[Federal Register Volume 78, Number 73 (Tuesday, April 16, 2013)]
[Notices]
[Pages 22546-22548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-08877]


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FINANCIAL STABILITY OVERSIGHT COUNCIL


Hearing Procedures

AGENCY: Financial Stability Oversight Council.

ACTION: Notice of availability; response to comments.

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SUMMARY: The Financial Stability Oversight Council (Council) has 
adopted amendments to its hearing procedures (Council Hearing 
Procedures) for hearings conducted by the Council under Title I and 
Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act (Dodd-Frank Act). The Council initially approved hearing procedures 
on May 22, 2012 (Initial Hearing Procedures), and has adopted 
amendments to apply the procedures to financial institutions engaged in 
payment, clearing, or settlement activities that are the subject of a 
proposed designation by the Council under Title VIII of the Dodd-Frank 
Act.

DATES: Effective Date: April 4, 2013.

FOR FURTHER INFORMATION CONTACT: Amias Gerety, Deputy Assistant 
Secretary for the Financial Stability Oversight Council, at (202) 622-
8716; or Thomas E. Scanlon, Senior Counsel, Department of the Treasury, 
at (202) 622-8170.

SUPPLEMENTARY INFORMATION:

I. Background

    On May 22, 2012, the Council approved the Initial Hearing 
Procedures under sections 111, 113, 804, and 810 of the Dodd-Frank 
Act.\1\ The Initial Hearing Procedures related to the conduct of 
hearings before the Council in connection with proposed determinations 
and emergency waivers or modifications made pursuant to Title I and 
Title VIII of the Dodd-Frank Act. The Council posted the Initial 
Hearing Procedures on its Web site, http://www.fsoc.gov, and on http://www.regulations.gov, and issued a notice of availability and request 
for comment on the procedures.\2\ Four comments were submitted.\3\
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    \1\ 12 U.S.C. 5321, 5323, 5463, and 5469.
    \2\ Hearing Procedures; Notice of Availability, 77 FR 31,855 
(May 30, 2012).
    \3\ Comments were received from American Financial Services 
Association (AFSA), American Insurance Association (AIA), Gibson, 
Dunn & Crutcher LLP (Gibson, Dunn), and The Financial Services 
Roundtable (the Roundtable).
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    In general, when the Council makes a proposed determination 
regarding a nonbank financial company under section 113 of the Dodd-
Frank Act or a proposed designation of a financial market utility (FMU) 
or a payment, clearing, or settlement activity under section 804 of the 
Dodd-Frank Act, the Council must give the nonbank financial company, 
FMU, or financial institution engaged in the payment, clearing, or 
settlement activity notice and an opportunity to contest the proposed 
determination or designation through a hearing.\4\ The Dodd-Frank Act 
does not set forth procedures for a hearing to contest the proposed 
determinations or designations. The Council has adopted the Council 
Hearing Procedures in order to provide procedures for a nonbank 
financial company, FMU, or financial institution engaged in a payment, 
clearing, or settlement activity that requests a hearing.
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    \4\ 12 U.S.C. 5323(e)(1)-(2), 5463(c)(2).
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    Except for limited amendments, particularly to expand the scope of 
``petitioner'' to include a financial institution engaged in payment, 
clearing, or settlement activities, as discussed below, the Council is 
not modifying the Initial Hearing Procedures. The Council is issuing 
this notice to respond to the comments received and to provide guidance 
on the implementation of the Council Hearing Procedures. In addition, 
the Council has posted the Council Hearing Procedures on its Web site, 
http://www.fsoc.gov, and on http://www.regulations.gov.

