The Financial Stability Oversight Council (FSOC) has released the final version of a regulation that could affect whether organizations that sell support services to insurers will be designated as systemically important.

FSOC, an agency created by the Dodd-Frank Wall Street Financial Reform and Consumer Protection Act of 2010, is supposed to help other federal financial services regulatory agencies determine when financial services companies and other organizations are big enough, interconnected enough or otherwise important enough to merit extra regulatory scrutiny.

Section 804 of the Dodd-Frank Act gives FSOC – an agency sometimes referred to as “F-Sock” – authority to impose the “systemically important” designation on a financial market utility (FMU) if it appears that the failure or disruption of the utility could create liquidity or credit problems for financial institutions.

FSOC has included insurance companies in the definition of “financial institutions” it plans to use when deciding whether an FMU is systemically important.

The Depository Trust & Clearing Corp. (DTCC), New York – a member-owned organizations that helps insurers and their distributors process annuity transactions – has asked to be exempted from the designation program but has acknowledged in a comment letter submitted to the U.S. Securities and Exchange Commission that it is a market utility.

FSOC published a notice of proposed rulemaking in December 2010 and draft regulations in March, and it received about 15 comments, including letters from the DTCC and the Financial Services Round Table, Washington.

The final rule is similar to the draft regulations, officials say in a preamble to a copy of the final rule posted by FSOC.

Factors for determinining systemic importance will include:

  • The total monetary value of transactions processed by the FMU.
  • The total exposure of the FMU to its counterparties.
  • The relationship, interdependencies, or other interactions of the FMU with other FMUs or payment, clearing or settlement activities.
  • The effect that the failure of or a disruption to the FMU would have on critical markets, financial institutions, or the broader financial system.
  • Any other factors that FSOC deems appropriate.

The final rule is set to take effect 30 days after it appears in the Federal Register.

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