In enacting the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank),1 Congress empowered a group of financial regulators, the Financial Stability Oversight Council (FSOC), to designate a large nonbank financial company as a systemically important financial institution (popularly known as a SIFI), a company that, if not subject to bank-like prudential regulation, may pose a risk to the nation’s financial system. Upon being designated as a SIFI, that company becomes subject to supervision by the Board of Governors of the Federal Reserve System (Federal Reserve) and potentially increased capital, liquidity and related standards. Dodd-Frank permits a SIFI to contest its designation, but that process is not widely understood. This article examines that process as well as possible grounds on which to successfully challenge a designation.

FSOC Determinations

Section 113 of Dodd-Frank authorizes the FSOC to designate a foreign or domestic SIFI to be supervised by the Federal Reserve and be subject to prudential standards.2 The FSOC may make the designation after determining that either "material financial distress" at the company or the nature, scope, size, scale, concentration, interconnectedness, or the mix of the company’s activities could pose a threat to the financial stability of the United States.3