On 21 April, the Financial Stability Oversight Council (“FSOC”) – a federal multi-regulator council established by the 2010 Dodd-Frank Act – released for public comment two documents that could set the stage for a dramatic transformation of how the United States’ financial markets are regulated: its proposed Analytic Framework for Financial Stability Risk Identification, Assessment, and Response (the “Proposed Analytic Framework”), and its proposed interpretive guidance entitled Authority To Require Supervision and Regulation of Certain Nonbank Financial Companies (the “Proposed Non-bank Guidance”).
This proposed interpretive guidance and accompanying analytic framework, if finalized, would have major implications to U.S. financial markets:
- FSOC will be empowered to use sweeping powers to subject an expansive potential list of many different types of non-bank financial firms and a broad range of otherwise regulated financial activities to additional bank-like regulation by the Federal Reserve Board (the “Fed”).
- FSOC will no longer be required to conduct cost-benefit analysis or consider the economy-wide and regulatory costs of subjecting large swaths of the financial sector to bank-like regulation.
- FSOC will no longer be required to establish the likelihood of material financial distress associated with a particular financial firm or activity before determining that expansive Fed bank-like regulation is necessary.
- Over a decade of procedural guardrails on FSOC’s powers applied by the Obama and Trump Administrations will be abandoned.
To learn more, please download the analysis here.