FSOC Proposes Guidance on Non-Bank Financial Company Designations

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

• Press Release
• Federal Register Notice (PDF)
• Speech

Comment Due Date: May 13, 2019

Keywords: Americas, US, Banking, Securities, Interpretive Guidance, Activities-Based Approach, Designation Process, Financial Stability, NBFC, FSOC