WASHINGTON — A federal appeals court has scheduled oral arguments in a case that could have profound implications for the government's ability to designate nonbanks as systemically risky.

In an Aug. 23 filing, the U.S. Court of Appeals for the D.C. Circuit said it will hear oral arguments on Oct. 24 in the case of MetLife v. Financial Stability Oversight Council.

The case is the FSOC's appeal of a lower court ruling earlier this year that found that the interagency council erred in designating insurance giant MetLife as a systemically important financial institution. The court sided with MetLife in its claim that the FSOC had not sufficiently demonstrated the plausible risk of the insurer facing serious financial distress — a step that the council itself said was a prerequisite for designating any nonbank as systemically risky.

The FSOC argued in its June appeal that the ruling was "profoundly mistaken" and if left unchallenged would undermine the council's discretion in how and whether to subject nonbanks to heightened prudential controls.

MetLife was the most recent nonbank to be designated by the FSOC, in December 2014, but the company filed suit almost immediately, in January 2015, to challenge its designation. The challenge was seen by many observers as a long shot, given the deference that federal judges typically give to executive decisions.

If the appeals court — and, depending on the outcome, Supreme Court — upholds the lower court's ruling, it could have profound implications not only on the FSOC's ability to regulate nonbanks, but could have implications for other regulatory agencies as well.

MetLife was one of only a handful of other firms to have been so designated — joining fellow insurers American International Group and Prudential and GE Capital. But today only Prudential and AIG remain designated SIFIs. GE Capital last year announced that it intended to spin off most of its financial businesses in large part to avoid the SIFI label, and in June the FSOC agreed to rescind its designation. MetLife also announced earlier this year that it would break itself into two separate businesses — a move many presumed to be related to its SIFI designation.

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