PRUDENTIAL TO FIGHT U.S. PROPOSAL TO LABEL IT 'SYSTEMIC'
Source: Reuters, 2 July 2013 PRUDENTIAL Financial Inc said it will contest a proposal by the new US risk council to designate it as systemically important, a tag that would subject it to stricter oversight by federal banking regulators. The company declared it would request a closeddoor hearing before the Financial Stability Oversight Council (FSOC). Prudential's decision came one day before the end of a 30- day window to notify the FSOC that it intended to legally challenge the designation. The FSOC is a new body of regulators created by the 2010 Dodd-Frank reform law. It is chaired by the Treasury Secretary and comprised of the country's top federal financial regulators. It is tasked with policing for systemic risks in the marketplace. It has the specific power to classify large firms whose failure could threaten financial markets as "systemically important financial institutions," or SIFIs, which triggers additional scrutiny by the Federal Reserve. The designation also comes with higher capital requirements and other costly rules. Under the law, a company can request a hearing if it has concerns about the proposed designations. The FSOC will now have 30 days to schedule a non public hearing for Prudential. After that it will need to make a final decision within 60 days. The FSOC last month notified Prudential, along with GE Capital and American International Group Inc that it was proposing to designate all three. GE Capital and AIG both signalled they will not appeal the FSOC's proposal. Paul Atkins, a former Republican commissioner at the US Securities and Exchange Commission who is a critic of the FSOC said that he believes Prudential does not meet the criteria to be a SIFI and he is glad the firm is fighting back. Atkins also predicted that an appeal could end up in the courts and noted there is already an outstanding lawsuit challenging the constitutionality of the FSOC's broad powers. However, he also said that Dodd- Frank limits the grounds on which companies can challenge a SIFI designation. Alice Joe, executive director of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness, commented that the challenge shows frustration with how regulators are applying bank-centric rules to non-banks. If Prudential is designated, it will be a slippery slope for all other large insurance companies because their business models aren't designed to put up capital, so there will be a major transformation of the industry taking place.