SEC Chair Supports New Guidance on Nonbank Designation

SEC Chair Paul Atkins supported a Financial Stability Oversight Council ("FSOC") proposal to revise nonbank designation interpretive guidance, though he reiterated his view that the underlying designation framework was fundamentally flawed.

In remarks at an FSOC meeting, Mr. Atkins called the designation mechanism "ill-advised" since its inception under the Dodd-Frank Act. He said subjecting "nonbank entities [to] Federal Reserve Board regulation was never the appropriate mechanism [for] maintain[ing] the strength or resilience" of the U.S. financial system. 

Mr. Atkins also highlighted the limits of the proposed modifications to the FSOC’s existing procedures, which would consolidate prior frameworks, raise the threshold for designation, introduce a pre-designation remediation process, and place greater emphasis on cost-benefit analysis and economic growth in assessing financial stability risks. (See previous coverage.) He argued that these administrative actions cannot fully resolve the framework’s core deficiencies.

Mr. Atkins cautioned that only Congress has the authority to address the statutory issues underlying the designation process. However, he said he supports the measure as a meaningful step in the right direction and praised the collaboration between FSOC and SEC staff.