WASHINGTON—A three-stage, detailed process will be used to determine whether a non-bank such as an insurer will be designated as systemically significant under a regulation proposed by the Financial Stability Oversight Council today.
The process will include the opportunity for the proposed institution to request a public hearing, FSOC officials said.
The proposal, approved for public comment by the FSOC, was described as “proposed interpretive guidance,” by Lance Auer, a staff official at the Federal Deposit Insurance Corporation who helped draft the proposal.
The new proposal will have a 60-day public comment period, with FSOC action on the final rule expected later this year, the Treasury Department said in issuing the rule. The process, if approved, will be as follows:
- Application of a uniform quantitative threshold for identifying a subset of a non-bank financial company (NFC) that warrants further review
- Assessment of the subset of NFCs identified in stage 1, based on available public and regulatory information
- Contact to individual NFCs that warrant further review
According to Auer, only after an NFC clears these 3 stages of review can the FSOC make a SIFI determination under Section 113.
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Further, the FSOC must issue its findings in writing, and then apply the “due process” procedures outlined for designated SIFIs under the Dodd-Frank Act.
The guidance that will be used in designating a non-bank as systemically significant is being re-proposed after the FSOC came under intense pressure from insurers and their supporters in Congress to be more specific in disclosing the qualitative and quantitative standards that will be used in determining whether an institution is systemically important enough to merit additional federal regulation.
In the original proposal, a SIFI designation would be based on such general standards as size, leverage, liquidity, lack of substitute products, existing regulatory scrutiny and the degree of inter-connectedness with other financial institutions.
Under the DFA, if an insurer were designated as SIFI, it would be regulated by the Federal Reserve Board as well as state regulators.
It would have to register with the Fed within six months of being so designated, and would be subject to additional capital standards as well as other requirements.