Hill Delivers Remarks at Hearing to Examine the Impact of FSOC's Ever-Changing Designation Framework on Innovation

Washington, January 10, 2024 -

Today, the House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion, led by Chairman French Hill (AR-02), is holding a hearing entitled "Regulatory Whiplash: Examining the Impact of FSOC's Ever-Changing Designation Framework on Innovation."

Watch Chairman Hill's opening remarks here.

Read Chairman Hill's opening remarks as delivered:

"Today's hearing is titled, 'Regulatory Whiplash: Examining the Impact of FSOC's Ever-Changing Designation Framework on Innovation.'

"We're holding this hearing after FSOC finalized its revised guidance for nonbank financial company designations in November.

"The new guidance is intended to enhance protections for our financial system.

"But in practice, this revision paves the path for potential abuse and unintended consequences and raises serious questions about whether FSOC is taking the best approach to actually address systemic risk.

"For example, it removes the requirement for FSOC to conduct cost-benefit analysis when evaluating an entity's potential to pose systemic risk under a Section 113 designation.

"Even the District Court in the case MetLife v. FSOC, which considered the legality of MetLife's prior designation as a systemically important institution, stated that the refusal to consider costs of the designation to MetLife was 'arbitrary and capricious.'

"The revised guidance flies in the face of the District Court's opinion and the Supreme Court precedent underpinning that decision.

"Not only that, but the new guidance also rejects the approach taken under the prior Administration to implement a more appropriate designation process, which includes an activities-first approach and a commitment to work with a primary regulator.

"I think what's really damaging, too, is the consistent, constant whiplash every time we have a change in the occupant at 1600 Pennsylvania Avenue. Just this morning in the Capital Markets Subcommittee, we dealt with precisely that same issue on the Department of Labor fiduciary rule.

"I remind all of us that we're on our third designation framework in three Administrations now. And though the new guidance states that it 'aims to establish a durable process,' it seems that this pattern of three changes in three Administrations is anything but.

"In this Congress, our committee has scrutinized the repeated and proactive efforts by certain Biden financial regulators to take aggressive agency actions against disfavored industries through guidance, rulemaking, supervision, and enforcement.

"I would argue that FSOC, which is mostly comprised of those same regulators, is taking a similarly mistaken approach with its revised guidance for designations.

"Let's look at 2023 annual report.

"FSOC considers digital assets as a priority and as recently as October 2022, FSOC recommended that Congress pass legislation to establish a comprehensive framework for stablecoins, and that a new federal regulatory authority should be provided over spot markets for digital assets that are not considered securities.

Well look, that's what this Committee has been working on since the 118^th Congress was initiated. This subcommittee and our full committee have done precisely that. We've crafted a regulatory framework for digital assets and we've crafted a regulatory regime for stablecoins-we don't need FSOC to be involved in that. What they need to do is support our legislative efforts.

I'm proud in both of those efforts-both on stablecoins and the regulatory framework-that we had a very strong bipartisan effort working with both Democrats and Republicans to craft that approach.

"We moved those bills out of this committee, and we look forward to continuing to work with our colleagues on the Hill and in the Administration to move that legislation forward.

"FSOC needs to tread very carefully when entertaining the idea of sidestepping Congress and Congressional intent. FSOC designations here in my view are not the proper approach-a legislative fix is.

"It's clear some rogue regulators threaten consumer protections in the digital asset market as much as any bad actor. I think we just witnessed the latest in Washington's technological vulnerability yesterday in a real low point for the SEC.

"Chairman McHenry, Subcommittee Chairmen Wagner, Huizenga, and myself will be sending a letter to Chair Gensler today to start the process of getting to the bottom of how it happened that the SEC Twitter account was hacked and investors were mislead yesterday on the subject of an ETF being approved for digital assets and Bitcoin."

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