The Federal Reserve Board announced approval of a final rule that establishes the requirements for determining when a company is "predominantly engaged in financial activities." The requirements will be used by the Financial Stability Oversight Council (FSOC) when it considers the potential designation of a nonbank financial company for consolidated supervision by the Federal Reserve.
Under the Dodd-Frank Act, a nonbank financial company can be designated by the FSOC for supervision by the Federal Reserve only if it is "predominantly engaged in financial activities." A company is considered to be predominantly engaged in financial activities if 85% or more of the company's revenues or assets are related to activities that are defined as financial in nature under the Bank Holding Company Act.
Additionally, the FSOC may issue recommendations for primary financial regulatory agencies to apply new or heightened standards to a financial activity or practice conducted by companies that are predominantly engaged in financial activities.
The final rule also defines the terms "significant nonbank financial company" and "significant bank holding company."
The final rule will become effective on May 6, 2013.