The federal banking regulators—the Office of the Comptroller of the Currency (OCC), Federal Reserve, and Federal Deposit Insurance Corporation (FDIC)—have jointly withdrawn their 2023 guidance on “Principles for Climate-Related Financial Risk Management for Large Financial Institutions.”
Initially published in October 2023, these principles were meant to help large banks with $100 billion or more in assets identify and manage the financial risks associated with climate change, such as increased flooding, severe storms, or property devaluation.
As of September 2025, the agencies have officially rescinded that guidance, stating that existing safety-and-soundness standards already require banks to identify and manage all material risks without the need for climate-specific direction.
Why the Change Matters for Lenders
Regulators made clear that banks already have strong frameworks for risk identification and mitigation, including policies covering flood zone determinations, insurance tracking, and lender-placed coverage. The agencies expressed concern that layering new climate-specific principles could “distract from the management of other potential risks” that banks face daily.
For lenders, this rescission signals a return to familiar territory, focusing on existing regulatory requirements rather than speculative or overlapping standards.
Flood Risk Remains a Core Compliance Priority
While the climate-risk principles are gone, flood compliance remains non-negotiable. Under the National Flood Insurance Act, banks and servicers must ensure that properties securing loans in Special Flood Hazard Areas (SFHAs) carry adequate flood insurance coverage for the life of the loan.
Key requirements remain unchanged:
- Determine flood zones accurately using current FEMA maps before loan origination or modification.
- Track insurance policies throughout the loan’s term to confirm continuous coverage.
- Send timely borrower notices when coverage lapses or is insufficient.
- Lender-place insurance if the borrower fails to obtain required coverage after proper notification.
These long-standing obligations are the cornerstone of a lender’s risk-management program, helping safeguard both the borrower’s property and the institution’s collateral.
Insurance Tracking: Where Risk Meets Reputation
Even without the now-rescinded climate guidance, examiners continue to expect lenders to have robust insurance-tracking programs. Accurate, real-time tracking ensures that every property in the portfolio maintains compliant coverage levels and helps prevent costly lapses that could expose the institution to loss or enforcement action.
Institutions that partner with companies like AFR Services to implement automated solutions for policy monitoring, renewal alerts, and data reconciliation can significantly reduce manual errors and demonstrate proactive compliance, a critical factor during FDIC, OCC, or Federal Reserve examinations. These technology-driven programs help lenders maintain continuous coverage visibility, streamline workflows, and document compliance with confidence.
Lender-Placed Insurance: A Tool of Last Resort
The rescission does not change the rules around lender-placed insurance. When a borrower’s policy expires, lenders must act quickly to protect the collateral by placing coverage on the property. Proper documentation, including borrower notifications, premium disclosures, and coverage verification, is still required to meet FEMA and regulatory standards.
Institutions should view lender-placement not simply as a compliance function, but as part of a broader risk-management continuum, ensuring that every property remains protected even when borrower engagement fails.
The Bottom Line
The OCC, FDIC, and Federal Reserve may have stepped back from climate-specific guidance, but the expectation for comprehensive flood-risk management has not changed.
For lenders, this is an opportunity to:
- Re-evaluate flood-determination vendors to ensure accuracy and map currency.
- Strengthen insurance-tracking workflows for end-to-end compliance visibility.
- Review lender-placement procedures to confirm timelines and documentation meet current regulatory standards.
At the end of the day, sound flood-risk management remains one of the most effective ways to protect borrowers, preserve portfolio quality, and satisfy examiners, no new climate framework required.
AFR Services partners with lenders nationwide to simplify insurance-risk compliance. From flood-zone determinations and policy tracking to lender-placed insurance solutions, we help financial institutions stay audit-ready and protected.