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The U.S. Treasury is preparing to introduce sweeping changes to banking regulations that would require financial institutions to collect and verify customers’ citizenship status, marking a significant shift in how identity is assessed within the financial system. The move, backed by Treasury Secretary Scott Bessent, is expected to formalize through an upcoming executive order that has been under discussion for months and is now nearing implementation.

Speaking publicly this week, Bessent made it clear that banks will be expected to comply with the new mandate, regardless of industry resistance. The directive would expand existing compliance frameworks and place additional responsibility on financial institutions to determine not just who their customers are, but also their legal status within the United States.

Currently, U.S. banks operate under strict “Know Your Customer” and anti-money laundering regulations, requiring individuals to provide identification such as Social Security numbers or Individual Taxpayer Identification Numbers, along with proof of identity and address. These measures are designed to prevent fraud, terrorism financing, and other financial crimes under laws such as the Bank Secrecy Act and the USA PATRIOT Act. However, citizenship verification has not historically been part of these requirements.

The proposed changes would go beyond these existing rules by introducing a legal obligation for banks to confirm whether customers are U.S. citizens, permanent residents, or individuals with valid visas. This represents a major expansion of compliance duties and aligns with broader policy efforts to link financial access with immigration status.

Supporters of the policy argue that it closes a gap in the financial system. From this perspective, verifying citizenship status is seen as a logical extension of existing due diligence practices, ensuring that institutions fully understand the legal standing of their clients. Proponents also point out that several countries incorporate similar checks into their financial onboarding processes, though global practices vary widely and are far from standardized.

The proposal has also gained traction among lawmakers. Earlier this year, legislation was introduced in the Senate that would require federally insured banks and credit unions to verify legal residency or citizenship before opening accounts. The bill includes provisions for additional checks on immigration status, signaling growing political momentum behind stricter financial access controls.

However, the initiative has raised significant concerns across the banking sector and among policy experts. One of the primary challenges is the operational burden. Estimates suggest that implementing citizenship verification could require between 30 million and 70 million additional paperwork hours across the industry. Compliance costs could range from $2.6 billion to $5.6 billion, depending on how broadly the rules are applied and whether they extend to existing account holders.

Beyond cost, there are broader economic implications. The U.S. financial system currently allows non-citizens, including undocumented individuals, to open bank accounts using alternative identification such as ITINs. This access enables participation in the formal economy, including paying taxes, receiving wages, and avoiding reliance on cash-based transactions. Restricting access could increase the number of unbanked individuals, a group already associated with lower financial mobility and reduced economic participation.

Banks are also concerned about legal ambiguity and implementation complexity. Questions remain around how institutions would verify citizenship in practice, what documentation would be considered acceptable, and how existing accounts would be treated under the new rules. Additionally, there are concerns about potential liability risks if banks incorrectly assess a customer’s status.

The timing of the proposal adds another layer of complexity. The financial sector is already navigating tighter regulatory scrutiny, evolving digital banking models, and rising compliance expectations globally. Introducing a new layer of verification could slow onboarding processes, increase friction for customers, and impact overall efficiency in the system.

Despite these concerns, Treasury officials appear committed to moving forward. The executive order, once finalized, is expected to provide more detailed guidance on implementation, including timelines, documentation standards, and enforcement mechanisms.

At its core, the proposal represents a fundamental shift in the relationship between financial access and regulatory oversight in the United States. It moves the banking system into a more active role in verifying legal status, extending beyond traditional financial risk management into broader policy enforcement.

The coming months will be critical as banks, regulators, and policymakers work through the practical implications. The outcome will not only shape compliance frameworks but also determine how inclusive or restrictive the U.S. financial system becomes for millions of individuals.