The Financial Stability Oversight Council (the “Council”), which was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”), has issued an advance notice of proposed rulemaking requesting comments on the criteria that should inform the Council’s determination of whether a nonbank financial company should be subject to the supervision of the Federal Reserve Board of Governors (the “Board”). The Act requires that in determining whether a nonbank financial company should be subject to the Board’s supervision, the Council consider, among other factors, leverage; off-balance-sheet exposures; transactions and relationships with other significant nonbank financial companies; the importance of the company as a source of credit for households, businesses and local and state governments and as a source of liquidity for the U.S. financial system; the extent to which assets are managed rather than owned by the company and the extent to which ownership of assets under management is diffuse; the nature, scope, size, scale, concentration, interconnectedness, and mix of the activities of the company; the degree to which the company is already regulated by a financial regulatory agency; the amount and nature of financial assets; the amount and types of liabilities, including the degree of reliance on short-term funding; and other risk-related factors that the Council deems appropriate.

The notice contains 15 detailed questions, including some general questions such as what metrics the Council should use, how quantitative and qualitative considerations should be incorporated, how interconnectedness should be measured, whether certain factors should be weighed more heavily than others and whether the degree of public disclosure and transparency should be a consideration. The notice also requests comments on how the Council should measure and assess the scope, size and scale of nonbank financial companies, including whether a risk-adjusted measure of a company’s assets should be used. With respect to pooled investment vehicles such as investment companies, hedge funds and private equity funds, the Council is seeking comments on how it should define and take “managed assets” into consideration. In addition, the Council is requesting comments on whether the type of asset management activity (for example, management of private funds as compared to registered investment companies), should inform its decision. The Council notes that during the recent financial crisis some firms provided support to investment vehicles they sponsored or managed and questions whether the Council should take account of such implicit support in making its determinations.