Judge Overturns MetLife SIFI Designation

As laid out by Washington Analysis, Judge Collyer agreed, in whole or in part, on three of the nine counts included in the original complaint:

• Judge Collyer agreed in whole with MetLife on Count Four: "FSOC's designation of MetLife was arbitrary and capricious and violated the Dodd-Frank Act, FSOC's own regulations, and the [Administrative Procedures Act] because FSOC failed to assess MetLife's vulnerability to material financial distress." MetLife contended that FSOC started with the assumption that the company could fail and the impact would reverberate through the financial system, rather than determining whether it was likely that the company would fail during a period of financial distress.
• Judge Collyer agreed in part with Count Six: "FSOC's designation of MetLife was arbitrary and capricious and violated the Dodd-Frank Act and the APA because it depended upon unsubstantiated, indefinite assumptions and speculation that failed to satisfy the statutory standards for designation and FSOC's own interpretive guidance." The substance of the complaint is similar to Count Four, but is tied to MetLife's argument that the Council allegedly changed its standards for designation over the course of the evaluation process.
• Judge Collyer agreed in whole with MetLife on Count Seven: "FSOC's designation of MetLife was arbitrary and capricious and violated the Dodd-Frank Act and the APA because FSOC failed to consider the economic effects of designation on MetLife." Count Seven is similar to other successful legal challenges post-Dodd-Frank that rely on the argument that regulators failed to conduct adequate cost-benefit analyses prior to taking a regulatory action.  

Washington Analysis notes that while Judge Collyner's decision "clearly strengthens" any legal action taken by Prudential and AIG — who have also been designated as SIFIs — neither company "would not be able to file the same suit, because MetLife acted within a 30-day window provided under Dodd-Frank for a company to seek a judicial review."

Both Prudential and AIG would "likely need to take an alternative legal approach in any attempt to overturn its designation, with the fundamental argument being that they are entitled to equal protection under the law," the analysts say.

However, FSOC is also required to review each nonbank SIFI designation annually, and SIFIs can request review of their designation at any time, the analysts state.

FSOC "can rescind any designation with a two-thirds vote, providing another pathway for the Council to change a SIFI's status if material changes to a designated company occur or the boundaries of the Council's authorities change."

Rep. Scott Garrett, R-N.J., chairman of the House Financial Services Capital Markets Subcommittee, stated that with the Wednesday decision, "FSOC's perfect storm of secrecy and intimidation has created a shadow regulatory system that concentrates power in Washington at the expense of hardworking Americans," adding that he was "pleased to see [that] the judicial branch took a stand for the Constitution with their decision."

Now that the courts have spoken, he continued, "it's time for Congress to step in and pull back the curtain on FSOC so the American people can see what this secretive body is really up to."

Garrett authored  H.R. 3557, the Financial Stability Oversight Council (FSOC) Transparency and Accountability Act, which passed the Financial Services Committee in November.

— Check out AIG Advisor Group Sale Fueled by DOL Fiduciary Rule, CEO Says on ThinkAdvisor.