Banks should prepare to address increased federal scrutiny around decisions to terminate relationships with cryptocurrency and conservative-leaning clients.
On Aug. 7, 2025, President Donald Trump signed an executive order aimed at preventing debanking. Specifically, the order limits "politicized or unlawful debanking," meaning it aims to prevent customers from being denied access to financial services because of their protected beliefs, business affiliations or political views. It requires that banking decisions be made based on "individualized, objective and risk-based analyses."
The order identifies four specific ways that the federal government will limit politicized or unlawful debanking:
- Federal banking regulators must conduct a review to identify financial institutions that have engaged in or are currently engaging in debanking and punish unlawful acts.
- Federal banking regulators must amend existing regulations and guidance to eliminate consideration of a potential customer's reputational risk.
- The Small Business Administration must require financial institutions that make SBA-guaranteed loans to reinstate any customers subjected to "politicized or unlawful debanking."
- The Treasury Department must develop a comprehensive strategy to stop politicized or unlawful debanking.
What Is the Legal Basis for the Order?
The order's legal foundation is tenuous, relying on
several laws, none of which specifically address discrimination on
the basis of political views or business activities. Still, banks
that seek to end or have previously ended relationships with
clients in the cryptocurrency industry or clients with
conservative-leaning beliefs will need to be vigilant. That remains
true even if the relationship was terminated for apolitical
reasons, such as Bank Secrecy Act or anti-money laundering
(BSA/AML) concerns.
How Should Banks Prepare for Regulatory Scrutiny?
Despite the order's questionable legal authority,
banks should be prepared to interface with their federal regulators
regarding perceived debanking actions that may have occurred in the
past and should develop strategies to assure regulators that
unlawful or politicized debanking will not occur in the future:
- Take a close look at your past relationships with crypto clients. During the Biden administration, most of the banking industry retreated from crypto due to perceived risks common to the industry and increasing federal regulatory pressure. The Trump administration, however, has made developing the cryptocurrency industry a priority. Banks should prepare for potential regulatory scrutiny about alleged debanking of crypto clients and consider how policies and procedures could be revised to address potential concern by regulators that risk assessments for digital asset clients are conducted on an individualized basis.
- Review your banking relationships with clients connected to conservative or religious causes. Federal regulators have been instructed to investigate potential past debanking actions that may have been motivated by religious or political discrimination. Banks that ended client relationships with conservative-leaning clients should be proactive in preparing to respond to inquiries from federal banking regulators — even if the bank's decision to end the account had nothing to do with the client's political leanings.
- Make sure current customer due diligence policies and procedures rely on individualized risks and not on generalizations. Federal regulators have been instructed to investigate ongoing bank activities to make sure banks are not engaging in politicized or unlawful debanking. Banks should be prepared to demonstrate a fair and unbiased customer onboarding process. The order does not create an absolute right for all customers to bank at any institution they desire, and banks should develop clear policies governing what may lead to a rejection or exiting of a customer.
- Be careful about utilizing reputational risk when evaluating potential customers. The order instructs federal regulators to remove references to reputational risk from supervisory guidance and other regulations. Although certain regulators, such as the Federal Reserve, have indicated that banks are free to continue to consider reputational risk in their own risk management practices, the use of reputational factors may raise regulatory scrutiny, especially if the use of reputational risk appears to be based in generalizations about particular industries or political groups.
- Keep a paper trail demonstrating ongoing compliance with the order. Given the supervisory scrutiny of banks' documentation of BSA/AML reviews, compliance teams may need to demonstrate that the bank's records clearly state the reasons justifying an account exit. Similarly, banks will need to carefully assess how they document decisions to exit customers going forward.
Originally published by Bank Director.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
