The Financial Stability Oversight Council (FSOC) has adopted final rules on
Supervision and Regulation of Certain Nonbank Financial Companies. These final rules and the accompanying interpretive guidance lay out in detail the manner in which the FSOC intends to implement the statutory standards and the processes and procedures that the Council intends to follow.
In order to address the systematic risks posed by nonbank financial companies, section 113 of the Dodd-Frank Act authorizes the FSOC to subject a nonbank financial company to supervision by the Board of Governors of the Federal Reserve System and become subject to prudential standards under Title I of the Dodd-Frank Act, if the FSOC determines that material financial distress at the nonbank financial company, or the nature, scope, size, scale, concentration, interconnectedness, or mix of the activities of the nonbank financial company, could pose a threat to the financial stability of the United States. The definitions included in the rules potentially sweep into their regulatory ambit a vast number of market actors. The new rules define a U.S. or foreign “nonbank financial company,” (subject to a list of exclusions) as a company that is incorporated in the US, any state, or in a foreign country, and is predominantly engaged in financial activities. Further, the definition of "engaged in financial activities" is also as broad.
The second part (Subpart B) of the new rules lay out the criteria the FSOC will use to determine that a US or foreign nonbank financial company should also abide by Dodd-Frank prudential standards. These new rules go beyond the considerations set forth in the Dodd-Frank Act, and look through parent or top level compnies to the activities of a nonbank financial company’s subsidiaries.
Part C and an appendix to the rules set forth the evidentiary standards and procedures the FSOC will use to make its determinations.