March 14, 2019

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.

 

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Comment Due Date: May 13, 2019

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