The Financial Stability Oversight Council voted unanimously this week to release proposed interpretive guidance for public comment on how it designates nonbank financial companies as potential threats to U.S. financial stability. The proposal would restore several elements of the council’s 2019 framework while adding new provisions tied to economic growth, economic security, and transparency in the designation process.
Treasury Secretary Scott Bessent said the proposal would shift the council back toward an activities-based approach, focusing first on risks that arise from specific practices or market activities rather than singling out individual firms. Under the proposal, company-specific designations would be used only when a threat cannot be adequately addressed through broader regulatory action.
The proposed guidance would also require the council to conduct a cost-benefit analysis before designating a nonbank financial company and to consider the likelihood of a company’s material financial distress as part of that review. Officials said those changes are intended to improve analytical rigor and ensure any designation provides a net benefit to financial stability.
Another major change is the creation of a pre-designation “off-ramp,” which would give companies or financial regulators an opportunity to address risks identified by the council before a formal designation is made. Officials said that step would promote greater transparency and provide a more effective way to reduce potential threats to the financial system.
The proposal will be subject to a public comment period following its publication in the Federal Register, as regulators seek feedback on the updated approach to overseeing risks outside the traditional banking sector.