FSOC Proposed Rulemaking on Fed Supervision of Nonbank Financial Companies: Congress Questions Transparency


For insurers following the latest developments with respect to the Financial Stability Oversight Council (FSOC) and the designation of nonbank financial companies subject to additional oversight pursuant to Section 113 of The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), a House Financial Services Subcommittee hearing provided some interesting insights into the next steps in the process. In particular, the FSOC has drawn increased scrutiny from Congress, including at the recent hearing, and criticism from the insurance industry with respect to transparency in developing the applicable criteria, lack of insurance industry input during the process, and ongoing debate on the appropriate number of companies which should be subject to heightened supervision. The Senate Banking Committee also held a less colorful hearing on the FSOC’s systemic risk monitoring on May 12, 2011. We anticipate that the next meeting of the FSOC, possibly scheduled before the end of May, will reflect a response to some of the criticisms from Congress.


The FSOC is developing specific criteria and a regulatory framework by which it will consider designating nonbank financial companies for supervision by the Board of Governors of the Federal Reserve System (Board). On January 18, 2011, the FSOC released a notice of proposed rulemaking (NPR) outlining the criteria that will inform, and the process and procedures established under the Dodd-Frank Act for, the FSOC’s designation of certain United States and foreign nonbank financial companies, which are defined to include insurers, to be supervised by the Board.1 Pursuant to the NPR, the FSOC can require such Board supervision if it determines that the material financial distress at a particular firm, or the nature, scope, size, scale, concentration, interconnectedness, or mix of the activities at the firm, could pose a threat to the financial stability of the United States. Public comments to the NPR identified shortcomings with the FSOC’s proposed framework and the lack of transparency in the process of developing the framework.

The concerns identified in the public comments, including those expressed by certain insurers and insurance industry associations, served as part of the backdrop for the hearing regarding oversight of the FSOC held by the House Financial Services Oversight and Investigations Subcommittee on April 14, 2011.2

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