WASHINGTON — The Financial Stability Oversight Council on Wednesday proposed steps to modify the process for designating "systemically important" nonbanks, responding to a chorus of concerns about the panel's activities.

The proposal, which was discussed at an open meeting and still needs to be voted on by council members, would require the council to engage earlier with companies under FSOC review, be more specific about what aspects of a firm are most relevant in the review and work more closely with a firm's primary regulator during the process.

Under the Dodd-Frank Act, the FSOC can label a large nonbank as a "systemically important financial institution," opening it up to tough supervision from the Federal Reserve Board. But the council has encountered sharp criticism about its process that has so far resulted in four designations.

Treasury Secretary Jack Lew, who chairs the council, said FSOC consulted with various industry and public interest groups along with lawmakers to evaluate the program beginning in the fall. While the designation process is "rigorous," Lew said, it is prudent to consider ways to make it better.

"The council is a young organization, and it is important that we periodically examine how we conduct our activities," he said. "It is especially important so we can be as transparent as possible in our work."

In 2013, the council designated three institutions — American International Group, Prudential Financial, and General Electric Capital — as nonbank SIFIs. Insurance giant MetLife was most recently designated as a SIFI in December, but the company filed suit in federal court to overturn the designation on Jan. 14.

The designation process currently involves three stages. During Stage 1, FSOC uses uniform metrics based on size, interconnectedness, leverage, and other factors to judge if a company is systemic. Companies that exceed those thresholds move to Stage 2. If FSOC staff determines the firm could pose a systemic threat, it advances to Stage 3, during which the council informs the company it is being considered. It is at that time that a firm can provide data showing why it should not be designated.

Patrick Pinschmidt, a deputy assistant Treasury secretary and FSOC's executive director, said the proposal would move engagement with the company up to the Stage 2 review. FSOC would also have to provide Stage 2 firms with whatever publicly available data it is using in its analysis.

FSOC would also be obligated to inform the companies of the specific aspects of its business that the council is evaluating in order to allow the companies to address those concerns. FSOC would also grant any request for an oral hearing by a company facing a potential designation. Under the current process, firms can ask for a hearing but then it is up to the council to rule on the request.

The proposed changes Wednesday were welcomed by lawmakers and groups that have called for a fairer process for companies under review. Some of the groups applauding the new steps had offered suggestions that made their way into the proposal.

"It shows that they listen, and they responded," Rep. Carolyn Maloney, D-N.Y., said in an interview. She noted that the recommendations she made to the council in a letter last July to improve the designation regime were included in their entirety. "The main thing is to answer the legitimate concerns of fair treatment by the private sector, and I think that they responded to the concerns that were raised to me," she said.

The Financial Services Roundtable also praised the move, saying the steps outlined by the council include ideas the trade group has embraced in its own proposals.

"If the goal of a more secure financial system is to truly advance further, FSOC's process needs to be improved, and we are glad FSOC agrees," said Roundtable chief executive Tim Pawlenty. "We are pleased FSOC will take up many of our recommendations and that their process will become more transparent to the public."

Pinschmidt said the proposal would also increase transparency about the metrics used during Stage 1. More details about how many companies were voted on to advance or not advance to Stage 3 would also be divulged under the new rules.

"The intent of these proposed changes is to let companies know as soon as possible where they stand and concurrently provide earlier opportunities to engage with the council and staff without compromising the council's ability to conduct its work," Pinschmidt said.

Yet some observers said the council could have gone even further.

Doug Holtz-Eakin, former director of the Congressional Budget Office and head of American Action Forum, which has vocally sought greater transparency in the nonbank designation process, said he was heartened by the move though he was unclear on the details. One reform the council did not appear to embrace, he said, was a clearer process for how to "un-designate" a firm once it has been labeled a SIFI.

"This is all about getting people in," Holtz-Eakin said. "That's fine, but we also need a way to get them out. There has to be an off-ramp. You should be able to move back to the regular regulatory regime somehow, and that's still missing entirely."

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