Bipartisan legislation passed by the House Financial Services Committee gives the Financial Stability Oversight Council new ways to address potential risks to the financial system, beyond designating non-bank entities as systemically important financial institutions.
Passed Wednesday, the FSOC Improvement Act of 2015, H.R. 1550, provides “an opportunity for a company to eliminate risk rather than being designated systemically important,” said a news release from the Financial Services Committee.
The changes were welcomed by the Investment Company Institute, a regulated funds association. The ICI said in a separate news release that the new process will require the FSOC to identify the reasons it believes a non-bank entity poses systemic risk to the system; allows an entity that the FSOC has proposed to classify as a SIFI to make changes that would address these issues; and encourages derisking after a SIFI designation of an entity “by requiring FSOC to conduct a more robust review process every five years.” The FSOC will be required to vote every five years on whether an entity’s SIFI designation should be rescinded.
“FSOC’s goal should be to reduce systemic risk, not simply to designate ever more non-bank financial companies as SIFIs for the Federal Reserve to regulate,” said Paul Schott Stevens, ICI president and CEO, in the news release. “This bipartisan bill would enhance FSOC’s ability to mitigate systemic risk while also ensuring that non-bank SIFI designations are reserved for the limited cases where FSOC concludes that Federal Reserve oversight is more appropriate than alternative regulatory tools or action by the financial entity to address identified risks.”