II. Amendment to the Initial Hearing Procedures

    The Council has expanded the scope of the hearing procedures by 
amending the definition of ``petitioner'' in Sec.  2 of the Initial 
Hearing Procedures. The Council is adding a new paragraph (5) to the 
definition of ``petitioner'' to include ``[a] financial institution 
which engages in a payment, clearing, or settlement activity that is 
the subject of a proposed designation, pursuant to section 804 of the 
Dodd-Frank Act, and which seeks to demonstrate that the proposed 
designation or rescission of designation is not supported by 
substantial evidence.'' Correspondingly, the Council is amending the 
definition of ``hearing'' to cover a proceeding involving a financial 
institution which engages in a payment, clearing, or settlement 
activity. Under section 804(a)(1) of the Dodd-Frank Act, the Council is 
authorized to designate ``payment, clearing, or settlement activities 
that the Council determines are, or are likely to become, systemically 
important.'' \5\ Section 804(c) of the Dodd-Frank Act permits a 
financial institution engaged in payment, clearing, or settlement 
activities to request a hearing before the Council to demonstrate that 
the proposed designation (or rescission of designation) of such 
activities is not supported by substantial evidence.\6\ The amendments 
to the Initial Hearing Procedures clarify that if the Council issues a 
notice of a proposed designation relating to a payment, clearing, or 
settlement activity, one or more financial institutions that engage in 
that activity may request a hearing to contest the Council's action.
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    \5\ 12 U.S.C. 5463(a)(1).
    \6\ 12 U.S.C. 5463(c)(2)(C).
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    In addition, the Council has amended Sec.  5(e) of the Initial 
Hearing Procedures to provide that petitioners will be entitled, upon 
request, to obtain a copy of the transcript or other recording of an 
oral hearing without payment of the cost of the transcript or 
recording.

[[Page 22547]]

III. Guidance on Council Hearing Procedures

A. Oral Hearings

    In the context of proposed determinations regarding nonbank 
financial companies, all four commenters request that the Council amend 
the procedures to allow for an oral hearing for any petitioner that 
requests one. For example, one commenter states that ``the Council 
should exercise its statutory discretion to grant oral hearings to any 
nonbank financial company that requests one.'' \7\ The commenter 
envisions that an oral hearing would ``provide an effective interactive 
opportunity for the company to discuss and as necessary challenge the 
assumptions, views and preliminary conclusions of the Council or its 
representatives.'' \8\
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    \7\ Roundtable, at 4. Similarly, AFSA ``strongly urges'' the 
Council to provide an oral hearing to ``each petitioner that chooses 
to contest a proposed determination.'' AFSA, at 4.
    \8\ Roundtable, at 4. See also AIA, at 4 (``a company should 
have an opportunity to examine Council staff that performed the 
analysis that is the basis for the Council's proposed action, as 
well as the opportunity to present its own witnesses''). Likewise, 
another commenter describes an oral hearing as permitting a nonbank 
financial company to ``communicate interactively with Council 
members,'' allowing a ``dynamic exchange of information'' between 
the petitioner and the Council. Gibson, Dunn, at 5.
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    The Council considered these comments and has determined that an 
amendment that would grant a petitioner, as a matter of right, an oral 
hearing to contest a proposed determination is neither necessary nor 
appropriate. As the commenters note, sections 113 and 804 of the Dodd-
Frank Act provide the Council sole discretion to determine whether to 
afford a petitioner an oral hearing, and the Council Hearing Procedures 
are consistent with the statute.\9\ However, the Council believes that, 
depending on the particular facts and circumstances, and as may be 
supported by the petitioner in its request for an oral hearing,\10\ the 
Council may exercise its sole discretion to grant requests for oral 
hearings. For example, the Council agrees with commenters that an oral 
hearing could provide a valuable opportunity for the Council or its 
representatives to pose questions to a petitioner regarding a proposed 
determination. Thus, for an FMU or nonbank financial company, the 
Council anticipates that, in exercising its sole discretion to grant an 
oral hearing, the Council generally will grant a timely request for an 
oral hearing.
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    \9\ A commenter suggests that a request for an oral hearing 
should not be ``unreasonably denied,'' AIA, at 4, and another 
commenter goes further by suggesting that the Council ``should use 
its discretion in a broad manner to provide for oral evidentiary 
hearings, unless [the Council] can demonstrate that such hearings 
are inappropriate or unnecessary.'' AFSA, at 3-4. As noted above, 
sections 113 and 804 of the Dodd-Frank Act provide the Council 
``sole discretion'' to grant an oral hearing, and the Council 
Hearing Procedures reflect this statutory standard. Nothing in 
section 113 or section 804 of the Dodd-Frank Act suggests that the 
Council bears the burden of showing that an oral hearing is 
inappropriate or unnecessary in order to deny a request for an oral 
hearing.
    \10\ Council Hearing Procedures, Sec.  3(b).
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    The Council notes that it anticipates that any oral hearing that is 
granted will consist only of oral testimony or oral argument by the 
petitioner.\11\ No provision of section 113 or section 804 of the Dodd-
Frank Act, nor any provision of the Council Hearing Procedures, 
contemplates that the petitioner may pose questions to Council members 
or to staff of the Council who have contributed to the work of the 
proposed determination.\12\
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    \11\ Council Hearing Procedures, Sec.  2.
    \12\ One commenter recommends that companies receiving a notice 
of proposed determination should be allowed to ask the Council 
clarifying questions and the Council should provide necessary 
responses before a company would have to submit a petition for a 
hearing under the Council Hearing Procedures. AFSA, at 2. Similarly, 
a commenter requests that the Council should provide the nonbank 
financial company the opportunity to obtain copies of the materials 
upon which the Council's proposed determination is based and to 
examine Council staff that performed the analysis that forms the 
basis of the Council's proposed determination. AIA, at 4. The 
Council has determined not to modify the Initial Hearing Procedures 
in response to these comments because the notice of proposed 
determination will include an explanation of the basis of the 
proposed determination. 12 U.S.C. 5323(e)(1) and 12 C.F.R. 
1310.21(b). However, the Council anticipates that relevant staff 
would be available to answer ministerial or technical questions that 
a petitioner may have regarding the process for requesting a hearing 
under the Council Hearing Procedures.
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B. Notice to Affiliates and Participation by a Subsidiary

