Compliance Cage Match: Electronic Payments v Project 2025

In this episode of Wrestling Payments, host Joseph Casali unpacks Project 2025 and its potential impact on banking regulations, community banks, and credit unions. The discussion focuses on regulatory shifts, compliance adjustments, and how financial institutions should prepare for possible changes in payment systems, digital assets, and risk management. While details remain uncertain, the conversation highlights key areas that could see significant updates, including FFIEC guidance and financial technology regulations.

Joe explores how Project 2025’s goal of reducing federal regulations may conflict with new policies surrounding cybersecurity, anti-money laundering (AML), and Know Your Customer (KYC) rules. He also examines the evolving role of digital currencies and stablecoins in financial transactions. Financial institutions must assess their technology infrastructure and compliance strategies to stay ahead of potential regulatory updates.

With sweeping changes on the horizon, banks and credit unions need to stay informed and proactive. Joe emphasizes the importance of monitoring regulatory developments, investing in updated compliance frameworks, and adapting risk management practices to ensure stability in a shifting landscape.

KEY INSIGHTS

Project 2025 Could Reshape Financial Regulations

Joe Casali outlines how Project 2025 could introduce sweeping regulatory changes affecting banks and credit unions. While the specifics remain unclear, the initiative seeks to streamline compliance, reduce bureaucratic oversight, and potentially open opportunities for financial institutions. However, there are concerns about how these changes might align—or conflict—with existing frameworks like FFIEC guidance, AML, and KYC regulations. Casali notes that while easing compliance burdens may benefit smaller institutions, it could also introduce new challenges, particularly for risk management and cybersecurity. Financial institutions should prepare by evaluating their compliance structures and staying informed on legislative developments to navigate these evolving regulations effectively.

The Evolving Role of Payment System Regulations

Joe discusses potential updates to payment system regulations, including the need for clearer guidance on digital assets and emerging payment technologies. He highlights how institutions may need to reassess their risk management strategies and technology investments in response to changes in regulatory expectations. Faster payments and real-time settlement solutions, including stablecoins and digital transactions, could become more mainstream, but this also introduces new risks related to fraud prevention and security. Joe advises banks and credit unions to evaluate their current payment infrastructures, ensuring they have the necessary safeguards in place to comply with potential updates. Institutions should also anticipate revisions to FFIEC guidance on retail payments, which could affect operational policies and compliance standards.

Community Banks and Credit Unions Face Unique Challenges

Community banks and credit unions may experience both relief and added pressure from Project 2025. On one hand, reduced compliance requirements could free up resources for innovation and customer service. On the other, adapting to new regulatory frameworks—particularly those governing digital assets, cybersecurity, and fintech partnerships—may require substantial investments in technology and compliance. Joe warns that smaller institutions should not assume deregulation means less oversight; instead, they must proactively assess their risk exposure and prepare for potential shifts in compliance expectations. He encourages these orga

Transcript

NEACH - Wrestling Payments
Compliance Cage Match: Electronic Payments v Project 2025
Season 3, Episode 3 

payments & Project 2025 

[00:00:00] the AI has identified places in those, those guidance's, those booklets that may require changes. So, uh, you can imagine that includes lots of parts of the institution. It's not just the payment operations.

It could be compliance. It could be audit. So be aware, you know, it's like a ripple effect. If, if a regulation change, it'll ripple through the institution, what impact you're going to have.

Welcome to Wrestling Payment. I have a special episode for you today. It is an episode on Project 2025 [00:01:00] and how it may affect the Banking and credit union industry, financial industry and payments to where we focus our, our times and our efforts wrestling with payments. I am honestly a little partial in my politics.

So what I did is I had AI write this script for us taking part of project 2025. and regulatory guidance and providing a little bit of analysis, a little bit of potential possibilities, what could happen, what to, what credit unions and banks should be looking for. That's what this is. So let's see how this episode goes.

Uh, there is an overtime in this episode, uh, a section on additional thoughts around administrative policies. And what the financial industry could be thinking about. So, let's get [00:02:00] going. 

