FSOC Finalizes Modifications to the Systemically Important Designation Process for Nonbank Financial Companies
On November 3, 2023, the Financial Stability Oversight Council (“FSOC”) finalized amendments to its interpretive guidance on assessing financial stability risks and designating nonbank financial companies as “systemically important” (a “nonbank SIFI”). The guidance replaces FSOC’s prior guidance on nonbank SIFI designations, which was most recently modified in December 2019 under the previous administration, and modifies FSOC’s approach to identifying, assessing and responding to certain potential risks to U.S. financial stability.
The guidance retains a two-stage nonbank SIFI designation process substantially similar to the entity designation process established under the 2019 guidance (once an entity designation is deemed potentially appropriate under the 2019 guidance). In addition, the substantive analytic factors to be evaluated by FSOC in assessing potential financial stability risks retain significant overlap with those applicable under the 2019 guidance for entity-specific determinations. However, the new guidance departs from the 2019 guidance in certain key respects in order to give FSOC additional flexibility in identifying, assessing and responding to possible financial stability risks, including by eliminating FSOC’s preference for an “activities-based” approach, broadening the applicability of FSOC’s analytic framework, and eliminating cost-benefit and “likelihood of failure” analyses.
To view and print the full memorandum, please click here.