AFC Backs FFIEC’s Historic CAMELS Rating Overhaul to Modernize Bank Supervision

The American Fintech Council (AFC) has formally challenged the Federal Financial Institutions Examination Council (FFIEC) to modernize the decades-old CAMELS rating system. For fintech professionals, this represents a critical push to ensure that bank-fintech partnerships are judged on material financial risk rather than technicalities that often stifle innovation and market expansion.

What was announced

The American Fintech Council submitted a formal comment letter to the FFIEC regarding proposed revisions to the Uniform Financial Institutions Rating System (UFIRS), widely known by the acronym CAMELS (Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity). This marks the first comprehensive attempt to modernize the framework in nearly thirty years, a period during which the banking landscape has shifted toward technology-integrated services.

The AFC’s proposal centers on three primary pillars: materiality, technology neutrality, and procedural consistency. The Council argues that the current system often penalizes innovative banks for isolated technical shortcomings that do not impact their actual financial health. By advocating for a materiality-based approach, the AFC wants regulators to distinguish between minor supervisory findings and genuine threats to an institution's solvency or stability.

Furthermore, the AFC is calling for a technology-neutral framework. This would require examiners to evaluate the effectiveness of a bank’s governance and risk management protocols rather than the specific technological models or software they use. To ensure these changes are effective, the Council also requested supplemental implementation guidance, enhanced examiner training, and a more robust supervisory appeals process to provide regulatory certainty for institutions engaging in fintech partnerships.

"Supervisory ratings carry significant regulatory consequences that extend well beyond the examination process itself, influencing everything from expansion opportunities to merger activity. Eliminating the disproportionate weight historically placed on the Management component and ensuring that all six CAMELS components are properly structured will ensure composite ratings represent a more accurate, balanced reflection of an institution’s overall risk profile. In turn, these changes will allow examiners the ability to focus specifically on identifying any material financial risks within the examination process."

Ian P. Moloney, Chief Policy Officer of the American Fintech Council.

The companies involved

The American Fintech Council (AFC) is the primary industry association representing the interests of responsible fintech companies and innovative banks. The organization serves as a bridge between the technology sector and traditional banking, advocating for policies that support financial inclusion and modern regulatory frameworks. Its membership includes a diverse range of firms, from established financial institutions to high-growth technology startups, all focused on the evolution of financial services.

The Federal Financial Institutions Examination Council (FFIEC) is a formal interagency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions. It was established to promote consistency in the supervision of financial institutions by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), and the Consumer Financial Protection Bureau (CFPB).

What FF News has reported before

FF News has closely followed the expansion of the American Fintech Council as it builds a coalition of technology and professional services firms. Recently, we reported that Finzly Joins American Fintech Council to Drive Composable Banking and Payment Modernization, highlighting the industry's shift toward modular infrastructure. The Council has also attracted compliance-focused members, as seen when Sedric Joins American Fintech Council to Scale AI-Driven Compliance Governance. Beyond technology providers, major professional services firms have aligned with the group, including when PwC Joins American Fintech Council (AFC) as Strategic Partner and Blank Rome Joins American Fintech Council (AFC) to Support Fintech Policy and Regulatory Dialogue.

What this means

This move by the AFC is a direct strike at the "regulatory tax" currently paid by innovative banks. The CAMELS system was designed for a brick-and-mortar era; applying it to modern, partner-heavy banking models often results in skewed ratings that block mergers and acquisitions. By demanding a shift away from the "Management" component's disproportionate weight, the AFC is trying to prevent examiners from using subjective governance critiques to stall technology adoption. If the FFIEC adopts these materiality standards, it will lower the barrier for mid-size banks to partner with fintechs, as the fear of a downgraded CAMELS rating currently serves as a significant deterrent to innovation.