Treasury OKs New Rules for Monitoring Non-Bank Financial Risk

American regulators approved new guidelines for monitoring financial risk following this year’s banking crisis.

The U.S. Treasury Department’s Financial Stability Oversight Council (FSOC) on Friday (Nov. 3) announced it had approved a new analytic framework for financial stability risks and updated guidance for non-bank financial company determinations process.  

“Financial stability is a public good, and we need a robust structure to monitor and address the build-up of risks that could threaten the financial system,” Secretary of the Treasury Janet Yellen said in a news release.

“Establishing an analytic framework and a durable process for the council’s use of its designation authority will strengthen our ability to mitigate the risks of financial crises that can devastate businesses and households.”

According to the FSOC, the framework provides “a detailed public explanation of how the council monitors, assesses, and responds to potential risks to financial stability, whether they come from widely conducted activities or from individual firms.”  

The FSOC has also updated its guidance for non-bank financial company determinations, which establishes the council’s procedures for “considering whether to designate a non-bank financial company for Federal Reserve supervision and prudential standards” under the Dodd-Frank Act.  

The council first proposed the rules for designating non-banks a “systemically important financial institution,” (SIFI) in April, in the weeks following the collapse of Silicon Valley Bank and two other lenders. 

The FSOC has yet to identify any specific non-bank SIFIs, but a report Friday (Nov. 3) by Reuters said the council is expected to turn its attention to mammoth asset managers and hedge funds, such as BlackRock and Bridgewater.

As the report noted, this could subject these companies to Federal Reserve oversight and greater capital and liquidity requirements.

The FSOC’s updated rules come just weeks after another regulator — the Federal Trade Commission (FTC) — said it would require non-banking financial institutions to report certain data security breaches.

In a unanimous decision, the regulator last month approved an amendment to the Safeguards Rule, which requires non-banking financial institutions such as mortgage brokers, motor vehicle dealers and payday lenders to report data security breaches impact the information of 500 people or greater. The Safeguards Rule already requires non-banking financial institutions to protect customer information. 

“Companies that are trusted with sensitive financial information need to be transparent if that information has been compromised,” Samuel Levine, director of the FTC’s Bureau of Consumer Protection, said in a news release.

“The addition of this disclosure requirement to the Safeguards Rule should provide companies with additional incentive to safeguard consumers’ data.”