The Investment Company Institute (ICI) has come out in support for the Financial Stability Oversight Council’s (FSOC) proposal on the treatment of systemic risk among nonbank financial companies.
FSOC’s proposal features an activities-based approach to addressing risks and measures to help ensure that financial entities are designated as systemically important financial institutions (SIFIs) only as a last resort. ICI said an activities-based approach is a more effective way to address risk, rather than addressing risks only at an individual company that may be designated. It also makes clear that a SIFI designation will be reserved for use in rare circumstances.
“I commend the Council for a well-reasoned and thoughtful proposal—one that rightly seeks to make the most of FSOC’s coordinating power,” ICI President and CEO Paul Schott Stevens wrote in a letter to FSOC leadership. “Under this proposal, FSOC will make better use of the expertise and different perspectives of financial regulators, while operating in a more transparent and accountable manner. The proposal also appropriately reserves FSOC’s SIFI designation authority as a last resort for cases when a specific company clearly poses significant risks to the US financial system that cannot be adequately addressed through other means.”
FSOC’s proposal also adds a new section that requires FSOC to consider the expected benefits and costs of a nonbank SIFI designation. ICI says this will help improve the council’s decision making.