Federal Register: FSOC Approves Activities-Based Approach for Combating Systemic Risks

The Financial Stability Oversight Council ("FSOC") interpretive guidance establishing an "activities-based approach" to address systemic risk was published in the Federal Register. The interpretive guidance will become effective on January 29, 2020.

As previously covered, FSOC will:

• identify, evaluate and address potential risks to U.S. financial stability that arise from particular activities and seek to adopt regulations applicable to those activities, rather than making determinations relating to a single entity;

• perform a cost-benefit analysis when considering a nonbank financial company for a potential determination under section 113 of the Dodd-Frank Act;

• evaluate the risk of a "nonbank financial company's material financial distress" when assessing that firm for a potential designation;

• combine the prior three-stage determination process under section 113 into two stages;

• improve the new two-stage determination process by updating the procedure and incorporating provisions from the 2015 Supplemental Procedures;

• clarify the post-designation "off-ramp" to rescind a determination regarding a particular company; and

• eliminate the six-category framework outlined in the 2012 Interpretive Guidance.