On April 3, 2012, the Financial Stability Oversight Council (“FSOC”) released a final rule (the “Release”) and interpretive guidance (the “Guidance,” and together with the Release, the “Final Rule”) implementing section 113 of the Dodd-Frank Act, which may be of particular interest to certain insurance companies, asset managers, investment advisers, private equity funds, hedge funds, nonbank lenders and other financial services companies. Section 113 grants FSOC the authority to subject certain United States and foreign companies “predominantly engaged in financial activities” (collectively, a “nonbank financial company” or “nonbank financial companies”) that are designated as systemically important nonbank financial companies (so-called nonbank "SIFIs") to enhanced supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and to prudential standards. As currently proposed, these prudential standards include risk-based capital and leverage requirements, liquidity standards, risk management requirements, single-counterparty credit limits, stress testing requirements and debt-to-equity limits, among others.
The Dodd-Frank Act requires the Federal Reserve to issue regulations defining when a company is “predominantly engaged in financial activities.” In a notice of proposed rulemaking issued on April 2, 2012, the Federal Reserve proposed to define “financial activities” to mean all activities that are listed as permissible activities for bank holding companies under section 4(k) of the Bank Holding Company Act and Regulation Y. The proposed definition includes 34 enumerated activities identical to those described in section 4(k) and implementing regulations, but adapted without regard to the limiting conditions imposed on bank holding companies that do not define the activity itself. If adopted as proposed, the rule’s very broad application would likely meet the Federal Reserve’s stated goal of capturing as many companies as possible within the definition of “nonbank financial company,” making them potentially subject to section 113 of the Dodd-Frank Act and implementing regulations, including the Final Rule.
The Final Rule substantially adopts the form and the substance of FSOC’s second notice of proposed rulemaking and interpretive guidance (collectively, the “NPR”) issued on October 18, 2011. All of the NPR’s key provisions were retained: (1) the three-stage process for evaluating each nonbank financial company, culminating with FSOC’s identification and designation of certain nonbank financial companies that pose a threat to the financial stability of the United States, (2) applying quantitative metrics in Stage 1 and at other times during the process, (3) applying the six-category framework using a combination of quantitative metrics and qualitative analysis in Stage 2, (4) using in-depth analysis in Stage 3 to evaluate a nonbank financial company’s potential to pose a threat to U.S. financial stability, (5) adopting policies and procedures to govern the determination process, including timing, notice and information requirements, and (6) including significant detail, analytical criteria and interpretive explanation in the Guidance.
FSOC declined to make substantive changes in the Final Rule that would fundamentally impact the analytical framework or the overall determination process developed in the NPR. Instead, the Final Rule adopts incremental changes and clarifications, including how certain evaluation criteria will be applied to particular industries, such as insurance companies, asset managers and investment advisers. This memorandum highlights certain of the changes incorporated in the Final Rule. For a more detailed description of the analytical framework and overall designation process first proposed in the NPR and incorporated in the Final Rule, please see Willkie’s client memorandum dated October 21, 2011, available on the firm’s website.
Throughout the Final Rule FSOC clarifies its requirements and expectations to provide notice to nonbank financial companies regarding significant developments during the evaluation process. The following chart summarizes these notice requirements, noting instances in which FSOC expressly declined to provide notice.
Until its publication in the Federal Register, the Final Rule is available on FSOC’s webpage on the Department of Treasury’s website, and on the Federal Deposit Insurance Corporation’s and the Federal Reserve’s websites.
 Section 102(a)(6) of the Dodd-Frank Act generally defines a nonbank company as “predominantly engaged in financial activities” if 85 percent of its annual gross revenues or 85 percent of its total consolidated assets are derived from activities that are financial in nature.
 On January 5, 2012, the Federal Reserve released a notice of proposed rulemaking seeking public input regarding the development of enhanced prudential standards applicable to “covered companies” to implement Section 165 of the Dodd-Frank Act. As proposed, “covered companies” includes all U.S. and foreign nonbank financial companies designated by FSOC under Section 113 of the Dodd-Frank Act and its implementing regulations contained in the Final Rule. The public comment period has been extended until April 30, 2012. 77 FR 594.
 Section 102(b) of the Dodd-Frank Act.
 The Federal Reserve’s April 2 release amends the original notice of proposed rulemaking issued by the Federal Reserve on February 11, 2011 which stopped short of including a specific definition of “financial activities.”
 76 FR 64264.
 On April 3, 2012, FSOC adopted a final rule to implement provisions of FOIA setting forth procedures for requesting access to, and making disclosures of, information contained in FSOC’s records, to be codified at 12 CFR §§ 1301.1-1301.12.
 5 U.S.C. 552(b)(4) and (8).
David S. Katz is a Partner in the Corporate and Financial Services Department in Willkie Farr and Gallagher’s Washington, DC office. Scott R. Tkacz is an Associate in the Washington, DC office’s Corporate and Financial Services Department.