Senator Tim Scott Proposes Legislation to Prevent Bank Regulations Tied to Reputational Risk

Senator Tim Scott, the leading Republican on the Senate Banking Committee, has introduced a bill aimed at preventing regulators from using reputational risk as a factor in overseeing banks.

The Financial Integrity and Regulation Management Act intends to address concerns that financial institutions are avoiding certain clients due to political pressure or public perception.

Tim Scott’s Banking Bill Seeks to Eliminate Regulatory ‘Reputational Risk’ Policies

The Wall Street Journal was the first to report on the bill’s introduction on Thursday morning.

Scott’s initiative, presented with the backing of 11 other Republican senators, is a response to growing worries about “debanking,” a term that refers to financial institutions severing ties with businesses or individuals based on perceived threats to their reputation.

Crypto companies have expressed their concerns, contending that federal regulators have used this rationale to restrict their access to banking services.

Former President Donald Trump also recently commented, criticizing Bank of America and JPMorgan Chase for allegedly closing accounts associated with conservative individuals.

The proposed legislation would remove all mentions of reputational risk from regulatory oversight, preventing entities from using it as a basis for supervising or penalizing banks.

NEW: Today, @SenatorTimScott is leading his colleagues in introducing the FIRM Act, legislation to limit the weaponization of federal banking agencies.
This bill is the first step in putting an end to debanking once and for all. https://t.co/bGJTo1KhMl

— U.S. Senate Banking Committee GOP (@BankingGOP) March 6, 2025

The Federal Reserve currently defines reputational risk as the potential for negative publicity, whether accurate or not, to affect a bank’s customer base, revenue, or legal standing.

Scott contended that regulators have misused this concept to advance a political agenda against certain legally operating businesses.

“It’s evident that federal regulators have misappropriated reputational risk to pursue a political agenda against federally authorized companies,” Scott stated in a press release.

“This legislation is the first step in putting an end to debanking once and for all.”

Eleven Republican senators have endorsed the bill, including Mike Crapo, Cynthia Lummis, Katie Britt, and Bernie Moreno.

Additionally, industry groups such as the American Bankers Association, the Blockchain Association, and the Bank Policy Institute have supported the initiative.

Crypto firms have welcomed this effort, as they have consistently pointed to regulatory hostility as an obstacle to maintaining banking relationships in the U.S.

Scott’s bill follows another proposal co-sponsored by Senator Kevin Cramer of North Dakota, which would require banks to engage with all legally compliant and creditworthy clients.

While that proposal has encountered opposition, Scott’s legislation may have a more straightforward path forward, as it focuses on eliminating reputational risk rather than mandating specific banking practices.

U.S. Senate Banking Committee Prepares for Crucial Crypto Hearing

With a new leadership change, the U.S. Senate Banking Committee is set to conduct an important hearing on crypto regulations.

Senator Tim Scott, now at the helm of the committee, has expressed strong support for digital assets, raising expectations for more favorable discussions.

Industry representatives from Kraken and Lightspark will join legal experts to provide insights on regulatory frameworks that could promote innovation while ensuring market stability.

NEW: @BankingGOP Committee’s Digital Assets Subcommittee, chaired by @SenLummis, is holding a hearing Wednesday entitled “Exploring Bipartisan Legislative Frameworks for Digital Assets.”
Witnesses include:
Jonathan Jachym, Global Head of Policy & Government Relations at… pic.twitter.com/xUj429eO01

— Eleanor Terrett (@EleanorTerrett) February 21, 2025

The hybrid-format hearing will feature testimony from key individuals, including Lewis Cohen of Cahill Gordon & Reindel LLP, Jonathan Jachym from Kraken, and Jai Massari of Lightspark.

Topics of discussion will include market structure, stablecoin regulations, and the potential for a strategic Bitcoin reserve. Lawmakers aim to balance oversight and innovation, positioning the U.S. as a global leader in digital finance.

This hearing comes amid increasing regulatory scrutiny and ongoing calls for clearer compliance measures. The outcome could influence the future of U.S. crypto policy and affect global market dynamics.

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