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FSOC Official: We'll Flesh Out the SIFI Designation Principles

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WASHINGTON BUREAU — The Financial Stability Oversight Council (FSOC) will re-propose a draft version of the principles it plans to use to determine whether nonbank financial companies are systemically significant, an FSOC official says.

Amias Gerety, a deputy assistant secretary in the U.S. Treasury Department’s Office of the FSOC, discussed the FSOC’s plans in a letter sent to Rep. Randy Neugebauer, R-Texas, chairman of the Oversight Subcommittee at the House Financial Services Committee.

The Dodd-Frank Wall Street Reform and Consumer Protection Act created FSOC to monitor trends, events and companies that could pose a threat to the U.S. financial system. FSOC is supposed to help federal regulators decide whether nonbank financial services companies affect the stability of other financial services companies enough to be designated as “systemically important financial institutions” (SIFIs) in need of extra federal supervision.

The Dodd-Frank Act lists 10 criteria for deciding whether companies are SIFIs. The FSOC released draft regulations for implementing the provisions in January; insurers have complained that the draft gives too few details about how the FSOC would apply the rules to insurers. The FSOC is working to give the public more information about the draft process and framework for SIFI designations and it intends to re-propose the rule and release guidance for public comment, Gerety says in the letter to Neugebauer.

The re-proposed rule will specify the procedures for designating nonbank financial companies SIFIs and the guidance will explain the FSOC’s approach to evaluating nonbank financial companies for designation, Gerety says.

The guidance will describe the FSOC’s view of the primary factors relevant to a designation “which may be adjusted over time to respond to emerging threats as financial markets and companies evolve,” Gerety says.

“Because the statutory considerations, individually as well as in combination, cannot be reduced to a simple formula, the guidance will set forth both quantitative metrics the FSOC expects to use, in addition to the qualitative considerations that, in the FSOC’s judgment will allow it to evaluate the threat that particular companies pose to financial stability,” Gerety says.

Gerety does not say when the proposed regulations and guidance will be published for comment. But the regulations will come with a 60-day comment period, and the regulations and guidance will be released at the same time.

The regulations will not be finalized until the FSOC has reviewed and considered all comments, Gerety says.

Large insurers are afraid that the SIFI designation could lead to dual federal and state regulation and an additional capital surcharge of as much as 3%.

Insurers would like to see the SIFI designation criteria be as specific as possible, because they believe more specific criteria will help them challenge the criteria in court, according to several industry lawyers and lobbyists.

Other SIFI coverage from National Underwriter Life & Health:


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