The US House of Representatives has passed legislation that would make it harder, and more structured, for the Financial Stability Oversight Council (FSOC) to subject insurers and other nonbank financial firms to full Federal Reserve oversight as systemically important financial institutions (SIFIs).
The bill, House Resolution 3682, known as the FSOC Improvement Act, would introduce new analytical and procedural steps before FSOC can designate a nonbank as systemically important. It now moves to the Senate, where its prospects are uncertain in a divided Congress.
Under Dodd-Frank, FSOC can label a nonbank, such as a large insurer, asset manager or finance company, as a SIFI if its distress could threaten US financial stability. That designation brings Federal Reserve supervision and enhanced prudential standards on capital, liquidity, governance and risk management.
New hurdles before insurers can be tagged as SIFIs
HR 3682 would not remove that power, but it would require FSOC to consider whether the identified systemic risk could be addressed through alternatives to SIFI designation, such as targeted action by the firm’s existing regulator or activity‑based measures. It would also require the council to communicate with the company and its primary financial regulator before acting, and to provide more transparency around the basis for any designation.
US Rep. Bill Foster, who is the bill’s sponsor, said the way FSOC determines whether a firm poses systemic risk has been contentious from the start.
“Past efforts by FSOC to designate firms’ risk levels have been controversial or short-lived,” Foster said in a statement. “This bipartisan legislation strengthens FSOC’s ability to identify and address emerging threats to financial stability and consumers by promoting a more consistent, accountable and effective approach to oversight.”
Insurer SIFI history: from designations to rollbacks
For insurers, the debate is not theoretical. In the years after the 2008 crisis, several large life insurers, including AIG, Prudential Financial and MetLife, were designated as SIFIs. MetLife successfully challenged its designation in court, and, by the late 2010s, all US insurer SIFI designations had been rescinded or removed. Those episodes exposed fault lines between federal systemic‑risk authorities and state insurance regulators, and raised questions about whether bank‑style capital and liquidity standards were appropriate for life insurers with long‑dated liabilities.
Since then, the regulatory landscape has evolved. At the international level, the Financial Stability Board and the International Association of Insurance Supervisors have moved away from a narrow list of “global systemically important insurers” toward a broader “holistic framework” that focuses on activities and exposures across the sector.
In the US, the NAIC has developed its own group capital and liquidity tools for large insurance groups. Against that backdrop, the FSOC Improvement Act would effectively hard‑wire a more “activities‑first” mindset into the designation process, by forcing FSOC to explain why those other tools are not sufficient before imposing SIFI status on an individual firm.
Life sector backs more transparency but critics see risk
Industry groups have pressed for more predictability and due process. Jill Kozeny, executive vice president and chief advocacy officer for the American Council of Life Insurers, said the bill would give companies and their regulators clearer sightlines into how FSOC uses its powers.
“If enacted, the bill would bring transparency and predictability to the financial oversight process,” she said. “Clear rules and a consistent process matter, especially when decisions affect families, workers, and the broader economy.”
The measure also comes at a time when FSOC, under the Biden administration, has been signaling a renewed willingness to use entity‑based tools alongside activities‑based approaches. In 2023, the council updated its interpretive guidance to lower some of the procedural hurdles introduced under the Trump administration, which had made SIFI designations less likely. HR 3682 can be seen as a congressional effort to re‑impose some of those guardrails, but through statute rather than guidance.
Supporters argued that the bill does not prevent FSOC from acting quickly in a crisis, but ensures that any move to designate a nonbank is better justified, coordinated with existing regulators and less vulnerable to legal challenge. Critics of tightening the process warned, however, that additional procedural steps could discourage FSOC from using its designation power at all, even where a large nonbank is clearly building up systemic risk. They cautioned that, in fast‑moving stress scenarios, requiring more consultations and formal analyses could delay action or create room for lobbying, leaving regulators slower to respond than markets.
What HR 3682 could mean for large insurers
For large insurers and diversified insurance groups, especially those with significant derivatives, securities lending or non‑traditional products, HR 3682 would, if enacted, give more opportunity to argue that state supervision, NAIC group capital regimes and activity‑based measures are adequate. It would also formalize expectations that FSOC coordinate closely with state insurance commissioners and other primary regulators, rather than imposing Fed oversight in isolation.
