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Thursday, November 20, 2014

FSOC Could Improve Nonbank Designation Process

Further actions could improve the FSOC’s nonbank designation process, according to a GAO study.

Currently, FSOC uses committees comprising of staff from member agencies to help it evaluate nonbank financial companies and determine if they will be designated as systemically important and receive enhanced supervision. FSOC published a final rule and guidance that establish a three-stage process and an analytical framework for evaluating whether nonbank financial companies meet a statutory determination standard and for proposing and finalizing determinations.

GAO found that there are key areas in which FSOC could enhance accountability and transparency to the designation process:

  • FSOC has not centrally recorded key processing dates, tracked the duration of evaluation stages, or collected information on staff conducting evaluations, limiting FSOC’s ability to effectively monitor the progress and evaluate the quality and efficiency of determination evaluations.
  • FSOC’s documentation of its transparency has not always included details. FSOC’s public documents have not always fully disclosed the rationales for its determination decisions, which has resulted in questions about the process and may hinder accountability and public and market confidence in the process.
  • FSOC has evaluated how companies might pose a threat to financial stability using only one of two statutory determination standards (a company’s financial distress, not its activities). Not using the two statutory determination standards may pose a threat to U.S. financial stability.


Read the GAO report.

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