.com)
Brian W. Kniesly – New York (+1 212.351.2379, bkniesly@gibsondunn.com)
Pamela Lawrence Endreny – Co-Chair, New York (+1 212.351.2474, pendreny@gibsondunn.com)
Kate Long – New York (+1 212.351.3813, klong@gibsondunn.com)
Eric B. Sloan – Co-Chair, New York/Washington, D.C. (+1 212.351.2340, esloan@gibsondunn.com)
Lorna Wilson – Los Angeles (+1 213.229.7547, lwilson@gibsondunn.com)
Daniel A. Zygielbaum – Washington, D.C. (+1 202.887.3768, dzygielbaum@gibsondunn.com)

Tax Controversy and Litigation:
Saul Mezei – Washington, D.C. (+1 202.955.8693, smezei@gibsondunn.com)
Sanford W. Stark – Chair, Washington, D.C. (+1 202.887.3650, sstark@gibsondunn.com)
C. Terrell Ussing – Washington, D.C. (+1 202.887.3612, tussing@gibsondunn.com)

Real Estate Investment Trust (REIT):
Eric M. Feuerstein – New York (+1 212.351.2323, efeuerstein@gibsondunn.com)
David Perechocky – New York (+1 212.351.6266, dperechocky@gibsondunn.com)
Jesse Sharf – Los Angeles (+1 310.552.8512, jsharf@gibsondunn.com)

Letian Wang, an associate in the New York office, is not admitted to practice law.

Join our lawyers for a recorded in-depth discussion of recent developments at the U.S. Food and Drug Administration, including the FDA’s crackdown on direct-to-consumer drug advertising and the impact of the Make America Healthy Again initiative, and their implications for the food, drug, device, and cosmetics industries. Our panel of attorneys provide practical insights and strategies for navigating emerging FDA policy, as well as regulatory and enforcement trends.

MCLE CREDIT INFORMATION:

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.

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.5 hours.

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Neither the Connecticut Judicial Branch nor the Commission on Minimum Continuing Legal Education approve or accredit CLE providers or activities. It is the opinion of this provider that this activity qualifies for up to 1.5 hours toward your annual CLE requirement in Connecticut, including 0 hour(s) of ethics/professionalism.

Application for approval is pending with the Colorado, Illinois, Texas, Virginia, and Washington State Bars.

PANELISTS:

Jonathan Phillips is a partner in Gibson Dunn’s Washington, D.C. office and co-chairs the firm’s FDA & Health Care Practice. His practice centers on FDA and health care enforcement, compliance, and litigation — including False Claims Act, Anti-Kickback, and regulatory defense work for pharmaceutical, medical device, and health-services clients. Prior to joining Gibson Dunn Jonathan served as a Trial Attorney in the Civil Division, Fraud Section of the U.S. Department of Justice where his work included handling a variety of health care enforcement cases.

Gustav Eyler is a partner in Gibson Dunn’s Washington, D.C. office and co-chairs the firm’s FDA & Health Care and Consumer Protection Practice Groups. Leveraging years of experience as Director of the U.S. DOJ Consumer Protection Branch — where he led enforcement actions involving drugs, medical devices, food, deceptive marketing, and public health statutes — he defends clients in government investigations and counsels on the design and implementation of compliance programs.

Katlin McKelvie is a partner in Gibson Dunn’s Washington, D.C. office and co-chairs the firm’s FDA & Health Care Practice. With over twenty years of experience in food and drug law, including as Deputy General Counsel at the Department of Health and Human Services (HHS), senior staff on the Senate HELP Committee, and various roles at FDA, she advises clients on regulatory, enforcement, legislative, and compliance strategies across FDA-regulated product categories.

John Partridge is a partner in Gibson Dunn’s Washington, D.C. office and co-chairs the firm’s FDA & Health Care Practice. He specializes in white-collar defense, government and internal investigations, and complex litigation for life sciences and health care clients and brings deep experience defending corporations in enforcement actions under the False Claims Act, Anti-Kickback Statute, FCPA, and the Federal Food, Drug, and Cosmetic Act.

Join partners Branden Berns and Stewart McDowell as we continue our discussion on alternatives to IPOs. This recorded one-hour CLE webcast focuses on reverse mergers and Reg A+ offerings as alternative paths to access the public capital markets. Viewers will gain valuable insight into the benefits of (and considerations for) these transaction structures, which can be attractive alternative transactions that lack some of the disadvantages of a traditional IPO.