So, this broke it into seven sections. The seven sections was an introduction, an overview of Project 2025, potential changes in the payment system regulation. Identified by the AI, possible modifications to banking regulations, impact on community banks and credit unions, FFIEC guidance implications, and then a conclusion. 

Look, I, uh, I, uh , given I, uh, I fed it, I fed it the description of this podcast as well, so given that it's in there, I'm gonna, I'm gonna read it. Welcome to Wrestling Payments Podcast. I'm your host and today we're diving into the potential regulatory changes in payments and banking that could result from Project 2025.

We'll focus on how these changes might affect community banks and credit unions without debating the merits of the plan itself. Let's get started. It's a pretty good, pretty good entry, introduction. So, uh, Project 2025, if you haven't heard about it, is a comprehensive plan that could [00:03:00] significantly reshape the regulatory landscape for financial institutions.

As community banks and credit unions, it's crucial to understand and prepare for these potential changes, and they are potential changes, uh, nothing, uh, I don't think we've seen any concrete, uh, regulatory change or things like that yet, so it's really just let's. Let's consider this could happen. So, Project 2025 aims to reduce federal regulation across all agencies.

While we don't have specific details, we can anticipate that some areas of focus based on the current regulatory trends and industry discussion. So, let's talk about those. One of the significant areas we can look at is payment system regulations. That's why we're here. There, this might include streamlining regulation for emerging payment technologies.

Updating rules for faster payments and real time settlement. Potential new frameworks for cryptocurrency and digital assets. For community banks and credit [00:04:00] unions, these changes could open up new opportunities in payment space. However, they may also require significant investment in technology and compliance systems.

The FFIC guidance, uh, Retail Payment System booklet would likely need substantial updates to reflect these changes. Financial institutions should prepare to reassess their payment system risk management practices. That may involve a risk assessment, a new risk assessment based on any changes. So be aware of that and, and with that comes a lot of other downstream changes after you complete a risk assessment.

Next section. Possible modifications to payment regulations. Uh, Project 2025 could also lead to modifications in broader banking regulations such as simplifying compliance requirements for smaller institutions. Right, there are limits on what laws apply. To whom, what size [00:05:00] institution, that, that pool may get bigger, right, the limits may be raised.

Um, updating capital requirements and test, uh, stress testing procedures. Revising anti money laundering and Know Your Customer regulations. These changes could potentially reduce regulatory burden by, for community banks and credit unions. However, institutions would need to carefully manage their transition, uh, to any new regulatory framework.

And, and again, just during this episode, I am doing a lot of reading. I do not, I do not want to sprinkle in opinion, so I'm, I'm trying to stick to the script. The FFIC management and audit, specifically booklets, may require revision, revision, revisions, revisions to align these potential changes.

Institutions could prepare to adapt their risk management and audit processes accordingly. Joe's voice. So the, the AI has identified places in those, those guidances, those [00:06:00] booklets that may require changes. So, uh, you can imagine that includes lots of parts of the institution. It's not just the payment operations.

It could be compliance. It could be audit. So be aware, you know, it's like a ripple effect. If, if a regulation change, it'll ripple through the institution, what impact you're going to have. Speaking of impacts segue impacts on community banks and credit unions for community banks and credit unions. For community banks and credit unions, these potential changes could have several implications.

Reduce compliance costs, allowing more, uh, resources to be directed toward customer service and innovation, developing new products. Opportunities to offer new products and services, particularly in the digital payment space. Potential challenges in adapting to new regulatory framework and technology, so, uh, you can't imagine that, uh, uh.

Assessing the status and the state of your, uh, technology, framework, landscape, [00:07:00] what you're using, uh, may require updates and changes to accommodate, uh, maybe a new rule on AML, maybe a new, uh, rule on Know Your Customer. It's important for smaller institutions to start planning now for these potential changes.

It might include assessing current technology capabilities, reviewing compliance processes, and considering potential new product offerings. Now when it talks to, talks about So, the FFIC guidance implication, potential regulatory change could have significant implications on FFIC guidance. Some of the key areas include the information security booklet may need updating to address new technologies and potential changes in data privacy regulation.

