Monthly LRA Update: February 2026

REGULATORY DEVELOPMENTS

Basel III Endgame – Update

Federal regulators continue to indicate that work is being done to revisit the previously proposed capital rules known as Basel III Endgame. FRB Vice Chair for Supervision Michelle Bowman recently gave remarks at an Exchequer Club event discussing the timeline for re-proposed capital rules. Bowman stated that “I’ve said for a number of months now that we will be aiming to introduce that proposal before the end of the first quarter. I think we’re still working on that time frame.”

Vice Chair Bowman also gave testimony before the Senate Committee on Banking, Housing, and Urban Affairs on February 26. Bowman spoke on the Federal Reserve’s regulatory agenda as it applies to large banks: “We are also modernizing and simplifying the Federal Reserve’s regulation of large banks. The Board is considering modifications to each of the four pillars of our regulatory capital framework for large banks: stress testing, the supplementary leverage ratio, the Basel III framework, and the G-SIB surcharge.” On the topic of Basel III, Bowman advised that “[f]inalizing Basel III reduces uncertainty and provides clarity on capital requirements, enabling banks to make better-informed business and investment decisions.”

Federal Reserve Proposes Rule to Codify Elimination of Use of Reputation Risk

On February 26 the Federal Reserve proposed a rule that would codify the elimination of reputation risk from its supervisory guidance. The FRB defines reputation risk as “the potential that negative publicity regarding an institution’s business practices, whether true or not, will cause a decline in the customer base, costly litigation, or revenue reductions.”

The proposed rule states the following as objectives:

First, by establishing a binding regulation, the Board would further ensure that the actions and decisions of supervisory staff are not based on reputation risk and align with the Board’s broader policy. Furthermore, the proposal would reflect experience that reputation risk can be difficult to quantify and communicate, making it challenging for firms to remedy identified concerns. Therefore, this proposal would increase supervisory clarity through the codification of the removal of reputation risk and would facilitate greater precision in supervisory decision making. It also would support the Board’s supervisory focus on core financial risks. Procedurally, issuing this proposal for notice and comment allows external stakeholders to provide their views on this issue.

Comments on the proposal will be accepted until April 27.

This proposed rule follows a similar proposal released by the OCC and FDIC that covered the elimination of the use of reputation risk from respective guidance, as well as an executive order directing regulators to no longer consider reputation risk in supervisory guidance.

JUDICIAL DEVELOPMENTS

COI Litigation – TVPX ARS Inc. vs Genworth Life

We recently identified litigation concerning a dispute on the calculation and implementation of cost of insurance (COI) charges. In March 2025 TVPX ARS Inc. (as securities intermediary for Consolidated Wealth Management, LLC) filed a class action suit against Genworth Life and Annuity Insurance Company in the US District Court for the Eastern District of Virginia. The case concerns flexible-premium universal life insurance policies issued by Genworth (or its predecessor).

In the initial complaint, plaintiffs argue that Genworth policyholders have been forced to pay improperly inflated monthly COI charges after September 19, 2013. Plaintiffs argue that COI charges in question were not determined according to Genworth’s expectations of future mortality, as is required by the policy language.

Plaintiffs assert that Genworth completes an annual review of mortality assumptions, pointing to a Genworth annual report which states that Genworth reviews its life assumption at least annually and that as part of the review, Genworth implements an updated mortality table for its life insurance products. Plaintiffs also assert that if the annual review shows mortality rates are projected to decline, the monthly COI rates should be reduced. Policy language defines the Cost of Insurance Rate as follows (emphasis added):

The monthly rate is based on the insured’s sex, attained age, policy duration and risk class. The rates are determined by [Genworth] according to expectations of future mortality. We can change rates from time to time, but they will never be more than the maximum rates show in the Table of Guaranteed Maximum Insurance Rates. A change in rates will apply to all persons of the same age, sex and risk class and whose policies have been in effect for the same length of time.

Plaintiffs argue that Genworth failed to adjust COI rates in the face of improving mortality expectations and that Genworth has continued to determine and impose COI charges in excess of what is contractually permitted.

In support of a motion to dismiss the complaint, Genworth argued that the monthly deduction assessed against cash value includes a COI charge that is calculated under a formula which includes several inputs, including a “cost of insurance rate”. Defendants argue that the cost of insurance rate is based on multiple factors and that while Genworth has the ability to change rates “from time to time” as stated in the policy language, the policy imposes no obligation to Genworth to change the rates at any specific interval.

Defendants also argue that the COI rate for each year of an insured’s life appears in a rate table, and the rate increases each year as the insured ages. Additionally, Genworth argues that it specifically has not redetermined the COI rates that apply to the policies in question since 1995.

The US District Court denied defendant’s motion to dismiss and allowed the case to proceed.

On February 13 plaintiffs filed a motion for class certification, defining the “COI Overcharge Class” as “all owners of universal life (including variable universal life) insurance policies issued or insured by Genworth Life and Annuity Insurance Company, or its predecessors, that provide the cost of insurance rates are determined according to expectations of future mortality, and that were charged for the cost of insurance on or after the start of the Class Period.” Plaintiffs argue that the COI Overcharge Class has been overcharged by Genworth by roughly $35.8 million through December 2024.

Also on February 13, defendants filed a motion for summary judgment, again arguing that COI charges have been assessed appropriately under the policy language and that while Genworth has the option to change COI rates from time to time, it is under no obligation to do so at specific times.

Both motions remain open with the US District Court. Per the amended pretrial order, the case remains scheduled for jury trial beginning April 20.

Docket: TVPX ARS Inc. vs. Genworth Life and Annuity Insurance Company, Case No. 3:25cv184

OTHER DEVELOPMENTS

Basel Committee Publishes Consolidated Guidelines and Sound Practices

On February 26 the Basel Committee on Banking Supervision (BCBS) implemented a new section of its website that consolidates the committee’s guidelines and sound practices. As stated in the press release, the intention is “to improve the accessibility of the Committee’s outputs in a user-friendly format.” The consolidated guidelines and sound practices are broken down into 13 modules, including supervision and corrective actions, corporate governance, risk management, capital adequacy, and operational risk and resilience.

As defined by the BCSC, guidelines are intended to “elaborate on the standards in areas where they are considered desirable for the prudential regulation and supervision of banks” and “generally supplement BCBS standards by providing additional guidance for purpose of their implementation,” while sound practices are defined to “describe actual observed practices, with the goal of promoting common understanding and improving supervisory or banking practices.

The committee plans to finalize the consolidated guidelines and sound practices in the second half of 2026 and is accepting comments on the following three items until June 26:

1. Does the framework effectively remove outdated, superseded and duplicative materials?
2. Does the proposed reorganization and redrafting achieve the objective of improving clarity and readability without introducing new expectations?
3. Are there particular topics the Committee should review more substantively, or areas where further guidance is warranted?