Washington, D.C., (March 25, 2015) – The Financial Stability Oversight Council (FSOC) needs to develop a fairer, more transparent process for designating nonbank financial institutions such as life insurers as systemically important financial institutions (SIFIs), the American Council of Life Insurers (ACLI) testified today before the U.S. Senate Banking Committee.
ACLI Executive Vice President and General Counsel Gary Hughes testified at the committee hearing titled, “FSOC Accountability: Nonbank Designations,” that the best interests of the U.S. financial system and the stated objectives of the Dodd-Frank Act can be realized most effectively by an FSOC designation process that operates in a more transparent and fair manner.
“The overarching purpose of the Dodd-Frank Act is to minimize systemic risk in the U.S. financial markets. Providing companies with the choice and the ability to work constructively with FSOC to structure their activities in such a way as to avoid being designated as systemic in the first instance advances that purpose and reflects sound regulatory policy,” Mr. Hughes testified.
Mr. Hughes provided six procedural safeguards FSOC should adopt during the designation process:
In addition, Mr. Hughes testified that a more robust and transparent process for potential de-designation is needed.
“FSOC should be required to conduct a review upon the request of a designated company if there has been a change in the operations of the company or a change in regulation affecting the company. In connection with such a review, FSOC should also provide a company with an analysis of the factors that would lead FSOC to de-designate the company,” he said.
He added that FSOC should be required to pursue an “activities-based” approach with respect to insurance, with a focus on the specific activities and practices that may pose systemic risk.
FSOC also should be required to appropriately apply the material financial distress standard as set forth in Dodd-Frank. It also should shed additional light on what metrics, standards or criteria would operate to categorize a company as non-systemic.