The recently-approved Financial Stability Oversight Council ("FSOC") interpretive guidance establishing an "activities-based approach" to address systemic risk was published in the Federal Register. The interpretive guidance will become effective on January 29, 2020.

As previously covered, FSOC will:

  • identify, evaluate and address potential risks to U.S. financial stability that arise from particular activities and seek to adopt regulations applicable to those activities, rather than making determinations relating to a single entity;

  • perform a cost-benefit analysis when considering a nonbank financial company for a potential determination under section 113 of the Dodd-Frank Act;

  • evaluate the risk of a "nonbank financial company's material financial distress" when assessing the firm for a potential designation;

  • combine the prior three-stage determination process for a determination under section 113 into two stages;

  • improve the new two-stage determination process by updating the procedure and incorporating provisions from the 2015 Supplemental Procedures;

  • clarify the post-designation "off-ramp" to rescind a determination regarding a particular company; and

Commentary

If the open-ended authority provided FSOC is not to be eliminated, at least the government is taking steps to formalize the process so that it may be applied with an even-hand.