The Financial Stability Oversight Council is seeking public comment on proposed interpretative guidance on nonbank financial company designations.
This proposed guidance would re-institute a number of elements first introduced by FSOC in 2019 guidance while adding new enhancements that reflect the council’s current understanding of financial stability.
“The Council has a vital mission – identifying and responding to potential threats to the stability of the financial system before they can translate into real economic harms,” Secretary of the Treasury Scott Bessent said. “Today’s proposed guidance would return the Council to prioritizing an activities-based approach where we focus first on risks that arise from specific activities and practices across markets, rather than single out individual firms.”
The proposed interpretive guidance approved by FSOC would:
- Incorporate economic growth and economic security into the Council’s analysis of risks to financial stability.
- Prioritize identifying, assessing, and addressing risks through an activities-based approach.
- Enhance analytical rigor by committing to performing a cost-benefit analysis before a designation decision.
- Provide a pre-designation “off-ramp” and promote greater transparency.
The proposed guidance will be available for a 45-day public comment period following its publication in the Federal Register.
The Conference of State Bank Supervisors has already weighed in with its thoughts on the guidance.
“As we consider potential changes to the Council’s designation framework, it is important to acknowledge that our goal should be a process that is not only effective, but also durable. One that is clearly understood, consistently applied, and broadly accepted by stakeholders,” North Dakota Department of Financial Institutions Commissioner and Financial Stability Oversight Council (FSOC) State Banking Supervisor Representative Lise Kruse said. “The current proposal provides an important opportunity to move in that direction. The feedback we receive through the public comment process will serve as a meaningful indicator of whether we have struck the right balance between flexibility and predictability, and whether the framework is workable in practice.”
Kruse noted that state regulators are the primary prudential and market conduct supervisors of many nonbank firms.
“We bring deep, institution-specific knowledge and an ongoing supervisory presence that can materially inform the Council’s analysis. Consultation and coordination with state regulators should therefore be viewed not as a procedural step, but as a core strength of the designation process—one that enhances both the rigor and credibility of the Council’s work,” Kruse said. “I look forward to continuing to work collaboratively to ensure the framework reflects these principles.”