A federal judge on Wednesday sided with insurance giant MetLife in its effort to remove the “systematically important financial institution” designation placed upon it by the Financial Stability Oversight Council.

Ruling in the case of MetLife Inc. v. Financial Stability Oversight Council, U.S. District Judge Rosemary Collyer revoked the SIFI designation. The ruling was sealed, with no specific details made public, although a redacted version of the opinion may be forthcoming. Both parties have until April 6 to inform the court of any information in the opinion they feel should remain confidential.

The ruling is unlikely to be the end of the lengthy legal battle as the government has the option of either filing an appeal or re0embarking on the SIFI designation process in light of the judge's concerns.

FSOC was established under the Dodd-Frank Act, charged with identifying risks to the nation’s financial stability and responding to emerging risks. It consists of 10 voting members and 5 nonvoting members culled from federal and state regulators. It includes an independent insurance expert appointed by the President. In December 2014, it designated Metlife, the nation’s largest insurance company, as a SIFI.  

SIFIs are required to conduct regular stress tests, prepare credit exposure reports, and draft “living wills” that document resolution and liquidation plans. They may also face enhanced prudential standards, including requirements regarding risk-based capital and leverage, liquidity, risk management, early remediation, and credit concentration.

“MetLife will now be subject to regulation by the Board of Governors of the Federal Reserve. However, the Fed has not yet written the rules for insurance companies, and those rules may not be finalized for many months,” MetLife said in a statement issued after it learned of the SIFI designation.

Other non-bank entities receiving the designation include American International Group, Prudential Financial, and GE Capital on the list on non-bank SIFIs. Designated banks include Goldman Sachs, JPMorgan Chase, Morgan Stanley, Citigroup, Bank of America, Merrill Lynch, and Wells Fargo.

In January 2015, MetLife filed its legal challenge, the only time a SIFI designation has been brought before a federal judge. The lawsuit challenged both the specifics of its designation and the general approach taken by FSOC. The company rejected the notion that it could pose a threat to U.S. financial stability calling that conclusion “arbitrary and capricious” and “reached through a procedure that denied MetLife its due process rights and violated the constitutional separation of powers.”

Among the claims presented in the lawsuit:

“FSOC made “numerous critical errors” that fatally undermined the reasoning in its final designation. It failed to understand, or give meaningful weight to, the comprehensive state insurance regulatory regime that supervises every aspect of MetLife’s U.S. insurance business.

FSOC fixated on MetLife’s size and so-called interconnections with other financial companies—“factors that, considered alone, would inevitably lead to the designation of virtually any large financial company”—and ignored other statutorily mandated considerations that weighed sharply against designation.

“FSOC consistently relied on vague standards and assertions, unsubstantiated speculation, and unreasonable assumptions that are inconsistent with historical experience, basic economic teachings, and accepted principles of risk analysis.”

“FSOC wholly ignored the tools used by federal regulators to assess the potential impact of severely adverse economic conditions in other contexts, including Federal Reserve Board ‘stress tests.’”

FSOC denied MetLife access to data and materials used to make its designation, depriving the Company of an opportunity to rebut assumptions and respond to its analysis. This violated the firm’s due process rights, the suit says.

MetLife also argued that it is not predominantly engaged in financial activities and FSOC’s designation authority is limited by the Dodd-Frank Act to “U.S. nonbank financial companies.” MetLife is not a “U.S. nonbank financial company” eligible for designation, the lawsuit says, because it derives more than 15 percent of its revenues from, and more than 15 percent of its assets are related to, insurance activities in foreign markets.

The company added that FSOC had “an obligation to consider reasonable alternatives to designating MetLife as systemically important.” Those alternatives include the “activities-based approach” FSOC is presently considering for asset managers. It would impose enhanced supervision on certain activities deemed to be particularly risky, without designating the entire company as systemically important. Despite “the repeated statements of key legislators and federal financial regulators that traditional insurance activities do not pose systemic risk to the economy,” FSOC provided “no reasoned explanation for failing to pursue an activities-based approach for insurance companies.”

In a more general criticism, MetLife called the designation process “opaque” and objected to “procedural shortcomings that severely impaired its ability to respond.”

MetLife was represented by Eugene Scalia, a partner at law firm Gibson Dunn & Crutcher and son of the late Supreme Court Justice Antonin Scalia.