Financial Stability Oversight Council to Increase Oversight of Systemically Important Non-Banks, Reversing Trump-Era Regulations

FSOC's New Rule Enables Easier Identification of Non-Banks Like Hedge Funds and Asset Managers as Systemically Important, Amid Rising Regulatory Concerns Over Less Visible Sectors

The Financial Stability Oversight Council (FSOC) has passed a new rule to enhance its ability to designate certain non-bank firms as systemically important financial institutions (SIFIs), reversing a Trump era regulation which made such designations more difficult.
The new regulation will allow FSOC to proactively designate firms as systemically risky if their failure could impact the broader financial system, subjecting them to heightened prudential standards.
The FSOC, led by Treasury Secretary Janet Yellen, has also adopted a new analytic framework to identify systemic risks more effectively. The framework outlines the process FSOC may use to classify and act upon risks to U.S. financial stability.
Potential areas of focus for FSOC include major global asset managers and hedge funds, such as BlackRock and Bridgewater, which could be subject to increased oversight, U.S. Federal Reserve supervision, and heightened capital and liquidity requirements.
Despite the tightened regulation, Secretary Yellen highlighted that the designation tool would not be prioritized over other approaches to addressing financial stability risks. Additionally, the designation process includes procedural protections for companies under review.