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Financial Planning > Charitable Giving

FSOC Examines Volcker Rule, JPMorgan Losses; Provides SIFI-Label Protest Procedures

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Nonbank financial institutions insurers and financial market utilities (FMU), that want to argue their case before the Financial Stability Oversight Council (FSOC) if they receive a systemically important financial institution (SIFI) recommendation now have in place the framework for specific hearing procedures.

The FSOC approved the hearing procedures on May 22 following a closed meeting of members under the authority of the Dodd-Frank Act. While the hearing procedures were approved, the apparent centerpiece of the hearing was the Volcker Rule, spurred by the recent losses at JPMorgan Chase & Co.

Washington financial institution regulators are still in the process of conducting their evaluation of what happened and why, according to a Treasury statement.

The FSOC is examining the trading loss events “so that mistakes in judgment at individual banks are less likely to threaten the broader financial system and economy,” according to a written statement from a Treasury spokesman distributed after the meeting.

The FSOC examination is important to the ongoing effort to design safeguards and reforms, including those in the Volcker Rule, the Treasury stated. The Volcker Rule restricts financial institutions from engaging in certain kinds of speculative investing.

SIFI-designated companies would fall under the supervision of the Federal Reserve and its interpretations of the Dodd-Frank Act on such things like the Volcker Rule.

 The Securities and Exchange Commission (SEC) had been considering giving insurers a broad exemption from the Volcker Rule before the JP Morgan Chase trading losses were revealed, it appeared, at least according to testimony. In answering a question at a House Appropriations Committee subcommittee hearing March 6, SEC Chairman Mary Schapiro said the agency is considering exempting insurer activity in covered funds as well as investments in their general account from the Volcker rule.

The FSOC’s published hearing procedures govern hearings to be conducted by the FSOC, or the Council, as it calls itself,  and are for objections to proposed determinations and requests for  emergency waivers or modifications made pursuant to Title I (monitoring  systemic risk to ensure financial stability)  and Title VIII (financial utilities-payment, clearing and settlement supervision) of the Dodd-Frank Act.

The FSOC also unanimously voted to propose the designation of an initial set of FMUs as systemically important. It expects to make final determinations on an initial set of FMUs as early as this summer. However, SIFI designations for nonbanks are expected at the earliest by the end of the year.

The FSOC was quick to point out in its hearing procedures document notice that Federal Rules of Evidence, and the Federal Rules of Civil Procedure do not apply here. There is no right to discovery or other similar rights for the petitioner.

Hearings are to be granted at the sole discretion of the Council. If the Council denies a request for an oral hearing, an insurer or other petitioner would have a written hearing and submit written materials to the Council by the deadline specified.

A petitioner that is a nonbank financial company that submits written materials to supplement any materials presented during an oral hearing shall submit those written materials no later than seven days after the date of that hearing.

An insurance company to be designated a SIFI can contest  the proposed determination or ask for a emergency waiver or modification by the Council.

According to the hearing notice, the written statement must be in the form of a memorandum. The petitioner also may submit relevant exhibits, such as declarations, affidavits, appendices, charts, graphs, or other appropriate presentation of data, in support of the written statement.

However, charts, graphs and all relevant information and data submmitted or stated will be kept confidential. 

It is unclear if the fact there were proceedings at all, or certain companies appeared a proposed designation would become public, though.

The hearing procedures are to be submitted to the Federal Register where it will be open for comments.

FSOC members will remain focused on issues relating to JP Morgan Chase & Co.and return to them and others at their next scheduled meeting of the Council in June, Treasury stated.

Trade associations stayed mum on the hearing procedures.


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