With the easing of regulatory requirements for many community banks, the audit landscape has changed since late 2025.
Last December, the Federal Deposit Insurance Corporation (FDIC) issued a final rule updating the asset thresholds for a host of requirements under the 1991 Federal Deposit Insurance Corporation Improvement Act. Included in this rule, which became effective on Jan. 1, 2026, are higher thresholds for annual independent audits and reporting requirements under the act’s Part 363.
ICBA and its community bank members have long advocated for these updates, says Amy Ledig, ICBA’s vice president and safety and soundness regulatory counsel.
“The whole rationale behind having these requirements is for larger institutions to be subject to more expectations,” says Ledig. “But since the requirements had not been updated for so long, they became really outdated and captured smaller banks with more straightforward business models. This update brings back the whole purpose of the act.”
The impact on community banks
Among the various audit and reporting requirements, the FDIC’s final rule updated the applicability threshold for banks to submit an annual report to regulators from $500 million to $1 billion. The annual report must comprise audited comparative financial statements, an independent public accountant’s report, a management report containing a statement of management’s responsibilities, and an assessment by management of compliance with applicable laws and regulations.
Another update in the FDIC’s final rule was to raise the internal control over financial reporting (ICFR) asset threshold from $1 billion to $5 billion. Banks that meet this updated threshold must also include a management assessment of the effectiveness of the bank’s internal controls and an independent public accountant’s attestation report on such controls.
“This was an even bigger issue for community banks,” says Ledig. “It’s really a heightened protection level more appropriate for larger institutions, and it was just an extra expense for community banks.”
Additionally, the final rule increases the thresholds related to both minimum and additional audit committee requirements, as well as the compensation threshold that community bank boards of directors should consider when determining the independence of an outside director for audit committee purposes.
Explaining the rationale of the final rule, the FDIC wrote in the Federal Register that smaller community banks, particularly those in rural areas, have had difficulty complying with the audit committee composition requirements.
“These institutions frequently report that it is increasingly difficult to attract and retain individuals who are willing and capable of serving as a member of an audit committee, thereby making compliance with the audit committee composition requirements of Part 363 challenging,” the FDIC wrote.
Even if a community bank no longer needs to abide by any of the Part 363 requirements, if the bank is state-chartered, its state might still require it to provide audits and ICFR attestations, Ledig says. Moreover, if the bank or its holding company is publicly traded, it is still required to file such reports under the 2002 Sarbanes-Oxley Act.
“Even if your bank doesn’t meet these requirements, sound governance is still important,” she says. “You still have to file call reports, and examiners will want to see accuracy and integrity in your financial statements and balance sheets. They may also require specific audits if you do any type of specialized lending.”
Some banks are breathing easier
Of the FDIC’s 4,496 insured depository institutions, more than 1,500 now have reduced compliance obligations due to the Part 363 final rule:
Easing compliance burdens
The FDIC’s Part 363 updates brought down the overall number of community banks that are subject to the requirements to around the same number it was when the act was first passed in 1993. More than 1,500 insured financial institutions will see reduced compliance obligations due to the rule (see sidebar, below).
“Also, the FDIC’s efforts to index the asset thresholds to inflation will stabilize the applicability of Part 363 requirements over time and allow banks to grow nominally without unintentionally triggering new requirements,” says John Pachkowski, a senior legal analyst with Wolters Kluwer Legal & Regulatory U.S. in New York City.
The FDIC’s Part 363 reforms are just one of several ongoing efforts to ease compliance burdens on smaller banks, he says. Initiatives being considered in Congress can also affect community banks down the road.
For example, many smaller, well-run banks are subject to an 18-month examination cycle, Pachkowski says. An ICBA-advocated provision in the recently passed 21st Century ROAD to Housing Act increases the asset threshold for certain small institutions to qualify for an 18-month examination cycle, from $3 billion to $6 billion.
Pachkowski also cites a report released by the House Financial Services Committee that noted the policy would “preserve community banking, promote competition and allow more resources to flow into local communities.”