FSOC Issues Proposed Determination of SIFI Designation for MetLife
On September 4, 2014, the Financial Stability Oversight Council (FSOC) issued a “proposed determination” that Metropolitan Life Insurance Company (MetLife) is a systemically important financial institution (SIFI). MetLife may request a hearing before FSOC to contest the proposed determination. If designated as a SIFI, MetLife may appeal the designation in federal court. If MetLife appeals the designation, the court will have to decide whether FSOC’s determination was “arbitrary and capricious.” FIO Focus Issue 33 provides additional information about the SIFI designation process.
Companies designated as SIFIs are subject to prudential oversight by the Federal Reserve. The standards are currently being developed. A SIFI will also need to file a resolution plan with the Federal Deposit Insurance Corporation.
FSOC Reform Legislation
In July, before the Congressional summer recess, Representative Dennis Ross (R-FL) introduced H.R. 5180, the “Financial Stability Oversight Council Improvement Act of 2014.” The legislation was co-sponsored by Reps. John Delaney (D-MD), Spencer Bachus (R-AL), Andy Barr (R-KY), Kyrsten Sinema (D-AZ), Patrick Murphy (D-FL) and Blaine Luetkemeyer (R-MO). The legislation will increase transparency of FSOC’s activities and change the SIFI designation process as well as the factors which FSOC must consider. The legislation would make FSOC an agency for purposes of the Administrative Procedures Act (APA).
FSOC follows a three-stage process for identifying and designating nonbanks as SIFIs. Currently, FSOC does not necessarily inform companies they are under consideration until Stage 3 and has the discretion to accept data, information or reports from companies under consideration “to the extent [it] determines appropriate.” The legislation would require earlier notice and would require FSOC to consider information from a company as well as from a company’s primary financial regulator before a designation could be issued. It would also add an additional mandatory factor, which is the “appropriateness of the imposition of prudential standards as opposed to other forms of regulation to mitigate the identified risks.”
In a change from the current process, before undertaking an analysis of a company’s potential threat to the financial stability of the United States, FSOC would be required to explain in writing, and “with specificity,” the basis for selecting a company for review. Then, before making a proposed designation, FSOC would have to vote on a resolution explaining “with specificity” any risks to the financial stability of the United States relating to the company under consideration. A copy of the resolution would have to be provided to the company’s primary financial regulator (which includes state insurance regulators). The regulator would have six months to issue proposed regulations or “undertake other regulatory actions” to mitigate or prevent the identified risks.
The legislation would prohibit FSOC from voting on a proposed determination unless the primary regulator fails to respond or FSOC determines that proposed regulations or other regulatory action by the primary regulator would be insufficient to mitigate the risks identified by FSOC. Notice of a proposed designation would have to include a detailed explanation as to why the primary regulator’s actions would be insufficient to mitigate or prevent the risks. Finally, following a proposed designation, the company would have the right to present a plan to modify its business, structure or operations in order to address the risks. FSOC would be required to consider such a plan and, if approved, the company would have time to implement the plan before a final designation could be made.
The legislation would designate FSOC as an agency and specifically subject to the APA. Among other things, this would mean that public meetings would have to be announced. The legislation would require FSOC to make certain data and analysis publicly available and FSOC could close meetings only by a majority vote.