US Stability Council Starts Its Work

by Glen Shapiro, LawAndTax-News.com, New York

07 October 2010

During its first meeting recently, the US Financial Stability Oversight Council (FSOC) took a number of important steps to fulfil its mandate under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

As established under the Dodd-Frank Act, the FSOC is tasked with identifying risks to the financial stability of the United States, promoting market discipline, and responding to emerging threats to the stability of the US financial markets. It is said that it will provide, for the first time, comprehensive monitoring to ensure the stability of the country’s financial system.

The FSOC has ten voting members, including the US Secretary of the Treasury (who chairs the Council), Chairman of the Federal Reserve, Comptroller of the Currency, Director of the Bureau of Consumer Financial Protection, Chair of the Securities and Exchange Commission, Chair of the Federal Deposit Insurance Corporation, Chair of the Commodity Futures Trading Commission, Director of the Federal Housing Finance Agency and Chair of the National Credit Union Administration Board.

During its first meeting, apart from its by-laws and transparency policy, the FSOC approved an advance notice of proposed rulemaking (ANPR) on designating nonbank financial companies for heightened supervision; a notice and request for information (RFI) regarding the FSOC's "Volcker Rule" study and recommendations; and an integrated implementation roadmap for both the FSOC and its member agencies.

With regard to the first of those, the Dodd-Frank Act gives the FSOC a mandate to designate systemically important nonbank financial firms for heightened supervision, in order to ensure that these institutions cannot escape oversight or threaten the stability of the broader financial sector. The ANPR is an initial step in the process by which the Council intends to develop a robust and disciplined framework for the designation of nonbank financial companies for heightened supervision.

The ANPR, which will be available after publication by the Federal Register, consists of fifteen questions to solicit public comment regarding the implementation of these provisions, and will have a 30-day public comment period. The ANPR will inform development of a specific regulatory proposal expected to be published for comment by the end of this year, with final FSOC action on the designation criteria and process expected by March 31, 2011.

The Dodd-Frank Act also requires the FSOC to conduct a study and make recommendations by January 22, 2011, to inform coordinated agency rulemaking on the "Volcker Rule." The aim of the rule is to help improve the safety of the US banking system by prohibiting proprietary trading activities and certain private fund investments.

The notice and RFI, which will be published by the Federal Register, provide a mechanism for soliciting public and industry input during the development of the FSOC's formal study and recommendations. The RFI will have a 30-day public comment period.

Finally, the integrated implementation roadmap outlines a coordinated timeline of goals, both of the FSOC and its member agencies, to fully implement the Dodd-Frank Act. The roadmap is the product of a mutual effort to provide transparency as financial regulatory agencies move forward with financial reform. It includes statutory deadlines as well as non-statutory targets for agency work that may be updated over time.

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