On April 3, the Federal Reserve Board approved a final rule that establishes the requirements for determining when a company is “predominantly engaged in financial activities.” The requirements will be used by the Financial Stability Oversight Council when considering whether to designate a nonbank financial company as systemically important and subject to supervision by the Federal Reserve Board. Pursuant to the rule, a company is considered to be predominantly engaged in financial activities if 85 percent or more of the company’s consolidated revenues or assets are derived from or related to activities that are defined as financial in nature under the Bank Holding Company Act. In addition, the FSOC may issue recommendations for primary financial regulatory agencies to apply new or heightened standards to a financial activity or practice conducted by companies that are predominantly engaged in financial activities. The final rule largely mirrors the rule as proposed, but includes some changes. For example, final rule states that engaging in physically settled derivatives transactions generally will not be considered a financial activity. The final rule also defines the terms “significant nonbank financial company” and “significant bank holding company.” The rule will become effective on May 6, 2013.