Federal Reserve Adopts Final Rule for Nonbank Firms

The U.S. Federal Reserve has approved a final rule that will clarify the process that the new U.S. risk council will follow when designating nonbank financial firms. The new rule sets requirements for determining when a company is “predominantly engaged in financial activities,” which is part of the process outlined by the 2010 Dodd-Frank financial oversight law.

The Financial Stability Oversight Council is made up of a group of regulators that are responsible for determining which nonbank firms are at a risk of critical failure so detrimental that they could harm the financial system. Reuters reports that the final rule is similar to an earlier proposal, and includes the change that engaging in physically settled derivatives transactions will not count as a financial activity.

Although regulators have not yet determined nonbank firms as systemically important, a handful of firms are reported to be in the final stages of consideration. Treasury undersecretary for domestic finance, Mary Miller stated at a conference in March that she hoped the council would vote on designations in “the next few months.”

Reuters reports that the risk council could face lawsuits if they tried to designate firms without completing the “predominantly engaged” rule.

The new rule will take effect on May 6.

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