The process for designating systemically important financial institutions (“SIFIs”) under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) is moving forward apace. On April 3, 2012, the Financial Stability Oversight Council (“FSOC”) unanimously approved the release establishing final rules and guidelines (the “Final Release”) for how it will designate nonbank SIFIs.[1] Firms so designated will be subject to bank-like prudential supervision, including capital and liquidity requirements.

Notably, we expect the FSOC to begin issuing notices of consideration to potential SIFI designees this summer, with final designations occurring later this year.[2] Consequently, the first stages of the SIFI designation process are likely well underway.

Dodd-Frank left many of the most significant financial services policy determinations up to regulators. As a result, the rulemaking process has shifted to an ongoing dialogue with market participants and continuing Congressional oversight. The SIFI designation process is one of the clearest examples of the new dynamic. In this new environment, potential SIFIs need to assess the implications of being designated as a SIFI and should develop a strategic response that would likely involve engaging with regulators and other policymakers. This alert identifies critical questions for potential SIFIs; summarizes the legal framework of the SIFI designation process; and discusses key aspects of the Final Release.