FACT SHEET: The Financial Stability Oversight Council’s Proposed Interpretive Guidance 

on Nonbank Financial Company Determinations

April 21, 2023

The Financial Stability Oversight Council (Council) today released for public comment a proposed 

update to its interpretative guidance on nonbank financial company designations. 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) authorizes 

the Council to designate a nonbank financial company for Federal Reserve supervision and 

prudential standards, if the Council determines that material financial distress at the company, or 

the nature, scope, size, scale, concentration, interconnectedness, or mix of the activities of the 

company, could pose a threat to U.S. financial stability. Congress created the designation authority 

to fill a regulatory gap that became apparent during the financial crisis in 2007-09, when financial 

distress at large, complex, highly interconnected, highly leveraged, and inadequately regulated 

nonbank financial companies devastated the financial system.

In 2012, the Council issued a final rule and interpretive guidance describing the Council’s 

procedures and approach to nonbank financial company designations. In 2019, the Council issued 

modifications to the 2012 interpretive guidance.

The new proposed guidance would revise and update the 2019 guidance. If the proposed guidance 

is finalized, it will replace the 2019 guidance found at Appendix A to 12 CFR 1310 but would not 

modify the Council’s rules at 12 CFR 1310.1-.23. With this proposed interpretive guidance, the 

Council seeksto establish a durable process for designations of nonbank financial companies under 

section 113 of the Dodd-Frank Act. The proposed guidance is intended to enhance the Council’s 

ability to address risks to financial stability, provide transparency to the public, and ensure a 

rigorous and clear designation process.

Unlike the guidance adopted by the Council in 2019, the proposed guidance focuses exclusively 

on the procedures that the Council would apply in reviewing a nonbank financial company for 

potential designation. Under the proposed guidance, the Council would generally expect to follow 

a two-stage process of evaluation and analysis when determining whether a nonbank financial 

company should be subject to Federal Reserve supervision and prudential standards.

• Stage 1. During the first stage of the process, a nonbank financial company identified for 

review will be subject to a preliminary analysis, based on quantitative and qualitative 

information available to the Council primarily through public and regulatory sources. 

During Stage 1, the Council will notify the firm of the review and permit, but not require, 

the company to submit relevant information and will consult with the company’s primary 

financial regulatory agency, as appropriate. 

• Stage 2. Following Stage 1, any nonbank financial company that is selected for additional 

review will receive notice that it is being considered for a proposed designation that the 

company will be supervised by the Federal Reserve and be subject to prudential standards 

and that the company will be subject to in-depth evaluation during the second stage of 

review. Stage 2 will also involve the evaluation of additional information collected directly 

from the nonbank financial company.
• Proposed and final designations. At the end of Stage 2, the Council may consider whether 

to make a proposed designation of the nonbank financial company. If the Council makes 

a proposed designation, the nonbank financial company may request a hearing. After 

making a proposed designation and holding any written or oral hearing if requested, the 

Council may vote to make a final designation.

• Annual reevaluations of previous designations. For any company designated by the 

Council, the proposed guidance specifies that the Council would encourage the company 

or its regulators to take steps to mitigate the identified risks. The Council will reevaluate 

the designation at least annually and rescind the designation if the Council determines 

that the company no longer meets the statutory standards for a designation. During the 

Council’s annual reevaluations, the company will have an opportunity to meet with 

representatives of the Council to discuss the review and present information. The 

company may also submit written information. If the company explains changes it could 

make to its business to address the identified risks, Council representatives will endeavor 

to provide feedback on the extent to which the changes would mitigate the identified 

risks. Further, if the Council votes not to rescind a designation, the Council will provide 

the company with a written explanation addressing the material factors in the analysis. 

With respect to the Council’s procedures for designations and annual reevaluations of designations 

described above, the proposed guidance would preserve the significant engagement and 

communication between the Council and a nonbank financial company under review for potential 

designation, and with the company’s primary regulator, that were called for in the guidance the 

Council adopted in 2019. The proposed guidance is intended to enable the Council to use its 

statutory authorities as appropriate while maintaining rigorous procedural protections for nonbank 

financial companies that may be reviewed for potential designation.

The Council has also issued for public comment a separate proposed analytic framework that sets 

forth the Council’s proposed approach to identifying, evaluating, and addressing potential risks to 

financial stability. The proposed analytic framework describes vulnerabilities, metrics, and 

transmission channels that the Council would apply in evaluating risks to financial stability, 

regardless of whether those risks arise from activities, firms, or otherwise, including in the context 

of a nonbank financial company designation. The proposed guidance and proposed analytic 

framework would improve the Council’s ability to respond to potential risks to financial stability.

The full text of the proposed guidance is available here.