    One commenter contends that the Council should provide written 
notice of a proposed determination to not only the nonbank financial 
company but also the nonbank financial company's affected 
subsidiaries.\13\ The Council considered this comment and determined 
that the Initial Hearing Procedures need not be amended in this manner. 
First, the Council's provision of written notification of a proposed 
determination falls outside the scope of the Council Hearing 
Procedures. Second, the Dodd-Frank Act and the Council's regulations 
require the Council to provide written notification only to the nonbank 
financial company that is the subject of the proposed 
determination.\14\ Third, as the commenter suggests,\15\ the nonbank 
financial company itself can notify its subsidiaries of the Council's 
proposed determination.
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    \13\ Gibson, Dunn, at 3-4.
    \14\ 12 U.S.C. 5323(e)(1); 12 CFR 1310.21(b). See also Authority 
to Require Supervision and Regulation of Certain Nonbank Financial 
Companies, 77 FR 21,637, 21,662 (April 11, 2012) (``Before a vote of 
the Council with respect to a particular nonbank financial company, 
the Council members will review information relevant to the 
consideration of the nonbank financial company for a Proposed 
Determination. . . . [T]he Council intends to issue a written notice 
of the Proposed Determination to the nonbank financial company, 
which will include an explanation of the basis of the Proposed 
Determination.'') (emphasis added).
    \15\ Gibson, Dunn, at 3.
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    This commenter also asks the Council to clarify that subsidiaries 
of a nonbank financial company being considered under any proposed 
determination have full participatory rights in written and oral 
hearings.\16\ The Council finds that section 113 of the Dodd-Frank Act 
and the Council's rule and interpretive guidance regarding nonbank 
financial company determinations \17\ do not provide a basis to grant 
to a subsidiary of a nonbank financial company that is the subject of a 
proposed determination ``full participatory rights'' in the Council's 
proceedings. Nonetheless, the Council notes that the Council Hearing 
Procedures (unchanged from the Initial Hearing Procedures) provide that 
a petitioner may submit relevant exhibits in support of its written 
statement, which may include declarations or affidavits from a 
subsidiary.\18\ In addition, Sec.  5(d)(2) of the Council Hearing 
Procedures (unchanged from the Initial Hearing Procedures) provides 
that ``[o]ne or more individual officers, employees, or other 
representatives (including counsel) of the petitioner may appear for 
the petitioner to present oral testimony, oral argument, or both.'' The 
Council believes that a representative from one of the petitioner's 
subsidiaries may qualify as a ``representative'' of the petitioner to 
appear in an oral hearing, as the petitioner may determine. Thus, the 
Council believes that the Initial Hearing Procedures need not be 
amended, because they provide a means for a subsidiary to participate 
to the extent that a petitioner believes such participation to be 
appropriate.
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    \16\ Gibson, Dunn, at 5.
    \17\ Authority to Require Supervision and Regulation of Certain 
Nonbank Financial Companies, 77 FR 21,637 (April 11, 2012).
    \18\ Council Hearing Procedures, Sec.  4(b).
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C. Designation of the Hearing Clerk and Submission of Materials

