Today we will start from the new Financial Stability Oversight Council
As established under the Dodd-Frank Act, the Financial Stability Oversight Council (FSOC) will provide, for the first time, comprehensive monitoring to ensure the stability of the US financial system.
The Council is charged with identifying threats to the financial stability of the United States; promoting market discipline; and responding to emerging risks to the stability of the United States financial system.
The Council consists of 10 voting members and 5 nonvoting members and brings together the expertise of federal financial regulators, state regulators, and an insurance expert appointed by the President.
Q: What is the Financial Stability Oversight Council and what will it do?
A: The Financial Stability Oversight Council (FSOC) has a clear statutory mandate that creates for the first time collective accountability for identifying risks and responding to emerging threats to financial stability.
It is a collaborative body chaired by the Secretary of the Treasury that brings together the expertise of the federal financial regulators, an insurance expert appointed by the President, and state regulators.
The FSOC has important new authorities to constrain excessive risk in the financial system.
For instance, the FSOC has authority to designate a nonbank financial firm for tough new supervision and therefore avoid the regulatory gaps that existed before the recent crisis.
Closing these gaps in supervision will help minimize the risk of a nonbank financial firm threatening the stability of the financial system.
Additionally, to help with the identification of emerging risks to financial stability, the FSOC can provide direction to, and request data and analyses from the newly created Office of Financial Research (OFR) housed within Treasury.
Q: How will the FSOC help maintain financial stability?
A: Prior to the crisis, the existing regulatory framework focused regulators narrowly on individual institutions and markets, which allowed supervisory gaps to grow and regulatory inconsistencies to emerge—in turn, allowing arbitrage and weakened standards.
No single entity had responsibility for monitoring and addressing risks to financial stability, which too often involves different types of financial firms operating in and institutions across multiple markets and important parts of the system were left unregulated.
The Dodd Frank Wall Street Reform and Consumer Protection Act
(“the Act”) addresses these problems through the creation of the FSOC, which is authorized to:
• Facilitate Regulatory Coordination: The FSOC has a statutory duty to facilitate information sharing and coordination among the member agencies regarding domestic financial services policy development, rulemaking, examinations, reporting requirements, and enforcement actions.
Through this role, the FSOC will help eliminate gaps and weaknesses within the regulatory structure, to promote a safer and more stable system.
• Facilitate Information Sharing and Collection: By statute, the FSOC has a duty to facilitate the sharing of data and information among the member agencies.
In instances where the data available proves insufficient, the FSOC
has the authority to direct the OFR to collect information from certain individual financial companies to assess risks to the financial system, including the extent to which a financial activity or financial market in which the financial company participates, or the financial company itself, poses a threat to the financial stability of the United States.
The collection and analysis of this data will aid the FSOC and OFR in their shared goal of removing blind spots in the financial system so that regulators will be more able to see the entire landscape and be better equipped to identify systemic risks and other emerging threats.
• Designate Nonbank Financial Companies for Consolidated Supervision: In the run up to the financial crisis, some of the firms which posed the greatest risk to the financial system were not subject to tough consolidated supervision.
The Act gives the FSOC with the authority to require consolidated supervision of nonbank financial companies, regardless of their corporate form.
• Designate Systemic Financial Market Utilities and Systemic Payment, Clearing, or Settlement Activities: The Act authorizes the FSOC to designate financial market utilities and payment, clearing, or settlement activities as systemic, requiring them to meet prescribed risk management standards prescribed and heightened oversight by the Federal Reserve, the Securities and Exchange Commission, or the Commodities Futures Trading Commission.
George Lekatis is the General Manager and Chief Compliance Consultant of Compliance LLC, a leading provider of risk and compliance training and executive coaching in 36 countries.
George has more than 17,000 hours experience as a professional speaker and seminar leader. He has worked for more than 15 years as a management consultant and educator and has demonstrated exceptional presentation and communication skills.
George is the president of the Basel ii Compliance Professionals Association (BCPA, www.basel-ii-association.com), the largest association of Basel ii professionals in the world, and the Basel iii Compliance Professionals Association (BiiiCPA, www.basel-iii-association.com), the largest association of Basel iii professionals in the world.
George is also president of the Sarbanes Oxley Compliance Professionals Association (SOXCPA, www.sarbanes-oxley-association.com), the largest Association of Sarbanes Oxley professionals in the world
George is an expert witness, qualified to investigate and testify about risk and compliance management standards, policies, procedures, best practices, due care and due diligence.