On May 29, 2026, the Office of Management and Budget (OMB) published a proposed rule in the Federal Register. The proposed rule would revise the Guidance for Federal Financial Assistance, affecting government-wide policies related to the management of grants, cooperative agreements, and other forms of assistance.
Regulation for Federal Financial Assistance, 91 Fed. Reg. 32198, 32199 (proposed May 29, 2026). https://www.govinfo.gov/content/pkg/FR-2026-05-29/pdf/2026-10817.pdf.
The proposed rule follows Executive Order 14332, “Improving Oversight of Federal Grantmaking” (Aug. 7, 2025), and would revise Title 2 of the Code of Federal Regulations to remove DEI-related and other “add-on” conditions on federal awards, convert OMB’s guidance into a binding regulation, and reduce requirements OMB regards as unnecessary.
In its preamble, OMB states that in recent years the Federal Government used financial assistance programs to advance what it calls a “woke” policy agenda favoring certain identity groups, and that the ideological terms and conditions attached to those programs, in its view, produced waste, inefficiency, delays in project delivery, and reduced program effectiveness. The agency says the revisions are intended to improve transparency, accountability, and oversight of federal awards government-wide.
Regulation for Federal Financial Assistance, 91 Fed. Reg. 32198, 32199 (proposed May 29, 2026). https://www.govinfo.gov/content/pkg/FR-2026-05-29/pdf/2026-10817.pdf.
What the Proposed Rule Covers
The proposed rule covers three objectives. Each of the following objectives includes a section describing OMB’s proposed revisions.
Improved Transparency, Accountability, and Oversight
The proposed rule mainly seeks to revise several portions of title 2 of the Code of Federal Regulations (CFR), which governs the OMB Guidance for Federal Financial Assistance.
Clarification of Regulatory Structure
Additionally, the proposed rule seeks to clarify the status of OMB’s government-wide financial management policies and requirements contained in title 2 CFR subtitle A, as an OMB regulation. If the proposed rule is successfully implemented, any amendment made by OMB to the regulatory text of 2 CFR subtitle A through a government-wide notice and comment rulemaking will be applicable government-wide on the effective date of OMB’s final rule. This establishes a standard framework across all Federal grantmaking agencies. Furthermore, certain Federal agencies that currently lack an existing chapter in 2 CFR subtitle B propose to add chapters intended to streamline the implementation and reduce variability across the Federal Government. Federal agencies that have existing chapters in 2 CFR subtitle B propose certain targeted and conforming changes to support OMB’s broader rulemaking effort. As a result, 2 CFR subtitle B will contain a complete list of all granting Federal agencies.
Reducing Recipient Burden
Finally, OMB seeks to ensure that Federal agencies will reduce the scope of award activities to only what is necessary to achieve the objectives identified in law consistent with Executive Branch policy.
Compliance Obligations
Companies and entities participating in Federal financial assistance programs must comply with the conditions set forth by OMB and federal grantmaking agencies. If the proposed rule goes into effect, every amendment to the Guidance on Federal Financial Assistance made by OMB through notice and comment rulemaking will be directly applicable to all Federal grantmaking agencies. Thus, it is important to stay up-to-date on OMB actions related to Federal financial assistance programs.
Enforcement & Exposure
Failure to comply with conditions placed on the receipt of Federal funds depends on the agency and program, yet consequences can range from civil penalties to criminal prosecution.
What This Means
Across the Bridge
The compliance obligations noted above apply directly to Puerto Rico-based companies and entities that participate in Federal financial assistance programs.
Sources
Photo credit: Nikada
Summer Associate Manuel Rodríguez Moreno collaborated on this insight.
