The Federal Reserve Board has approved rules
making it clearer which non-banks can be swept into the Board's regulatory ambit and under what circumstances they may be "systematically important." The March 29, 2013 release lays out the Fed's requirements for determining when a company is “predominantly engaged in financial activities,” and defines the terms, "significant nonbank financial company" and "significant bank holding company." These three definitions will be used by the Financial Stability Oversight Council (FSOC) when it considers whether a nonbank financial company could pose a threat to the financial stability of the United States, and whether it should be subject to consolidated supervision by the Federal Reserve.
Consistent with the requirements of Title I, section 113 of the Dodd Frank Act, a firm will be considered significant if it has $50 billion or more in total consolidated assets or has been designated by the FSOC as systemically important.
Under the Fed's new rules, a company is considered to be “predominantly engaged” in financial activities if either:
(i) the annual gross revenues derived by the company and all of its subsidiaries from financial activities, as well as from the ownership or control of an insured depository institution, represent 85 percent or more of the consolidated annual gross revenues of the company; or
(ii)the consolidated assets of the company and all of its subsidiaries related to financial activities, as well as related to the ownership or control of an insured depository institution, represent 85 percent or more of the consolidated assets of the company.
The Fed has listed in the release the types of financial activities that will be considered when applying the test above. The Fed has also carved out numerous exceptions for certain kinds of financial activities based on comments, and excluded them from the test. For example, the Fed will not consider engaging in physically settled derivatives transactions generally as a financial activity for purposes of the test.