Representative Maloney Recommends Changes to FSOC Designation Process (with Lofchie Comment)

Representative Carolyn Maloney (D-NY) wrote a letter to Secretary of the Treasury Jacob Lew in which she voiced her concern that the FSOC process for identifying and designating nonbank systemically important financial companies has "created needless uncertainty," and recommended that FSOC communicate sooner with companies under consideration.

Representative Maloney made suggestions to improve the FSOC designation process that included the following:

• FSOC should provide notice to companies that have advanced to Stage 2 of the designation process, either affirmatively or upon request;
• FSOC should begin engagement with a company that is under consideration once the company has advanced to Stage 2 rather than waiting until Stage 3;
• once FSOC has provided a company with notice that they have advanced to Stage 3, FSOC should identify the particular issues that it believes merit further review in order to determine whether the company is systemically important; and
• once FSOC votes on a proposed designation for a particular company, FSOC should adopt a policy of automatically granting an oral hearing to the company upon request.

According to Representative Maloney, these "modest changes would improve the designation process without undermining the Council's ability to identify, monitor, and mitigate systemic risk."

In a statement by the U.S. Treasury Department, it affirmed that it is committed to conducting FSOC business in an open and transparent manner and is reviewing Representative Maloney's proposals.

Lofchie Comment: Representative Maloney's letter is interesting in that it consists of mild criticism by a Democrat of a regulatory organization that has received severe criticism from Republicans. Thus, it may be viewed as an attempt to find middle ground or to blunt a call for more significant changes to FSOC's operations. The implementation of Representative Maloney's recommendations would represent some improvement in the manner in which FSOC conducts its process. Recognizing that a fuller review of FSOC would be impractical in our divided Congress, adoption of her suggestions would be preferable from a policy perspective, although her suggestions would leave open fundamental questions about the FSOC, including its organization, mandate, authority, processes and even continued existence.

See: Representative Maloney's Letter.Related news: SEC Commissioner Piwowar Slams FSOC (with Lofchie Comment) (July 15, 2014); House Financial Services Committee Schedules Markup of FSOC Bills (June 17, 2014) House Financial Services Committee Hearing: "Examining the Dangers of the FSOC's Designation Process and Its Impact on the U.S. Financial System" (with Delta Strategy Group Summary) (May 21, 2014) House Financial Services Committee Chairman Calls on FSOC to Cease and Desist (May 20, 2014); House Financial Services Subcommittee Chairmen Send Letter to FSB and FSOC Requesting Information on Methodologies Used to Designate G-SIFIs (with Lofchie Comment) (May 9, 2014); House Financial Services Committee Chairman Hensarling Urges Secretary Lew to Cease Using "Too Big to Fail" Designations (May 8, 2014); Representative Garrett Questions the SIFI Designation Authority Granted to FSOC by Dodd-Frank (with Lofchie Comment) (May 6, 2014); House Subcommittee Chair Garrett Delivers Opening Remarks at Oversight of SEC Hearing, Focuses on FSOC and NMS (with Lofchie Comment) (April 29, 2014); House Financial Services Subcommittee Chairman Introduces Legislation to Reform FSOC (with Lofchie Comment) (April 3, 2014); SEC Commissioner Aguilar Gives FSOC Thumbs-down on Mutual Funds, Discusses Cybersecurity and Reg. NMS (with Lofchie Comment) (April 2, 2014).