Proposed FSOC Guidance Could Lead to Bank-like Regulation for Asset Managers, Private Funds, and Non-bank Mortgage Companies – as well as New Federal Regulatory Frameworks for Digital Assets and Payment Activities

, , , ,

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:[1] its proposed Analytic Framework for Financial Stability Risk Identification, Assessment, and Response (the “Proposed Analytic Framework”),[2] and its proposed interpretive guidance entitled Authority To Require Supervision and Regulation of Certain Nonbank Financial Companies (the “Proposed Non-bank Guidance”).[3]

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.