Financial Stability Oversight Council Announces Changes to Nonbank Designations Process

 

During its teleconference Executive Session today, February 4, 2015, the Financial Stability Oversight Council (“FSOC” or “Council”) voted to adopt certain changes and formalize certain practices relating to its process for reviewing nonbank financial companies for potential designation.

“The changes adopted today represent an important step for the Council that will increase the transparency of our designations process and strengthen the Council overall,” said Treasury Secretary Jacob J. Lew, FSOC Chair.  “The FSOC has the unique and critical mission of identifying and responding to risks to U.S. financial stability.  It is a young organization that, as it grows and matures, must continue to be flexible and adjust its processes as needed to fulfill its mandate.”

The changes adopted today fall into three categories:

1)    Engagement with companies under consideration by the FSOC:   The FSOC will inform companies earlier when they come under review, and provide additional opportunities for companies and their regulators to engage with the FSOC and staff, without compromising the FSOC’s ability to conduct its work.  

2)    Transparency to the broader public regarding the designations process:  The FSOC will make available to the public more information about its designations work, while continuing to protect sensitive, nonpublic information.

3)    Engagement during the FSOC’s annual re-evaluations of designations:  These changes create a clearer and more robust process for the FSOC ‘s annual reviews of its designations.  This process will enable more engagement between designated companies and the FSOC and staff, with ample opportunity for companies to present information and to understand the FSOC’s analysis.

The vote today follows a presentation and discussion of each of the specific proposals at the FSOC’s public meeting in January.

The FSOC ‘s new supplemental guidance is effective immediately.  In the future, the FSOC may consider other proposals for changes to the designations process that strengthen its ability to identify and address potential risks to financial stability. 

For additional information on these changes, click on the hyperlinks below:

• Supplemental Procedures Relating to Nonbank Financial Company Determinations
  
• Frequently Asked Questions on Nonbank Designations (updated February 4, 2015)

In addition to adopting the supplemental procedures described above, the FSOC voted to extend the deadline on its notice seeking public comment regarding potential risks to U.S. financial stability from asset management products and activities.  Members of the public are encouraged to submit comments, and all comments provided to the FSOC will be available on www.regulations.gov.  The deadline, which was extended by 30 days, is now March 25, 2015.

The FSOC’s designation authority under Title I of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 enables it to identify and respond to risks that individual nonbank financial companies could pose to U.S. financial stability.  Nonbank financial companies that are designated by the FSOC are subject to consolidated supervision by the Board of Governors of the Federal Reserve System and enhanced prudential standards.

 

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