On April 25, 2019, the Committee submitted a comment letter to the Financial Stability Oversight Council (“FSOC”) to provide the Committee’s input on FSOC’s proposed interpretative guidance pertaining to its process for designating nonbank financial companies as systemically important.
The Committee has previously commented extensively on the issue of FSOC’s designation of nonbank financial companies. The Committee’s letter applauded the Council for revisiting its previously issued guidance on nonbank financial company designations and the processes underlying such designations. The Committee’s letter expressed support for FSOC’s proposal to adopt an activities-based approach to addressing potential risks and threats to U.S. financial stability before considering designating a specific nonbank financial institution as systemically important.
The letter also emphasized several other points. First, any activities-based regulation should be based on an empirical link between the activity or product and systemic risk, and based on evidence that the regulation will mitigate the risk effectively and efficiently. Second, FSOC should work in coordination with any primary regulator regarding any activities-based regulation and should primarily focus activities-based oversight on material new and emerging risks. Such risks would particularly warrant FSOC’s attention if a primary regulatory authority does not exist. Third, given FSOC’s statutory authority to designate specific nonbanks as systemically important, the Committee reiterated its view that the designation of specific firms risks creating inefficiencies and competitive disadvantages in capital markets (both domestically and internationally.
The Committee’s letter can be found here.