The biggest supervision risk in 2026 isn’t credit - it’s unverifiable data.

Regulators are loosening rules but tightening expectations. Less prescription. More verification. More responsibility.

More Freedom, Heavier Burden of Proof

🔍 What’s going on:
The biggest change in principle-based supervision isn’t the rules - it’s how examiners review files.

They’re no longer starting at the credit memo. They’re starting at the beginning:

• the first document uploaded

• the first piece of data provided

• the first inconsistency in the file

And they’re asking new questions: Is this real? Was it verified? Where was the issue resolved?

Supervision is moving away from checking steps and toward evaluating the reliability of the underlying evidence.

💡 Why it Matters
Once examiners begin upstream, intake becomes the control point. Late verification reads as a weakness - even when the final decision is sound. That’s why lenders now hear questions like: Why was this document trusted? Why wasn’t this number cross-checked?

⚡ Action steps 
Open one file currently in underwriting.
Ask: If an examiner started on page one instead of the credit memo, what would they question first?

Your Competitive Advantage Just Got an Asterisk

🔍 What’s going on:
Community lenders excel at judgment - understanding local businesses, seasonality, cash cycles, owner character. That’s your edge.

But under principle-based supervision, judgment alone doesn’t travel.

When examiners sample files after defaults or fraud losses, they ask: What data did you verify? What did you accept at face value? Where is the audit trail?

Relationship lending isn’t at risk. Unverified relationship lending is.

As one community bank executive put it: “We feel like we know our customers because we see them in the community. But as banking moves digital, you don’t know where they’re coming from anymore. There’s a larger potential for fraud than there has been in the past.”

Fraudsters exploit this exact moment: first-time customers, light documentation, pressure to match fintech speed.

💡 Why it Matters
Principle-based supervision doesn’t question your judgment - it questions what you can prove. Judgment is still your advantage - but under principle-based supervision, it only counts when it’s backed by evidence. When relationship knowledge isn’t verified, supervisors treat it as a blind spot, not a strength.

That’s why unverified files are now the first place fraud appears, the first place exceptions multiply, and the first place examiners look when a loss occurs.

⚡ Action Step: 
Ask your team: "If an examiner reviewed this file, what would we show them beyond our credit memo?"

First-Party Fraud Multiplies Your Exposure

🔍 What’s going on:
First-party fraud jumped from 14.6% to 35.9% in one year. These aren’t stolen identities - these are real borrowers misrepresenting financials.

The LexisNexis® data below shows how dramatically first-party fraud has overtaken other fraud types in just one year - and why examiners now treat unverifiable data as a core supervisory risk.

Economic fragility drives it. AI makes document tampering indistinguishable to the human eye. And while synthetic fraud is becoming more advanced, the fastest growth today is coming from first-party fraud - real applicants using real identities with documents that can’t be reliably verified at intake.

And fraud doesn’t just cause losses - it multiplies them. Institutions now lose $5.75 for every $1 of fraud once operational, compliance, and trust costs are included.

💡 Why it matters: 
One missed inconsistency upstream can shape an examiner’s view of your entire program.

⚡ Action Step: 
Select three approved SMB loans from the last 60 days.
Identify where you verified authenticity - vs. where you trusted the document.

🦊 ZorroFi insight

Intake validation isn’t a compliance checkbox - it’s your first line of defense under principle-based supervision.

ZorroFi validates applications at intake: document authenticity, identity, behavioral patterns, and data consistency. The result is a timestamped audit trail examiners can rely on - and the confidence to approve faster without sacrificing verification quality.

Community lenders don’t need to choose between relationship lending and data integrity. You need both.

Speed and defensibility. No tradeoff required.

💡 Want to Dive Deeper?

Demo: I work with CDFIs, community banks, and credit unions on modernizing lending. Want to learn more?

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📅 Next newsletter drops Tuesday, 12/16.