Have regulators gone soft on enforcement? (And should we care?)

The police have stowed their batons and holstered their weapons.

US financial regulators have curbed their enforcement activities, declaring that they no longer intend to prioritise punishing firms and individuals for breaches of process and policy. Rather, they will switch to cracking down on real-life harm caused to retail investors through crimes like fraud and market manipulation.

It’s a change of tack that should cheer finance executives. Top bankers, including JP Morgan’s Jamie Dimon, have often railed against regulatory over-reach. Many argue that the billions in fines and penalties that regulators levy on the industry every year would be better spent on boosting lending to businesses.

Regulators, even, are sympathetic to this view. The new director of enforcement at the Commodity Futures Trading Commission (CFTC), David Miller, told Risk.net: “The age of trying to exact a tax on an industry through various types of regulatory action is done.”

The move chimes with the Trump administration’s drive to boost economic growth, cut bureaucracy, and prune federal budgets, seen most starkly with the wave of cuts initiated by the newly created Department of Government Efficiency, which have hollowed out regulatory agencies such as the Office of the Comptroller of the Currency.

While this enforcement-lite approach may give the finance industry a welcome sense of liberation and free up some capital, it doesn’t come without risks. There is a nagging worry that softly-softly supervision will lead to a decline in standards and conduct, and a return to the pre-financial crisis era of ‘Wild West’ banking.

The effects of this new approach are already being felt. The US Securities and Exchange Commission filed 456 enforcement actions in the 12 months to September 2025, the lowest level in at least two decades. Most of the year-on-year fall was attributable to standalone cases, which are typically the most resource-intensive actions.

A similar picture is evident at the CFTC. The agency trumpeted a “record-setting” $17.1 billion in penalties in 2024, alongside 58 new enforcement actions. A year later, new enforcement actions had dropped to a mere 13. The agency failed to provide an overall annual figure for penalties, however a tally of individual cases on the CFTC website shows that the number is comfortably less than $1 billion.

The agency’s pivot from ongoing enforcement actions was also seen in its 2025 ‘sprint’, conducted under acting chair Caroline Pham to resolve long-running minor compliance violations. Pham later said she wanted to “stop regulation by enforcement”.

Incoming chair Michael Selig also told a Senate committee last December that he wanted to “stop regulation by enforcement”, a sentiment repeatedly echoed by his colleague Miller. The message is coming loud and clear.

Meanwhile, bank supervision is having its own makeover. Part of the Federal Reserve’s supervisory power is to issue warnings to banks that are slacking on prudential requirements. These formal notices – called MRAs (matters requiring attention) or, more urgently, MRIAs (matters requiring immediate attention) – are in decline. Nearly 1,000 MRAs/MRIAs were issued in 2024. This number more than halved in 2025.

What can we read into this reduction? Cynics might question whether banks have dramatically improved their operations and slashed their shortcomings in barely 12 months. Yet, this is what the Fed would have us believe. At the end of 2024, the Fed rated 63% of large banks as “not well managed”, with the remainder rated “well managed”. A year later, those numbers had flipped, with twice as many “well managed” banks as not. After an overhaul to the ratings system last January, the numbers were looking even rosier, with 81% of large banks now rated as “well managed”. Pats on the back and drinks all round.

The Fed spelled out its new dovish supervisory stance last October in a revision of its principles. The key message from the central bank was that it intended to prioritise “material” financial risks. The Fed also revived the use of observations as an alternative supervisory tool to MRAs and MRIAs. Crucially, these observations are non-binding. In other words, nice-to-have rather than must-have.

The shift in Fed practices means that comparisons between annual number of supervisory warnings should be taken with caution. But the overall change of tone is evident: examiners will focus on the clear and present dangers to bank operations and won’t allow themselves to be distracted by insignificant ‘technical’ failings.

Perhaps the Fed is justified in reforming its supervisory approach. After all, Silicon Valley Bank was subject to 31 active MRAs and MRIAs at the time of its collapse in 2023 – a number that had been steadily rising for at least four years. If a swathe of formal warnings was not enough to prevent the bank’s implosion, maybe the system is flawed after all.

In its 100-page postmortem of SVB’s failure, the Fed pointed to the tailoring rule, which categorises banks based on size and applies different levels of oversight and regulation to those categories. SVB was in the fourth bucket, which meant it wasn’t subject to the kind of full-fat liquidity rules that apply to larger banks – and which might have prevented its collapse.