Key topics include:

Overview of reverse merger transaction structures and legal frameworks
Identifying the most beneficial transaction for your company
Recent examples

MCLE CREDIT INFORMATION:

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.0 hour.

Gibson, Dunn & Crutcher LLP is authorized by the Solicitors Regulation Authority to provide in-house CPD training. This program is approved for CPD credit in the amount of 1.0 hour. Regulated by the Solicitors Regulation Authority (Number 324652).

Neither the Connecticut Judicial Branch nor the Commission on Minimum Continuing Legal Education approve or accredit CLE providers or activities. It is the opinion of this provider that this activity qualifies for up to 1 hour toward your annual CLE requirement in Connecticut, including 0 hour(s) of ethics/professionalism.

Application for approval is pending with the Colorado, Illinois, Texas, Virginia and Washington State Bars.

PANELISTS:

Branden C. Berns is a partner in the San Francisco office of Gibson Dunn where he practices in the firm’s Transactional Department. He represents leading life sciences companies and investors on a broad range of complex corporate transactions, including mergers and acquisitions, asset sales, spin-offs, joint ventures, PIPEs, as well as a variety of financing transactions, including initial public offerings, secondary equity offerings and venture and growth equity financings. Branden also serves as principal outside counsel for numerous publicly-traded life sciences companies and advises management and boards of directors on corporate law matters, SEC reporting and corporate governance.

Stewart L. McDowell is a partner in the San Francisco and New York offices of Gibson Dunn where she is Co-Chair of the firm’s Capital Markets Practice Group. Stewart represents companies, investors and underwriters in a variety of complex capital markets transactions, including IPOs, convertible and non-convertible debt and preferred equity offerings, PIPEs and liability management transactions. She also represents companies in connection with U.S. and cross-border M&A and strategic investments, SEC reporting, corporate governance and general corporate matters.

The treaty has now reached 60 ratifications, triggering its entry into force. Once it has entered into force, this treaty will impact activities in the high seas and seabeds beyond States’ continental shelves.

On 19 September 2025, the “Conservation and Sustainable Use of Marine Biological Diversity of Areas beyond National Jurisdiction Agreement” (the BBNJ Agreement), adopted by the UN General Assembly in June 2023, reached 60 ratifications. This triggers its entry into force on 17 January 2026. The BBNJ Agreement establishes a binding, international governance framework aimed at safeguarding marine ecosystems and addressing threats posed by climate change, pollution and biodiversity loss. The Agreement is an implementing agreement to the United Nations Convention on the Law of the Sea (UNCLOS), furthering States’ existing commitments thereunder.

Although the BBNJ Agreement does not directly apply to corporate actors, State Parties’ implementation of the treaty may—for example, where a company’s activities are subject to Environmental Impact Assessment (EIAs), and take place in ocean areas which are designated Marine Protected Areas (MPAs).

Objectives Of The BBNJ Agreement

The overarching objective of the BBNJ Agreement is to ensure the conservation and sustainable use of marine biological diversity of “areas beyond national jurisdiction” (ABNJ). This term includes ocean areas beyond countries’ 200-mile exclusive economic zones—referred to as the “high seas”—and the seabed beyond countries’ continental shelves.

The BBNJ Agreement is structured around four main topics: (i) marine genetic resources (MGRs), including the fair and equitable sharing of benefits; EIAs; (ii) geographically targeted measures such as area-based management tools (ABMTs), including MPAs; (iii) EIAs; and (iv) capacity-building and the transfer of marine technology.

Institutional Bodies And A Financial Mechanism

The BBNJ Agreement sets up institutional bodies, including a Conference of the Parties (the COP)—the regular meeting of all State Parties which also serves as the BBNJ Agreement’s principal decision-making organ—as well as various subsidiary bodies, a “Clearing-House Mechanism”, and a secretariat. The first COP is expected to be convened towards the end of 2026.

The BBNJ Agreement also establishes a financial mechanism to support its implementation, which will function under the authority of the COP. The financial mechanism will comprise (i) a “voluntary trust fund”, to facilitate the participation of representatives of developing States in meetings; and (ii) a “special fund” and “Global Environment Facility trust fund” to fund capacity-building projects, support conservation and undertake other activities decided by the COP, among other things.

