HR3682-119

What This Bill Does

The Financial Stability Oversight Council Improvement Act changes the process for designating a U.S. nonbank financial company as systemically important under section 113 of the Financial Stability Act of 2010. Before FSOC may vote on a proposed determination, it must first determine, in consultation with the company and the company's primary financial regulatory agency, that a different action would be impracticable or insufficient to mitigate the threat the company could pose to U.S. financial stability. Alternatives can include action by FSOC, action by the primary regulator such as new or heightened standards under section 120, or a written plan submitted promptly by the company.

Who Benefits and How

U.S. nonbank financial companies benefit because FSOC must consult with them and consider less burdensome alternatives before designation. Insurance companies, asset managers, finance companies, and other nonbank firms benefit from a higher procedural hurdle before Federal Reserve supervision and enhanced prudential standards can apply. Primary financial regulators benefit because their own regulatory actions must be considered before FSOC designation. Company compliance officers benefit because written company plans can be part of the alternative-action analysis. Investors and borrowers may benefit if firms avoid the cost and market stigma of designation when targeted alternatives are enough.

Who Bears the Burden and How

FSOC must conduct and document an alternatives analysis before voting on a proposed nonbank designation. The Treasury Department, as FSOC chair staff, must coordinate company consultation, primary-regulator consultation, and findings about whether alternatives are impracticable or insufficient. Primary financial regulatory agencies must participate in the analysis and may need to develop or apply alternatives. Financial stability advocates may bear a policy burden because designations become harder to complete. The Federal Reserve may receive fewer designated nonbank companies for supervision.

Key Provisions

• Requires FSOC to determine that alternative action is impracticable or insufficient before voting on a proposed nonbank designation.
• Requires consultation with the U.S. nonbank financial company before the vote.
• Requires consultation with the company's primary financial regulatory agency.
• Allows alternatives to include FSOC action, primary-regulator action, section 120 standards, safeguards, or a company-submitted written plan.
• Amends the annual reevaluation cross-reference so the new initial-determination requirement fits the existing section 113 process.