Corporate Governance

The FSOC: What Makes A Financial Market Utility Systemically Important?

By Tamar Weinrib

Pursuant to its authorization under the Dodd-Frank Act, the Financial Stability Oversight Committee (?FSOC?) members voted on November 23 to approve an advance notice of rulemaking soliciting public input on the question of how the council should determine when to designate a financial market utility  (defined under Dodd Frank as any person managing or operating a multilateral system for the purpose of transferring, clearing or settling payments, securities or financial transactions among or between financial institutions like banks or insurers) as systemically important.  The purpose of such a rule would be to determine which financial market utilities should be subject to a heightened regulatory regime, which would include enhanced examination, supervision, enforcement and reporting standards and requirements, to keep them from becoming so large or interconnected that they threaten the entire economy.  The notice explains that the utilities are used to settle financial transactions between financial institutions and are "critical parts of the financial infrastructure."  After the notice is published in the Federal Register, it will be open for comment for 30 days.  Click here to see a copy of the notice.

The goal, as is true of the Dodd-Frank Act overall and all resultant rulemaking and regulation, is to prevent a financial crisis of the ilk recently experienced. The FSOC was created under the Dodd-Frank Act to oversee and coordinate federal regulation of the largest and most interconnected financial firms, in order to more easily spot and address problems broadly affecting financial markets.

Full post as published by PomTalk on December 01, 2010 (boomark / email).