FSOC Proposes Guidance on Non-Bank Financial Company Designations
FSOC proposed a new interpretive guidance regarding non-bank financial company, or NBFC, designations, which would replace the existing interpretive guidance. The proposed guidance would implement an activities-based approach to identifying and addressing potential risks to financial stability. It would also enhance the analytical rigor and transparency of FSOC's process for designating non-bank financial companies. Comments are requested by May 13, 2019. The U.S. Senator Mike Crapo, who is the Chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, also made a statement at a hearing on the non-bank designation process of FSOC.
Under the proposed guidance, FSOC would:
- Prioritize its efforts to identify, assess, and address potential risks to U.S. financial stability through an activities-based approach. Under the proposal, FSOC would monitor diverse financial markets and market developments in consultation with the relevant financial regulatory agencies. In the event a potential risk to the U.S. financial stability is identified, FSOC would leverage the expertise of existing regulators in pursuing the implementation of actions to address the risk.
- Perform a cost-benefit analysis before designating any non-bank financial company. FSOC would consider the benefits and costs of a designation for the U.S. financial system and the relevant company. FSOC would designate a non-bank financial company only if the expected benefits justify the expected costs of the designation.
- Assess the likelihood of a non-bank financial company’s material financial distress when evaluating the firm for a potential designation. Before designating a non-bank financial company, FSOC would consider not only the impact of an identifiable risk, but also the likelihood that the risk will be realized. Doing so will ensure that FSOC remains focused on the risks that are most likely to pose a threat to the U.S. financial stability.
- Create a more efficient and effective non-bank financial company designation process. The proposed guidance would create a more efficient and effective designation process by condensing the current three-stage process into two stages, increasing engagement and transparency to firms and their regulators, and creating off-ramps that allow firms to understand and address the potential risks to financial stability.
Related Links
Comment Due Date: May 13, 2019
Keywords: Americas, US, Banking, Securities, Interpretive Guidance, Activities-Based Approach, Designation Process, Financial Stability, NBFC, FSOC
Previous Article
ESRB Evaluates Effectiveness of Dividend-Based Prudential RegulationRelated Articles
BIS Quarterly Review Discusses Developments in Fintech and ESG Space
BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.
BCBS to Consult on Supervisory Practices for Climate Risks by Year-End
The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards
OCC Identifies Operational Risk Deficiencies in MUFG Union Bank
The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.
EC Rule on Contractual Recognition of Write Down and Conversion Powers
The European Commission (EC) published the Delegated Regulation 2021/1527 with regard to the regulatory technical standards for the contractual recognition of write down and conversion powers.
ECB to Consider Climate Risks When Reviewing Collateral Framework
In a response to the questions posed by a member of the European Parliament, the President Christine Lagarde highlighted the commitment of the European Central Bank (ECB) to an ambitious climate-related action plan along with a roadmap, which was published in July 2021.
SRB Provides Update on Approach to Prior Permissions Regime
The Single Resolution Board (SRB) published a Communication on the application of regulatory technical standard provisions on prior permission for reducing eligible liabilities instruments as of January 01, 2022.
APRA Issues Further Guidance on Application of Securitization Standard
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to provide guidance to authorized deposit-taking institutions on the interpretation of APS 120, the prudential standard on securitization.
ACPR Publishes Corrective Version of RUBA Taxonomy
The French Prudential Control and Resolution Authority (ACPR) published the corrective version of the RUBA taxonomy Version 1.0.1, which will come into force from the decree of January 31, 2022.
Nordea Bank and EIB Sign Agreement to Fund Green Projects in Nordics
The European Commission (EC) announced that Nordea Bank has signed a guarantee agreement with the European Investment Bank (EIB) Group to support the sustainable transformation of businesses in the Nordics.
APRA Publishes FAQs on Capital Treatment of Overseas Subsidiaries
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to clarify the regulatory capital treatment of investments in the overseas deposit-taking and insurance subsidiaries.