Key Provisions Of The BBNJ Agreement

(i) MGRs and Benefit-Sharing

The BBNJ Agreement establishes a benefit-sharing mechanism to ensure fair access to MGRs of ABNJ, as well as digital sequence information (DSI). MGR means “any material of marine plant, animal, microbial or other origin containing functional units of heredity of actual or potential value”. While DSI is not defined in the BBNJ Agreement, it refers to digitalized information of an MGR.

The BBNJ Agreement sets out two categories of benefits: (i) monetary, meaning royalties from commercialization of a product, or other types of payments associated with utilization of MGRs and DSI of ABNJ; and (ii) non-monetary, such as data and information.

Monetary benefits must be shared fairly and equitably through the Treaty’s financial mechanism for the conservation and sustainable use of marine biological diversity of ABNJ. For non-monetary benefits, the BBNJ Agreement establishes a notification system related to MGRs, requiring Parties to take the necessary legislative, administrative and policy measures to ensure that information is submitted to the Clearing House Mechanism—including information prior to the collection in situ of MGRs from ABNJ, and information after the collection. Non-monetary benefits are also shared through the transfer of technology and capacity building provisions, discussed further below.

The precise modalities of these benefits will be decided by the COP.

(ii) ABMTs, including MPAs

The BBNJ Agreement creates a global mechanism for Parties to establish ABMTs—including large-scale MPAs on the high seas. This mechanism is designed to facilitate achieving the Kunming-Montreal Global Biodiversity Framework target of protecting 30% of the ocean by 2030 (see our previous reporting, here).

Under the BBNJ Agreement, Parties can individually or collectively propose an MPA by submitting a proposal to the secretariat. This triggers a consultation period, which is open to States—including States that are not signatories to the BBNJ Agreement—as well as global, regional, subregional and sectoral bodies, civil society, the scientific community, the private sector, Indigenous Peoples, and local communities.

Considering information from the stakeholder consultation (which will be made publicly available by the secretariat), the “Scientific and Technical Body”—an expert panel elected by the COP to provide multidisciplinary advice to support the COP’s decisions—reviews the proposal and sends a recommendation to the COP. If the COP decides to establish the MPA, it will then adopt a “Management Plan”, which will include specific measures for Parties to implement (for example, the prohibition of mining activities or large-scale commercial fishing). Any corporate actors operating in MPAs would then be required to perform activities in compliance with the MPA’s Management Plan.

(iii) EIAs

Under the BBNJ Agreement, there are two circumstances where a Party must conduct an EIA—where a planned activity is in ABNJ or within national jurisdiction, and where that activity may cause substantial pollution of, or significant and harmful changes to, the marine environment in ABNJ. The EIA must be conducted before the planned activity under a Party’s jurisdiction or control is authorized.

The BBNJ requires the following steps for the EIA process: (i) screening; (ii) scoping; (iii) impact assessment and evaluation; (iv) prevention, mitigation, and management of potential adverse effects; (v) public notification and consultation; and (vi) preparation and publication of an EIA report.

When an EIA determines that the activity may cause substantial pollution of, or significant and harmful changes to, the marine environment, a State Party conducting the EIA under its national processes must make relevant information available through the Clearing-House Mechanism—an open-access, centralized platform managed by the secretariat.

A State Party can decide to authorize the planned activity only after—taking into account mitigation or management measures—the Party has determined that it has made all reasonable efforts to ensure that the activity can be conducted in a manner consistent with the prevention of significant adverse impacts on the marine environment.

(iv) Capacity-Building and Transfer of Marine Technology

The BBNJ Agreement provides that Parties must, within their capabilities, ensure capacity-building for developing States Parties that need and request it for conservation and sustainable use related to the Agreement. Regarding the transfer of marine technology, State Parties are required to “cooperate to achieve” the transfer of marine technology. Such transfer, if it occurs, is to be done on fair and most favourable terms and on mutually agreed terms and conditions, and with due regard for all rights and legitimate interests of the technology holders.

