Financial Stability Oversight Council Improvement Act of 2025

The bill would amend Section 113 of the Financial Stability Act of 2010 to prohibit FSOC from even voting on a proposed designation of a U.S. nonbank financial company for Federal Reserve supervision unless the Council first determines — in consultation with the company and its primary financial regulator — that alternative actions would be impracticable or insufficient to address the financial stability risk. Those alternatives could include the Council or the primary regulator applying new or heightened standards under Section 120 of the Act, or the company itself submitting a written remediation plan.

The bill does not eliminate FSOC's authority to designate nonbank firms; it adds a required preliminary finding before any designation vote can occur. It also updates a cross-reference in the judicial review subsection of the statute to reflect the new procedural step.

U.S. nonbank financial companies — such as large insurers, asset managers, or other firms that FSOC might consider systemically important — that could face Federal Reserve supervision. FSOC itself, the Federal Reserve Board, and any primary federal or state financial regulator that oversees a company under review would also be directly involved in the new pre-vote consultation process.

For nonbank financial firms, the new prerequisite would give them an opportunity to propose voluntary remediation plans or work with their primary regulator on targeted fixes before facing the most burdensome level of federal oversight — designation as a systemically important institution subject to Fed supervision. For regulators, it adds a documented procedural step that could be subject to legal challenge if not followed.

Before voting on a proposed designation, FSOC would be required to consult with the company under review and its primary financial regulatory agency to assess whether alternative measures — such as the regulator applying heightened standards under Section 120, or the company submitting a written remediation plan — could adequately mitigate the risk. Only after formally determining those alternatives to be impracticable or insufficient may the Council proceed to a designation vote. The bill does not specify a rulemaking requirement or set a timeline for the consultation process; how FSOC structures this step would likely be addressed through the Council's existing procedural guidance or future rulemaking.