FSOC ISSUES REFORMED SIFI REGULATION

The US Financial Stability Oversight Council (FSOC) has issued new guidelines for its designation of insurers as systemically important financial institutions, or Sifis. The FSOC has replaced the previous process of monitoring individual companies with a focus on system-wide risks to the US economy. The FSOC is adopting an activities-based approach to potential risks and threats to financial stability, allowing it to co-ordinate with federal and state regulators to implement appropriate regulations to address the threats. The new guidance also calls for a cost-benefit analysis and a review of the likelihood of a company’s financial distress when considering an insurer for Sifi designation. The reforms also call for streamlining the designation process to two stages rather than three and provides for the creation of post-designation “off-ramps” to facilitate the rescinding of a Sifi designation.