Yesterday late afternoon the Financial Stability Oversight Council (the “Council”) proposed rules that would set procedures for the Council’s hearings on proposed determinations that a nonbank financial company or financial market utility is systemically important, and thus subject to enhanced prudential regulation.
Under the Dodd-Frank Act, the Council has authority to determine that a nonbank financial company or financial market utility is subject to enhanced prudential regulations. The Act includes criteria that the Council must consider in making that determination, which are intended to measure a firm’s systemic importance. The Council has adopted rules incorporating the statutory criteria into designation process rules for nonbank financial companies and financial market utilities. Our client memoranda (proposed rule and final rule) provide additional detail on the Council’s designation process rules for nonbank financial companies.
The proposal would supplement the designation process rules. More specifically, the proposed hearing procedures would set the process by which a firm that has been proposed to be designated as systemically important under the designation process rules can obtain a written hearing, and request an oral hearing, before the Council on the proposed designation. The proposal also specifies the types of information that a firm would need to submit to the Council as part of a request to schedule a written hearing or to petition for an oral hearing. The proposal would clarify that materials submitted in connection with a hearing are confidential, but subject to the Council’s rules implementing the Freedom of Information Act.
Notably the proposal does not contemplate procedures by which the Council would obtain information from a firm during the designation process (that is, before the Council makes an official proposed designation). It is unclear whether the Council will provide formal guidance on that aspect of the designation process or whether it will be negotiated on a firm-by-firm basis during the Council’s evaluation of potential designees. We will continue to apprise you of additional information concerning the designation process as it becomes available.
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