The business continuity management booklet might require revisions to incorporate evolving cyber security requirements. And these are all booklets on the FFIEC, uh, website, FFIEC. gov leads you to the IT booklets. [00:08:00] All of these booklets are out there. The Outsourcing Technology Services booklet could need significant updates to address FinTech partnerships and due diligence processes.

Community banks and credit unions should stay informed about any updates to the FFIC guidances and be prepared to adjust these policies and procedures accordingly. I'm about to go on to a conclusion, but one of the things that, that's going to be interesting, trying, again, no judgments, this, this administration seems to be moving at breakneck speed.

If you've been around in banking for any time, you know, regulatory changes, booklet changes, do not move at breakneck speed. So I'm wondering what the, what the intersection of those may be. Uh, could it be that the, the administration says, nope, we're not taking, you know, We're not taking three years to change a booklet.

We're changing a booklet. We're changing it in the shortest time [00:09:00] possible. We're rolling it out. Everyone needs to comply. So be aware this may not be the same old pace of regulatory change. So, in conclusion, while the specifics of Project 2025 are still uncertain, it's clear that significant regulatory change could be on the horizon for payments in the banking industry.

Community banks and credit unions should start preparing now by, one, staying informed about the potential regulatory changes. Two, assessing their current technology and compliance capabilities. Three, considering potential new product offerings and partnerships. And four, reviewing and updating risk management practices.

By being proactive, smaller institutions can position themselves to thrive in a potentially new regulatory environment. That's all for today's episode. Remember, there's an overtime, so don't go away yet. Uh, but I'm going through the script. That's all for today's episode of Wrestling Payments Podcast.

Thank you for listening, [00:10:00] and stay tuned for more insights into the ever evolving world of payments and the banking regulation. Yeah, I did pretty good, I think. Overtime. So, I didn't think that was enough for a full episode, and it really isn't. We're at nine minutes, so let's see what we have in the overtime.

It's still going to be a pretty short episode. Episode, but I did add in overtime. Uh, so, uh, again, if you've worked with AI in prompting, AI prompting is the idea that you ask it the best question. And I, I did feed it Project 20 20 25 FFIC guidance, the description of the podcast, so it knew my viewpoint on how we were coming at the content.

And I said, okay. Um. I added in a couple, I added in some more guidances and some more sections of Project 2025. I originally started with just two chapters. There was a regulatory chapter, there was a finance chapter. I added some more, um, more chapters in. Still just the banking chapters. [00:11:00] Well, the finance chapters so based on the additional content provided in our previous discussion because we were having it.

This was version five of the script. I can offer an analysis of how project 2025. Oh, I added in the President's Executive Orders. Sorry. So based on the additional content provided and in our previous discussion, I can offer analysis of how Project 2025, FFIC Guidance, the President's Executive Order on Digital Finance Technology, and proposed bills from Congress that might affect banking, banking credit unions.

I added the, um, I added the Digital Asset Regulation, the proposed stable. Um, Act, which actually hasn't been really worked on yet. It's just kind of been proposed and, and offered up. So the committees will go work on it, add amendments, change it, update it. But I did add it to this, this, what the AI knew. So let's see what it said, cause I, I don't know if I've actually [00:12:00] read this.

So, uh, one, the regulatory landscape. Project 2025 aims to reduce federal regulation, which could potentially ease compliance burdens for smaller financial institutions. However, this conflicts with some aspects of the executive order and congressional bills that may induce new, introduce new regulation, particularly around digital assets and cybersecurity.

Banks and credit unions will need to navigate a potentially complex and changing regulatory environment. This is a big one. Two, digital assets and cryptocurrencies. The executive order emphasizes the importance of responsible innovation in digital assets. Project 2025 suggests clarifying the treatment of digital assets, potentially reducing regulatory uncertainty.

Sorry, I will, I will jump in here. I did listen to that. Um, That hearing on, uh, stablecoin, it was, it was positioned as [00:13:00] a, I'm going to try not to be, be, uh, me. It was positioned as how is the administration and, and the regulators prohibiting innovation in, in banking. And the idea that it was really hard.

around banking, digital assets, and specifically stable coins. And a stable coin, if you're unaware, a stable coin is meant to sort of track the, the dollar, the value of a dollar, but in a digital form. It's not intended to be an investment. It is intended to, to be a digital dollar. Not a, not a central bank digital currency.