Dispute Settlement Procedure

Part IX of the BBNJ Agreement provides a mechanism for the settlement of disputes between State Parties arising under the BBNJ Agreement and incorporates the compulsory dispute resolution procedures of Part XV of UNCLOS. Where a State Party to the BBNJ Agreement is not a party to UNCLOS, it has the option to choose, by means of a written declaration, settlement of disputes before the International Tribunal for the Law of Sea, the International Court of Justice, or an Annex VII arbitral tribunal (an ad hoc arbitral tribunal composed of five members established under UNCLOS). Where a dispute concerns a matter of a technical nature, the Parties to the dispute may refer the dispute to an ad hoc expert panel established by them.

Current Status Of Ratification And Implementation

States Parties are at different stages of the ratification process of the BBNJ Agreement. For example, the UK signed the BBNJ Agreement in September 2023 but remains in the process of ratifying the treaty. The Government introduced a “landmark bill” on 10 September 2025, which will provide the legal framework to enable the UK to meet its obligations under the BBNJ Agreement.[1] After the bill is passed in the UK, further secondary legislation will be required for ratification of the BBNJ Agreement.

Meanwhile, the European Union—which ratified the BBNJ Agreement in May 2025—is “already working on a fast implementation” and has launched a EUR 40 million commitment through its “Global Ocean Programme” to support developing nations in building readiness for the BBNJ Agreement’s requirements.[2] France ratified the BBNJ Agreement in February 2025,[3] while Germany is in the process of preparing domestic legislation to do so.[4]

The United States signed the BBNJ Agreement in September 2023 but has yet to ratify it.[5]

Observations

The BBNJ Agreement is a landmark international treaty, which creates a comprehensive legal framework for the conservation of ABNJ. As well as imposing new obligations on Parties to the Agreement, its implementation may also impact companies and private actors from a range of sectors, including in the following ways:

The BBNJ Agreement may affect the trajectory of deep-sea mining. While deep sea mining is not explicitly referenced, the BBNJ Agreement emphasizes the “precautionary principle” approach to human activities on the seabed, as well as in sea water, which may prompt more States to join calls for an outright ban, moratorium or precautionary pause on deep-sea mining (see our previous reporting, here). As we have noted in another previous alert (see here), the rules and regulations governing deep sea mining are yet to be issued by the International Seabed Authority (which operates under UNCLOS), though the BBNJ Agreement provides clarification of the type of EIAs that would need to be conducted.

Companies and private actors planning activities in the high seas such as deep-sea mining, offshore energy, shipping and fishing may be subject to strict EIA requirements under the BBNJ Agreement, including public disclosure, and, potentially, international review of the proposed activities.

Companies and private actors which utilize MGRs in their products—such as the biotechnology, pharmaceutical, cosmetics, and agriculture sectors—may face new requirements for disclosure, as well as benefit-sharing requirements.

The creation of new MPAs could limit the types of operations that may take place in certain ocean areas—or even exclude certain activities altogether.

States may also impose obligations on companies and private actors to transfer technology and assist in capacity-building—particularly companies and private actors with advanced marine technologies—in order to support developing countries’ participation in high seas activities.

In sum, companies and private actors operating in or sourcing from ABNJ should closely monitor the implementation of the BBNJ Agreement and regularly assess their compliance and risk exposure in an evolving regulatory landscape.

[1] See UK Government, Press Release, “UK introduces landmark legislation to protect world’s ocean”, 10 September 2025, available at: https://www.gov.uk/government/news/uk-introduces-landmark-legislation-to-protect-worlds-ocean.

[2] See European Commission, Press Release, “Global ocean conservation treaty enters into force”, 20 September 2025, available at https://ec.europa.eu/commission/presscorner/detail/da/ip_25_2151.

[3] See UN Permanent Mission of France, Ministry of Europe and Foreign Affairs Spokesman Statement, “France’s ratification of the UN agreement on marine biodiversity”, 5 February 2025, available at https://onu.delegfrance.org/france-s-ratification-of-the-un-agreement-on-marine-biodiversity.

[4] See Ecologic Institute, Article “Implementing Legislation for the BBNJ Agreement”, July 2024, available at: https://www.ecologic.eu/19770.

[5] See The US Congress, C. Keating-Bitonti, “The Biodiversity Beyond National Jurisdiction Agreement (High Seas Treaty)”, 19 December 2024, available at: https://www.congress.gov/crs-product/IF12283.

The following Gibson Dunn lawyers prepared this update: Charline Yim, Stephanie Collins, and Leo Métais.

