The end-of-year holidays failed to slow the pace of developments surrounding the Financial Stability Oversight Council’s (FSOC) process for designating nonbank Systemically Important Financial Institutions (SIFIs) for Federal Reserve supervision and enhanced prudential standards.
In November 2014, the United States Government Accountability Office (GAO) issued a report regarding its audit of FSOC’s SIFI decision-making process to the Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs. The report identified several key areas in which GAO concluded that FSOC could enhance the accountability and transparency of its designation process to "bolster public and market confidence in the process and also help FSOC achieve its intended goals."
Unfortunately, GAO’s recommendations came too late for MetLife. On December 18, following a non-public hearing conducted in response to MetLife’s administrative challenge to FSOC’s preliminary SIFI determination, FSOC issued its final designation of MetLife as a nonbank SIFI. Notably, FSOC’s independent voting member with insurance expertise dissented from the designation. The non-voting insurance commissioner representative on FSOC also opposed the designation.
Undeterred, on January 13, MetLife filed a first-of-its-kind court challenge to FSOC’s SIFI determination in D.C. federal district court, alleging that, among the "numerous critical errors" in FSOC’s rationale for the SIFI designation, "FSOC failed to understand, or give meaningful weight to, the comprehensive state insurance regulatory regime that supervises every aspect of MetLife’s U.S. insurance business, despite statutory and regulatory requirements that direct [FSOC] to consider existing regulatory scrutiny." MetLife seeks declaratory and injunctive relief overturning the designation based on FSOC’s alleged violations of the Dodd-Frank Act, the Administrative Procedure Act, and MetLife’s constitutional due process rights. MetLife also asserts that FSOC’s determination and certain authorizing provisions of the Dodd-Frank Act violate the constitutional separation of powers.
Meanwhile, amid pressure from certain Congressional and industry circles, FSOC announced in February that it had adopted a series of changes to its designation process, effective immediately, including notifying financial firms under SIFI consideration earlier in the process and allowing the primary regulators of subject firms to participate in the process. Stay tuned.