A digital dollar that you could. Uh, for instance, easily, uh, buy something internationally and rather than going through all the effects and interchange and, and that sort of thing. Both parties having access to this stablecoin would make that process easier. Uh, Ripple, Ripple sort of does [00:14:00] something like this.

It's not, not necessarily a stablecoin, but it, they do something like this with international payments. The, the Ripple, uh, so if you want to look at, look them up, uh, might some, be some indications of where they're going. There's not specifically, here's what they're doing. I'll stop talking out of my, my brain and go back to the script.

Project 2025 suggests clarifying the treatment of digital assets, potentially reducing regulatory uncertainty. FFIEC guidance currently lacks comprehensive coverage of cryptocurrencies, indicating a need for significant updates. So you can imagine, sorry, me again. You can imagine the regulators need a blueprint to, to examine.

Whatever they're examining. Uh, so, given that there's no guidance in the retail payments for, for cryptocurrencies, they would need to develop that. Again, whatever that minimum time to a update to a book, uh, would, would be needed. banks and credit unions may have new [00:15:00] opportunities to engage in digital assets, but will need to invest in new technology and risk management practices.

I think we've sensed a theme through this whole thing. new technology and risk management practices. Three, payment systems. Project 2025 and the Executive Order both emphasize modernizing the payment system. This could lead to updates in the FFIC Retail Payments Guidance System and the Wholesale Payment Systems booklets.

Banks and credit unions may need to invest in new payment technologies. Oh, look, banks, banks and credit unions may need to invest in new payment technologies and update their risk management practices. There is definitely a theme in this, uh, in this, this AI, um, script. Cyber security. So cyber security and data privacy executive order in the congressional bills emphasize strengthening cyber security in the financial sector.

This may lead to more stringent requirements potentially conflicting with the project 2025 goal of reducing regulations. That is written. I didn't say that. [00:16:00] The FFIC guidance, the information security and the business continuity booklets will likely need updates. Banks and credit unions may need to increase investments in cyber security and data protection.

New, new investments. This is a good one, right? So FinTech partnerships. Project 2025 and the executive order both aim to promote innovation, which could encourage more FinTech partnerships. FFIC outsourcing technology services booklet would likely need significant revisions to address these partnerships.

Banks and credit unions may have new opportunities for innovation, but will also face new risk to manage. Six, compliance and risk management. While Project 2025 aims to simplify compliance, new technologies and partnerships may introduce new risks. The FFIC management and audit booklets may need revisions to reflect changes in the risk management requirements.

Banks and credit unions will need to balance potential regulatory [00:17:00] relief with the need to manage new risks effectively. So me again, needless to say. We're all going to be busy for the next four years. Lots of changes, lots of things coming along, probably lots of things that need to be done now.

Community reinvestment and financial inclusion. The executive order emphasizes financial inclusion, which may lead to new requirements or opportunities for community banks and credit unions. This could affect how technology is used to evaluate and serve in communities under the Community Reinvestment Act.

In conclusion, Band gains are likely to see a complex contradictory regulations, while the medium opportunity to reduce regulation burden in some areas. Vaulting the name and actress new compliance challenges institutions will need to stay informed. about the regulatory changes, invest in the new technology and risk management practices, and be prepared to adapt quickly to changing [00:18:00] landscape.

The FAIC guidance will likely undergo significant updates to reflect these changes, and financial institutions should closely monitor these updates to ensure ongoing compliance. High, highly encourage you. to do your own research. So, I pulled out these Project 2025 chapters. They're, they're available online.

It's a little, little tricky to get to. They are available free. So, you can buy a book. Um, they try to present it as buying a book, but you can get to the chapters for free. I do highly suggest you read the chapters yourself to see and make your own assumptions for what, uh, Project 2025 attempts to do.

With that, I will end for the day. Thanks for listening. Follow, like, send us comments. Thank you very much.​[00:19:00]