Thursday, May 05, 2011

House Leaders Ask Financial Stability Oversight Council to Resubmit Proposed Reg on Designating Non-Bank Systemically Important Firms

In a letter to the Financial Stability Oversight Council, House Financial Services Oversight Chairman Randy Neugebauer (R-TX) and Ranking Member Michael Capuano (D-MA) requested that the Council resubmit for comment a proposed regulation on designating hedge funds and other systemically important non-bank financial institutions for heightened supervision. Internal metrics and criteria being used to make such a critically important designation have not been made public and apparently will not be until the regulatory process has been completed. It is such a crucial designation to a financial firm, emphasized the House leaders, that principles and transparent procedures for making that designation must be in place.

Their letter states that the FSOC's proposal provided little meaningful guidance on the designation, regulation, and supervision of non-bank systemically important financial institutions, which could include hedge funds, investment companies and commodities firms. The proposed regulation simply restates the statutory considerations set forth in Dodd-Frank. According to the Chairman, the public is entitled to expect that the final rule for assigning the SIFI designation will be a logical outgrowth of the proposals published for notice and comment. Given the vague nature of the current proposed rule, however, he fears that this is not possible. In the interest of transparency and fairness, the House leaders urged the Council, which is composed of the SEC, CFTC and other federal financial regulators, to clarify the proposed regulations and extend the comment period so that interested parties can meaningfully comment on this important issue.

It has come to the attention of the House leaders that there is an internal FSOC staff memorandum with specific metrics and criteria for designating a financial firm systemically important and thus subject to heightened supervision by the council of regulators. These metrics have not been made public. If the Council does not intent to set forth the decision making criteria and metrics in the final regulations, noted the House leaders, the Council should explain how it will allow hedge funds, investment firms and other potentially systemically important financial institutions and the public at large the opportunity to comment on the metrics and criteria used to make such an important designation