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 any leader or member of the firm’s Geopolitical Strategy & International Law or ESG: Risk, Litigation & Reporting practice groups:

Robert Spano – Co-Chair, ESG and Geopolitical Strategy & International Law Groups,
London/Paris (+33 1 56 43 13 00, rspano@gibsondunn.com)

Rahim Moloo – Co-Chair, Geopolitical Strategy & International Law and International Arbitration Groups, New York (+1 212.351.2413, rmoloo@gibsondunn.com)

Patrick W. Pearsall – Co-Chair, Geopolitical Strategy & International Law Group,
Washington, D.C. (+1 202.955.8516, ppearsall@gibsondunn.com)

Lindsey D. Schmidt – New York (+1 212.351.5395, lschmidt@gibsondunn.com)

Charline O. Yim – New York (+1 212.351.2316, cyim@gibsondunn.com)

Ceyda Knoebel – London (+44 20 7071 4243, cknoebel@gibsondunn.com)

Stephanie Collins – London (+44 20 7071 4216, scollins@gibsondunn.com)

*Leo Métais, a trainee solicitor in the London office, is not admitted to practice law.

Our lawyers present a practical discussion of critical attorney-client privilege and work product considerations at every stage of internal and government investigations and internal audits. This recorded session addresses a variety of subjects including:

Establishing and preserving privilege from day one
Defending privilege during engagement with the government and other third parties
Privilege considerations in global investigations

MCLE CREDIT INFORMATION:

Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact CLE@gibsondunn.com to request the MCLE form.

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.0 hour in the General category.

California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.

PANELISTS:

Michael S. Diamant is a Washington, D.C.–based partner in Gibson Dunn’s White Collar Defense and Investigations group. He leads internal investigations, defends corporations and executives in criminal and regulatory matters (including FCPA work), and advises on compliance program design and privilege strategy in high-stakes environments.

M. Kendall Day is a Washington, D.C.–based partner in Gibson Dunn’s White Collar Defense and Investigations group. A nationally recognized white-collar practitioner, he focuses on internal investigations, regulatory enforcement defense, and complex compliance counseling. Prior to joining Gibson Dunn, Kendall had a distinguished 15-year career as a white collar prosecutor with the Department of Justice, rising to the highest career position in the Criminal Division as an Acting Deputy Assistant Attorney General.

Melissa Farrar is a Washington, D.C.–based partner in Gibson Dunn’s White Collar Defense and Investigations group. Her practice is concentrated in white-collar defense, internal investigations, and corporate compliance. She advises multinational clients on matters such as the FCPA, False Claims Act, anti-money laundering, export controls, and securities and accounting fraud, and also supports organizations in structuring privilege strategy and compliance program assessments.

George J. Hazel is a Washington, D.C.–based partner in Gibson Dunn’s White Collar Defense and Investigations and Litigation groups. A former federal prosecutor and U.S. District Judge, he brings extensive trial experience across criminal and civil matters, having presided over approximately 50 jury trials in federal court and handled 20 jury trials and 30 bench trials as an attorney in federal and state court.

Benno Schwarz is the partner in charge of Gibson Dunn’s Munich office and co-chairs the firm’s Anti-Corruption & FCPA practice. He brings over 30 years of experience in cross-border white-collar defense, internal and independent investigations, compliance program design, and defense of companies and executives before domestic and international authorities.

If implemented, the changes could materially increase penalties, reduce discounts for voluntary disclosure, and introduce new ways of resolving cases involving breaches, such as settlement options.

The UK Office of Financial Sanctions Implementation (OFSI)—the UK government entity in charge of financial sanctions implementation and enforcement—is considering substantial reforms to its enforcement practices for financial sanctions breaches. If implemented, these changes could materially increase penalties, reduce discounts for voluntary disclosure, and introduce new ways of resolving cases involving breaches, such as settlement options. These proposed changes would move OFSI even closer to the enforcement model used by its U.S. analog—the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC)—with which it has had an increasingly comprehensive partnership since 2022. OFSI—which celebrates its 10th anniversary in 2026—is also drawing inspiration from other more-established UK regulators, such as the Financial Conduct Authority (FCA), with which it is collaborating extensively. OFSI is evolving, and with it are the UK sanctions risks faced by banks and companies within UK enforcement jurisdiction.

