The Financial Services Oversight Council (FSOC) has now spilled considerable ink describing the manner in which it will discharge its responsibility under Dodd-Frank to determine which non-bank financial companies present sufficient risk to the U.S. financial system that they should be subject to special Federal Reserve Board (Fed) regulation pursuant to Dodd-Frank. This could include some insurance companies, mutual funds, hedge funds, and investment managers.

Among other things, the FSOC in April of this year issued a rule and interpretive guidance outlining a multistage process in which the FSOC would generally give a company notice and opportunity to submit information bearing on whether it should be designated as being a systemically important financial institution (SIFI) and thus subject to Fed regulation. If the process goes far enough, the company also would have the right to a hearing (though not necessarily an in-person or oral hearing). In May the FSOC published additional procedures that will apply to the conduct of such hearings.

To be sure, the FSOC’s guidance specifies certain quantitative standards and general considerations that will guide its decisions as to what companies to evaluate for SIFI status, as well as its ultimate determinations. However, it is not possible to know how the FSOC will apply these standards and considerations in particular cases. Indeed, the FSOC has discretion to deviate even from the specific quantitative standards, if it considers that appropriate in light of Dodd-Frank’s purposes.

Accordingly, it seems that the actual parameters of SIFI regulation will emerge only slowly over time, through an arduous back-and-forth process between the FSOC and potential SIFIs that it identifies.