Top U.S. financial officials unveiled a proposal for non-bank firms to face a higher bar for regulators to potentially tag them as “too big to fail.”

The Financial Stability Oversight Council voted on Wednesday to scale back a Biden-era framework for designating hedge funds and investment companies as systemically important. That tag, which can bring significant compliance costs and place firms under Federal Reserve supervision, has mostly been applied to large Wall Street banks since its introduction more than a decade ago. 

Treasury Secretary Scott Bessent, who leads the council, said at the meeting the move is part of an effort in “leveraging agencies existing regulatory tools” to better address risk. A Treasury official added the proposal would take a new approach for identifying potential issues and put “new rigor” into the process for considering a non-bank firm for designation. 

Top financial officials laid out a framework for designation in 2023 after warning oversight of non-banks hadn’t kept pace with the firms’ expanded footprint across the financial sector. Then-Treasury Secretary Janet Yellen said at the time there would be strong procedural protections for companies under review. 

Industry groups and Republican lawmakers had criticized the Biden-era measure. While regulators had not taken any steps to use the pathway, non-banks had expressed unease about the possibility of being deemed systemically important, while some GOP lawmakers argued that the the move would do little to improve risk monitoring. 

Democratic Sen. Elizabeth Warren slammed the move on Wednesday, saying there are potential risks tied to artificial intelligence, private credit and turmoil in the oil markets. 

“Instead of strengthening the resilience of the financial system in the face of these risks, the Trump Administration is doing the opposite,” Warren said in a statement.