Background: OFSI’s Expanding Enforcement Activity

Much like sanctions enforcers throughout the G7, the inflection point for OFSI’s development as a consequential enforcer can be traced to Russia’s invasion of Ukraine in 2022. Since then, OFSI has more than doubled its staff—with a particular focus on licensing and enforcement—to 135 current employees and created a dedicated Compliance Enforcement team in 2024-2025 to better identify and enforce against breaches of license terms. During the 2023-2024 financial year, OFSI opened a record 396 investigations, more than double the previous year’s figure. This trend continued into 2024-2025, during which OFSI opened 394 investigations. This increased activity has brought growing recognition that OFSI’s enforcement procedures, largely unchanged since OFSI’s establishment in 2016, need updating to handle the volume and complexity of current sanctions cases.

The UK enforcement landscape fundamentally shifted in June 2022 when the UK moved to enforce financial sanctions breaches on a strict liability basis, i.e. using the same standard that OFAC uses. This means that OFSI no longer needs to demonstrate that a person knew or suspected they were breaching sanctions to impose a penalty. While OFSI may choose not to pursue such cases, even a de minimis misstep can be a violation. Similarly (and also in line with OFAC practice), OFSI now has the power to publicize breaches even when it chooses not to impose a monetary penalty. These changes, combined with the unprecedented expansion of the UK sanctions list, which now includes over 4,700 designated persons and entities, the increase in scope and sophistication of the UK’s sanctions programs, and the increasingly extraterritorial reach of UK sanctions, leads to a material increase in compliance challenges and enforcement risk for those subject to UK jurisdiction.

OFSI has already demonstrated its willingness to use this expanded toolkit. For the first time in August 2023, OFSI publicized details of sanctions breaches without imposing a monetary penalty. It used this power again in March 2025, indicating that this will likely be common practice for OFSI in cases of non-serious breaches. In August 2024, OFSI issued its first penalty related to the 2022 Russia sanctions, and has indicated that several more Russia-related enforcement actions are in its pipeline. In April 2025, OFSI issued a penalty to a company solely for the failure to respond to an information request, and in September 2025 it reduced voluntary disclosure credit from 50% to 35%, having deemed that a four month delay between detection of breaches and initial notification to OFSI mitigated the positive effects of cooperation.

Proposed Changes to OFSI’s Enforcement Approach

Material changes to OFSI’s enforcement practices are under consideration. As part of the review, OFSI published a consultation paper, on which it invited comment, setting out five main areas of reform. This process of consultation is also similar to how OFAC proceeded when it proposed its current enforcement guidelines.

I. Increased Statutory Maximum Penalties

OFSI has proposed raising the maximum penalties that it can impose. The current statutory maximum is the greater of £1 million or 50% of the breach value. OFSI proposes increasing this to the greater of £2 million or 100% of the breach value.

It is important to note that these changes would not automatically result in higher penalties across the board. OFSI would still assess what penalty is reasonable and proportionate within the new maximum. Indeed, eight of OFSI’s twelve penalties to date have only been 5% or less of the maximum available. However, the higher ceiling would give OFSI more scope to impose substantial penalties in the most serious cases.

OFSI is also seeking feedback on alternative approaches to calculating maximum penalties, such as basing them on a percentage of company turnover or setting a maximum penalty per breach rather than per case. The idea of basing breaches on percentages of turnover resembles the practices of the UK’s Competition and Markets Authority. The European Union has recently also recently adopted this idea, and issued EU-wide legislation requiring Member States to set maximum corporate fines of at least 1–5% of worldwide turnover, or €8–€40 million, depending on the violation’s gravity.

II. Clearer Assessment Framework and Adjusted Discounts

OFSI has proposed publishing a more transparent matrix showing how it combines severity and conduct factors to reach an overall case assessment. This also mirrors the OFAC model which is based on a matrix. The proposed OFSI matrix would guide businesses on likely outcomes: less severe cases would typically receive warning letters, moderately severe cases would be publicly disclosed without penalties, while serious cases would face monetary penalties.

Importantly, OFSI has proposed to increase not only the maximum potential penalty, but also the baseline penalty ranges for serious cases. Currently, serious cases attract baseline penalties of 0-50% of the statutory maximum, while most serious cases range from 50-100%. Under the proposals, serious cases would attract up to 75% of the maximum, and most serious cases would range from 75-100%.