    One commenter requests that the Council clarify how the appointment 
of a Hearing Clerk would occur and who may be appointed to that 
position. In particular, the commenter asks that a

[[Page 22548]]

Hearing Clerk be a member of ``senior level staff at the Council.'' 
\19\ Section 2 of the Council Hearing Procedures defines the Hearing 
Clerk as ``an individual appointed by the Chairperson [of the Council] 
to facilitate a written or oral hearing before the Council or its 
representatives.'' The Chairperson must appoint the Hearing Clerk 
``[u]pon receipt of a timely written request for a hearing . . .'' \20\ 
Even though the Council has delegated authority to the Chairperson to 
select the Hearing Clerk, the Council expects the Chairperson to 
exercise that authority by selecting an individual who is a senior 
member of the staff of the Council or of a Council member or member 
agency.
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    \19\ AFSA, at 3.
    \20\ Council Hearing Procedures, Sec.  3(c).
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    One commenter requests that the number of days afforded to a 
nonbank financial company petitioner to submit written materials after 
an oral hearing be extended from seven to fifteen days.\21\ The Council 
believes that the Initial Hearing Procedures need not be amended in 
this manner because seven days is a reasonable period in light of the 
fact that, at the time at which this section would be relevant, a 
nonbank financial company petitioner already will have had an 
opportunity to submit written materials, and an oral hearing, to 
contest the Council's proposed determination.
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    \21\ AFSA, at 4. See Council Hearing Procedures, Sec.  
5(b)(3)(ii).
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    This commenter also states that any limitations on the written 
materials a petitioner may present, or on the duration of an oral 
hearing, as permitted under Sec.  3(c) of the Council Hearing 
Procedures (unchanged from the Initial Hearing Procedures), should be 
applied by the Hearing Clerk in ``extreme cases only.'' \22\ More 
generally, this commenter requests that, before the Council or the 
Hearing Clerk selects a date and place the petitioner is required to 
appear for a hearing, ``the Hearing Clerk communicate with the 
petitioner to pick a date, time, and place which is convenient for both 
the petitioner, the Hearing Clerk, and [the Council].'' \23\ The 
Council has determined that the Initial Hearing Procedures need not be 
amended to address these concerns regarding the particular limitations 
or arrangements that generally should apply in hearings. Nonetheless, 
the Council expects that, in the ordinary course of making procedural 
determinations, the Hearing Clerk will coordinate with the petitioner, 
as appropriate, for the purpose of facilitating an ``orderly and 
timely'' hearing.\24\
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    \22\ AFSA, at 3. See also AIA, at 5 (stating that ``due process 
considerations and fundamental fairness suggest that no limit should 
be imposed on the ability of a [nonbank financial] company, which is 
on the brink of being determined by the Council to be subject to 
Federal Reserve Board supervision, to submit what [the company] 
concludes is necessary to convince the Council otherwise'').
    \23\ AFSA, at 4.
    \24\ Council Hearing Procedures, Sec.  3(c).
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D. Denial and Dismissal of a Hearing

    Section 7 of the Council Hearing Procedures provides that 
``[f]ailure to make a timely request for a hearing will waive the 
petitioner's right to a hearing pursuant to section 113(e)(4) or 
section 804(d)(2) of the Dodd-Frank Act.'' One commenter requests that 
the Council clarify that the Council or the Hearing Clerk will verify 
that the petitioner did, in fact, receive the Council's notice of the 
proposed determination before a petitioner is deemed to have waived a 
right for a hearing.\25\ The Council expects to take reasonable steps 
to verify that a petitioner has, in fact, received the Council's notice 
of proposed determination before determining that a waiver has occurred 
under Sec.  7 of the Council Hearing Procedures.
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    \25\ AFSA, at 5.

    Dated: April 4, 2013.
Rebecca H. Ewing,
Executive Secretary, Department of the Treasury.
[FR Doc. 2013-08877 Filed 4-15-13; 8:45 am]
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