On July 18, the Financial Stability Oversight Council (FSOC) adopted its final rule on the designation of systemically important financial market utilities (FMUs) under Title VIII of the the Dodd-Frank Wall Street Reform and Consumer Protection Act Dodd-Frank Act. The rule contemplates that the designation process will have four phases:
- Preliminary identification (using publicly available information) by FSOC of FMUs that are, or may become, systemically important, meaning that “the failure or disruption to the functioning of [that] financial market utility could create, or increase, the risk of significant liquidity or credit problems spreading among financial institutions or markets and thereby threaten the stability of the financial system of the United States.”
- Consultation between FSOC and specific FMUs triggered by a written notice from FSOC informing an FMU that is it is a candidate for designation. An FMU that receives such a notice has the right to submit written materials to FSOC, but FSOC also has the right to require submission of materials from an FMU or its supervisory authority.
- Formal hearing of an FMU before FSOC after the FMU receives an advance notice of proposed designation and proposed findings of fact. The FMU has to request the opportunity to demonstrate that the proposed designation is not supported by substantial evidence but, if the request is made, FSOC must allow the FMU to submit written materials in support of its position. Oral testimony and oral argument is at the discretion of FSOC.
- Formal FSOC designation of systemic importance of an FMU by vote of two-thirds of the members of FSOC, including the Chairperson of FSOC. Written notice of the vote must be given to the FMU within 60 calendar days of any submission/hearing, or 30 days after the date that the right to request the opportunity to make submission or have a hearing expires.
All materials submitted to FSOC in connection with the designation process are exempt from disclosure under the Freedom of Information Act. Designations will be reviewed periodically by FSOC but there is no mechanism for an FMU to request designation or rescission of a designation.
The rule will be effective 30 days after it is published in the Federal Register. The FSOC designation process can begin at any time thereafter.
Click here to view the final rule.