OFSI has also proposed altering how it rewards voluntary disclosure. The current system offers up to 50% discount for serious cases and up to 30% for most serious cases. The proposal would cap the disclosure benefit at 30% for both categories, and would make the discount conditional on more stringent requirements: in order to benefit a respondent would have to demonstrate prompt reporting, the provision of a complete account of the facts, and fully cooperate with OFSI throughout the investigation. Where OFSI considers that the requirements are only partially met, a discount of lower than 30% could still be applied. These changes reflect OFSI’s view that the current 50% discount for a voluntary self-disclosure can sometimes undermine the penalty’s deterrent effect.

III. Streamlined Resolution Through Settlement

Drawing inspiration from the FCA’s approach (and OFAC’s process), OFSI has proposed introducing a formal settlement scheme. Under this model, once OFSI completes its investigation and determines a penalty is warranted, it could offer companies an opportunity to settle the case within 30 business days.

The proposed settlement process would proceed as follows: OFSI would provide a draft penalty notice to a party found to have violated sanctions and would allow without-prejudice discussions about the terms. If OFSI and the party reach agreement within the timeframe, the party under investigation would receive a 20% discount on top of any voluntary disclosure discount already applied. In exchange, the company would accept OFSI’s findings and waive their rights to ministerial review and tribunal appeal.

OFSI has indicated it would not offer settlement in cases involving knowing or intentional breaches, suspected circumvention, or where the company has failed to cooperate in good faith. During settlement discussions, companies may be able to negotiate the wording of the public penalty notice, potentially avoiding explicit admissions of liability (though OFSI has mentioned that such an approach could reduce the significance and deterrent effect of its enforcement notices). This process allowing for the negotiation of language in public notices is also parallel to the OFAC approach.

IV. Early Account Scheme for Expedited Investigations

While the suite of proposed changes could prove seismic, OFSI’s most innovative proposal is the Early Account Scheme (EAS), which would allow investigation subjects to effectively investigate themselves and provide OFSI with a comprehensive factual account. A similar scheme was introduced by the Prudential Regulation Authority, part of the Bank of England, in 2024. This option would be particularly attractive for well-resourced organizations with strong compliance functions.

Under the EAS, a company would conduct an internal investigation (or engage a third party to do so) and provide OFSI with a detailed report covering all suspected breaches, relevant materials, and an assessment against OFSI’s case factors. A senior officer would need to attest that the account is complete and fair. OFSI anticipates this process would typically take six months. The EAS will not be available in all cases. For instance, OFSI may not deem that it is appropriate when cases involve circumvention breaches, particularly serious breaches, or when the company has previously been investigated or penalized. Similarly, OFSI considers it would be very unlikely to permit access to the EAS to a company that had failed to report suspected breaches.

The incentive for using the EAS is significant: if the case proceeds to a penalty and settles, the settlement discount would increase from 20% to 40%. However, OFSI would retain discretion to reduce this discount if it determines the account was incomplete or required substantial additional investigation.

OFSI has made clear it would be highly unlikely to introduce the EAS without also introducing the settlement scheme, as the two mechanisms are designed to work together.

V. Streamlined Process for Information and Licensing Breaches

Recognizing that not all breaches are equal, OFSI has proposed a simplified process for certain categories of less serious offences. These more minor breaches would include failures to respond to information requests, non-compliance with license conditions, and late reporting.

Under this proposal, OFSI would publish indicative penalty amounts: £5,000 for standard failures and £10,000 for aggravated failures (such as repeated non-compliance or recklessly providing false information). These cases would follow a shortened timeline, with just 15 business days for representations at each stage rather than the standard 30 days.

OFSI is also considering whether these penalties should be set out in legislation as fixed penalties, which would provide greater legal certainty but reduce OFSI’s flexibility to adjust amounts based on circumstances.

What Happens Next: The Consultation Process

The consultation on OFSI’s paper closed on October 13, 2025. OFSI will now analyze all input received and publish a government response setting out its next steps. Some proposed changes could be implemented relatively quickly through updated OFSI guidance. However, changes to statutory maximum penalties would require secondary legislation (regulations), while changes to the percentage of breach value in the penalty calculation would require primary legislation (an Act of Parliament).

