On April 21, the Financial Stability Oversight Council (FSOC) released a proposed analytic framework for financial stability risks, “intended to provide greater transparency to the public about how [FSOC] identifies, assesses, and addresses potential risks to financial stability, regardless of whether the risk stems from activities or firms.” FSOC explained in a fact sheet that the proposed framework would not impose any obligations on any entity, but is instead designed to provide guidance on how FSOC expects to perform certain duties. This includes: (i) identifying potential risks covering a broad range of asset classes, institutions, and activities, including new and evolving financial products and practices as well as developments affecting financial resiliency such as cybersecurity and climate-related financial risks; (ii) assessing certain vulnerabilities that most commonly contribute to financial stability risk and considering how adverse effects stemming from these risks could be transmitted to financial markets/market participants, including what impact this can have on the financial system; and (iii) responding to potential risks to U.S. financial stability, which may involve interagency coordination and information sharing, recommendations to financial regulators or Congress, nonbank financial company determinations, and designations relating to financial market utility/payment, clearing, and settlement activities that are, or are likely to become, systemically important.

The same day, FSOC also released for public comment proposed interpretive guidance relating to procedures for designating systemically important nonbank financial companies for Federal Reserve supervision and enhanced prudential standards. (See also FSOC fact sheet here.) The guidance would revise and update previous guidance from 2019, and “is intended to enhance [FSOC’s] ability to address risks to financial stability, provide transparency to the public, and ensure a rigorous and clear designation process.” FSOC explained that the proposed guidance would include a two-stage evaluation and analysis process for making a designation, during which time companies under review would engage in significant communication with FSOC and be provided an opportunity to request a hearing, among other things. Designated companies will be subject to annual reevaluations and may have their designations rescinded should FSOC determine that the company no longer meets the statutory standards for designation.

Comments on both proposals are due 60 days after publication in the Federal Register.

Both CFPB Director Rohit Chopra and OCC acting Comptroller Michael J. Hsu issued statements supporting the issuance of the proposed interpretive guidance. Chopra commented that, if finalized, the proposed guidance “will create a clear path for the FSOC to identify and designate systemically important nonbank financial institutions” and “will accelerate efforts to identify potential shadow banks to be candidates for designation.” Hsu also noted that sharing additional details to improve the balance and transparency of FSOC’s work “would both make it easier for [FSOC] to explain its analysis of potential risks and create an opportunity for richer public input on the analysis.”