MetLife scored a victory yesterday as Judge Rosemary Collyer of the U.S. District Court for the District of Columbia invalidated the Financial Stability Oversight Council’s (FSOC) designation of MetLife as a Systemically Important Financial Institution (SIFI).
MetLife had challenged its designation on a range of grounds, effectively arguing that the FSOC could not hypothecate unsubstantiated economic risks and then regulate to prevent those risks. Specifically, Judge Collyer’s order ruled in favor of MetLife’s claims that the government’s designation was arbitrary and capricious, and in violation of law, because it:
- Depended on unsubstantiated assumptions and speculation.
- Failed to assess MetLife’s vulnerability to material financial distress.
- Ignored the economic effects of the SIFI designation.
If it stands, the ruling will impact the FSOC’s designation authority, as well as the standards of administrative law, by requiring the FSOC to be more rigorous in the analysis it conducts in order to make a valid SIFI designation. This will be of particular significance to the ongoing analysis that the FSOC is currently conducting with respect to the asset management sector.