The Financial Stability Oversight Council Improvement Act of 2025 amends Section 113 of the Financial Stability Act of 2010 to force FSOC to consider and rule out less intrusive options before voting to determine that a U.S. nonbank financial company should be supervised by the Board of Governors of the Federal Reserve. The amendment requires FSOC to consult with the company and its primary financial regulatory agency and to find that alternative Council or agency actions—or a company plan submitted promptly to the Council—are impracticable or insufficient to address the threat to financial stability.
The change raises the procedural bar for designation, formalizes a pathway for companies to propose corrective plans, and expressly links consideration of alternatives to tools under section 120. It also updates the statutory cross-reference for judicial review.
For regulators, large nonbank firms, and their advisors, this bill shifts where the burden of justification lies and increases the role of consultation and documented alternatives in the designation process.
At a Glance
What It Does
The bill inserts a new paragraph into 12 U.S.C. 5323(a) that bars FSOC from voting on a proposed determination to designate a U.S. nonbank financial company for Federal Reserve supervision until FSOC determines, after consulting the company and its primary regulator, that other actions are impracticable or insufficient. It explicitly contemplates agency action (including under section 120) or a company-submitted written plan as alternatives.
Who It Affects
U.S. nonbank financial companies that FSOC is considering for designation as systemically important, the Board of Governors of the Federal Reserve (as the prospective supervisor), FSOC staff, and the company's primary federal financial regulator (for example, the OCC, FDIC, or SEC depending on the firm). Legal and compliance teams advising those companies will also be directly affected.
Why It Matters
The bill creates a procedural hurdle that could reduce or delay Fed supervision of nonbank firms by requiring documented consideration of alternatives and consultation. It formalizes a negotiation channel for firms to present remediation plans and expands the scope for judicial review of FSOC decisions tied to that procedural step.
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What This Bill Actually Does
This amendment adds a gatekeeping step to FSOC’s existing authority to flag a U.S. nonbank financial company as deserving of Federal Reserve supervision. Before FSOC may vote on such a proposed determination, the Council must first engage the company and its primary regulator and make a recorded finding that less intrusive options—ranging from steps the Council or the primary regulator could take to regulatory adjustments under section 120—are not a workable solution to the threat posed by the company’s distress or risk profile.
The bill specifically gives companies a formal opportunity to submit a written plan “promptly” to FSOC describing actions the company would take to mitigate systemic risk. FSOC must weigh such plans alongside possible agency-imposed standards or safeguards.
By tying the determination to an evaluation of alternatives, the Council needs to document why negotiated remedies or heightened agency standards would be impracticable or insufficient before it moves forward with the heavier step of designating the firm for Fed supervision.Practically, the amendment increases the evidentiary and procedural burden on FSOC: it must consult, consider alternatives, and record a finding about their adequacy. It also raises the visibility and legal standing of company-proposed remediation plans and of primary regulators’ capacity to propose and implement tailored measures.
Finally, by altering the statutory cross-reference for judicial review, the bill makes aspects of this new procedural requirement more likely to be litigated, since determinations tied to the new paragraph are now within the scope of existing review provisions.
The Five Things You Need to Know
The bill adds paragraph (3) to 12 U.S.C. 5323(a) forbidding FSOC from voting on a proposed determination unless it first finds alternative actions impracticable or insufficient.
FSOC must consult both the nonbank company under review and that company’s primary federal financial regulator before making the required finding.
The statute lists three categories of alternatives FSOC must consider: Council or agency actions, new or heightened standards under section 120, and a written remediation plan submitted promptly by the company.
The amendment changes subsection (f)(1) of Section 113 so that determinations linked to the new paragraph (a)(3) are captured by the statute’s judicial-review provision.
The bill does not define ‘promptly’ or specify a procedural timeline or evidentiary standard for when an alternative is ‘impracticable or insufficient.’.
Section-by-Section Breakdown
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Short title
Declares the Act’s short title as the Financial Stability Oversight Council Improvement Act of 2025. This is a conventional caption with no operational effect on regulatory process.
New initial-determination requirement and mandatory consultation
Adds paragraph (3) and revises paragraph (1) to make FSOC’s power to vote on a proposed determination conditional on a prior finding that other actions are impracticable or insufficient. The mechanics require consultation with the company and its primary financial regulator and oblige FSOC to consider three alternative routes: Council or agency actions, the application of new or heightened standards under section 120, and a company-written remediation plan. The provision turns what has been a largely Council-centric decision into a consultative process involving the primary regulator and the firm, and it requires FSOC to articulate why less intrusive remedies would not work.
Extending judicial-review references to the new procedural finding
Modifies the cross-reference in subsection (f)(1) to include the new paragraph (a)(3) along with subsection (e). That change folds determinations tied to the initial-determination requirement into the statute’s existing judicial-review framework. Practically, this means litigants can challenge not only final designations but also the adequacy of FSOC’s record that alternatives were impracticable or insufficient.
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Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- U.S. nonbank financial companies under FSOC review — the bill gives them a formal venue to present written remediation plans and forces FSOC to document why those plans or regulator-led actions would fail, increasing the chance a firm can avoid or delay Fed supervision.
- Primary federal financial regulators (e.g., OCC, FDIC, SEC depending on the firm) — the law elevates their role in the designation process by requiring consultation and giving them an opportunity to propose agency actions as alternatives.
- Company legal, compliance, and risk teams — the statutory recognition of company-submitted plans creates a tactical negotiation tool and raises the importance of fast, credible remediation proposals.
- Investors and counterparties of firms under review — where non-Fed alternatives are effective, these stakeholders may avoid the market disruption that can accompany a sudden shift to Federal Reserve supervision.
Who Bears the Cost
- FSOC and Council staff — the Council must document consultations, evaluate alternatives, and make written findings, increasing administrative workload and potentially slowing decision-making.
- Primary regulators with limited resources — agencies asked to design or operationalize new or heightened standards under section 120 may face additional regulatory drafting, supervisory, and enforcement costs without dedicated funding.
- Board of Governors of the Federal Reserve — the bill makes it harder and slower to obtain supervisory authority over risky nonbank firms, which could limit the Fed’s ability to act quickly in a crisis.
- Taxpayers and systemic-risk backstops in the event alternatives fail — if the procedural barrier delays effective intervention, eventual stabilization costs could be larger and more disruptive.
Key Issues
The Core Tension
The bill pits procedural safeguards and negotiated remedies against the need for swift, decisive action to head off systemic risk: it reduces the risk of overbroad Fed supervision by forcing FSOC to exhaust alternatives, but in doing so it may weaken FSOC’s ability to act quickly in crises or to secure a durable regulatory fix when primary regulators cannot or will not implement effective measures.
The statutory language creates useful procedural protections but leaves key terms and mechanics undefined. The bill does not specify what evidence satisfies a finding that alternatives are ‘impracticable or insufficient,’ nor does it set a deadline for the required consultations or for the Council to act after a company submits a remediation plan.
That vagueness will shift contestation to administrative practice and, likely, litigation over process sufficiency.
The interaction with section 120 is also under-specified. Section 120 tools are now on the table as alternatives, but primary regulators may lack either the statutory authority, political appetite, or capacity to implement effective heightened standards in the timeframes FSOC might deem necessary.
Finally, expanding the scope for judicial review invites legal challenges not only to final designations but to whether FSOC adequately considered or rejected alternatives — a factual and procedural inquiry that courts may be reluctant to resolve without clear standards.
These implementation gaps create a trade-off: the amendment limits heavy-handed designation by elevating consultation and negotiation, but it risks creating procedural delay or a layer of uncertainty during episodes when speed matters to contain contagion.
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