US regulator to change the SIFI designation process
By Kathleen Scott of NortonRoseFullbright
The Financial Stability Oversight Council (FSOC) was
established by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection
Act (commonly referred to as Dodd-Frank), in part, to identify risks to the
stability of the US financial system, including being able to designate
non-bank financial companies as systemically significant important financial
institutions (SIFI).
On February 4, 2015, it announced changes to its designation
process through issuance of supplementary procedures.
The FSOC has come under almost-constant criticism since its
establishment regarding the process it follows in designating SIFIs. While the
FSOC states in its announcement that it had been studying the designation
process for several months, the publicity regarding the recent designation of
MetLife as a SIFI, and the subsequent lawsuit filed by MetLife challenging the
designation and specifying its criticisms of the designation process, may have
led the FSOC to release its revised guidance now. See our blog post on the MetLife SIFI designation.
Supplemental guidance details
Treasury Secretary Jacob Lew stated these changes
increase both the transparency of the SIFI designation process and the strength
of the FSOC as a whole. The Supplemental Procedures first provide an overall
summary of the current process and then launch into a description of the procedures,
which the FSOC indicates could be divided into three categories:
Engagement during the SIFI designation process
The
FSOC will notify a non-bank financial company being considered for a SIFI
designation earlier in the process, at the time that it undertakes a
preliminary analysis of a company for possible designation rather than when it
decides to undertake a more detailed review of the company. The company
will be able to submit information and meet with staff during this stage of the
designation process. The FSOC also will begin earlier in the process to
consult and coordinate with regulatory agencies or home country supervisors
that might have jurisdiction over the company.
Engagement during its annual review of the SIFI designation process
The FSOC reviews its SIFI decisions each year to determine if the
SIFI-designated non-bank financial companies still meet the criteria for the
designation. The FSOC will now allow SIFIs to submit information
and meet with staff during the review process. If a non-bank financial
company contests its SIFI determination during the annual review process, the
FSOC will vote on whether to rescind the designation, and, if the designation
is not rescinded, it will provide the SIFI a notice explaining why it chose not
to do so.
Transparency of the process
Finally, the FSOC will change its policy of not commenting when a non-bank financial company makes public the fact that it is under consideration until a formal designation is made, such as what happened most recently when MetLife publicly stated that it was under SIFI consideration, but the FSOC made no public comment until it announced MetLife’s formal designation as a SIFI. Up until now, the FSOC will not confirm publicly the status of any review of a non-bank financial company for a SIFI determination, even if the non-public financial company publicly announces that it is under SIFI review, until it releases its formal designation of the company as a SIFI. Under the Supplemental Procedures, if the non-bank financial company publicly announces it is under SIFI review, upon request, the FSOC, at the request of a third party, will now confirm the status of any such review. The FSOC also will publish in its annual reports statistics on the number of non-bank financial companies under specific review for a SIFI designation. It also will provide additional information on the process for identifying which non-bank financial companies on which the FSOC will conduct a preliminary analysis.
http://www.regulationtomorrow.com/us/fsoc-proposes-changes-to-the-sifi-designation-process/
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