Practical Implications for Businesses

These proposed changes reflect OFSI’s evolution into a more sophisticated and robust enforcement regulator. In order prepare for the likely changes, businesses could consider several actions:

Review compliance programs. With higher baseline penalties and more stringent disclosure requirements proposed, the cost of compliance failures is likely to increase. This is an opportune moment to conduct gap analyses of sanctions screening, due diligence, and reporting processes. Businesses can also ensure that existing policies specifically cater for UK sanctions risks, as opposed to just U.S. or EU sanctions risks. While the degree of overlap between U.S., EU and UK sanctions remains significant, material differences exist.

Understand voluntary disclosure requirements. If the proposals are adopted, achieving the full voluntary disclosure discount will require not just prompt reporting but complete cooperation throughout an investigation. Businesses should ensure they have processes in place to identify potential breaches quickly and gather relevant information efficiently.

Consider settlement and EAS implications. Well-resourced organizations may find the EAS attractive, but it requires the ability to conduct thorough, independent, internal investigations. Smaller businesses may prefer the standard settlement route. Businesses should understand these options and how they might apply to potential cases.

Prepare for increased enforcement. With 240 active investigations as of April 2025 and a significantly expanded enforcement team, OFSI has made clear that more public enforcement actions are coming. The combination of expanded resources, enhanced tools, and streamlined processes means businesses should expect heightened scrutiny.

The following Gibson Dunn lawyers prepared this update: Irene Polieri, Adam M. Smith, Scott Toussaint, and Josephine Kroneberger*.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding UK enforcement practices and advising on engagement with UK regulators. For additional information about how we may assist you, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or the following leaders and members of the firm’s International Trade Advisory & Enforcement practice groups:

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Adam M. Smith – Co-Chair, Washington, D.C. (+1 202.887.3547, asmith@gibsondunn.com)
Ronald Kirk – Co-Chair, Dallas (+1 214.698.3295, rkirk@gibsondunn.com)
Stephenie Gosnell Handler – Washington, D.C. (+1 202.955.8510, shandler@gibsondunn.com)
Donald Harrison – Washington, D.C. (+1 202.955.8560, dharrison@gibsondunn.com)
Christopher T. Timura – Washington, D.C. (+1 202.887.3690, ctimura@gibsondunn.com)
Matthew S. Axelrod – Washington, D.C. (+1 202.955.8517, maxelrod@gibsondunn.com)
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Erika Suh Holmberg – Washington, D.C. (+1 202.777.9539, eholmberg@gibsondunn.com)
Audi K. Syarief – Washington, D.C. (+1 202.955.8266, asyarief@gibsondunn.com)
Scott R. Toussaint – Washington, D.C. (+1 202.887.3588, stoussaint@gibsondunn.com)
Lindsay Bernsen Wardlaw – Washington, D.C. (+1 202.777.9475, lwardlaw@gibsondunn.com)
Shuo (Josh) Zhang – Washington, D.C. (+1 202.955.8270, szhang@gibsondunn.com)

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Kelly Austin – Denver/Hong Kong (+1 303.298.5980, kaustin@gibsondunn.com)
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Qi Yue – Beijing (+86 10 6502 8534, qyue@gibsondunn.com)
Dharak Bhavsar – Hong Kong (+852 2214 3755, dbhavsar@gibsondunn.com)
Hui Fang – Hong Kong (+852 2214 3805, hfang@gibsondunn.com)
Arnold Pun – Hong Kong (+852 2214 3838, apun@gibsondunn.com)

Europe:
Attila Borsos – Brussels (+32 2 554 72 10, aborsos@gibsondunn.com)
Patrick Doris – London (+44 207 071 4276, pdoris@gibsondunn.com)
Michelle M. Kirschner – London (+44 20 7071 4212, mkirschner@gibsondunn.com)
Penny Madden KC – London (+44 20 7071 4226, pmadden@gibsondunn.com)
Irene Polieri – London (+44 20 7071 4199, ipolieri@gibsondunn.com)
Benno Schwarz – Munich (+49 89 189 33 110, bschwarz@gibsondunn.com)
Nikita Malevanny – Munich (+49 89 189 33 224, nmalevanny@gibsondunn.com)
Melina Kronester – Munich (+49 89 189 33 225, mkronester@gibsondunn.com)
Vanessa Ludwig – Frankfurt (+49 69 247 411 531, vludwig@gibsondunn.com)

*Josephine Kroneberger, a trainee solicitor in the London office, is not admitted to practice law.