NU Online News Service, Nov. 6, 12:08 p.m. EST

WASHINGTON–Legislation to create a Federal Insurance Office should contain language allowing it to preempt state law where it conflicts with some forms of international trade agreements, an official said.

"We firmly believe that with respect to international agreements on financial matters that there should be an appropriately tailored, narrow preemption provision associated with it so that when there is a state law provision that is in conflict with an international prudential agreement on discriminatory treatment of a foreign firm that there is a method for dealing with that," said Michael Barr, assistant secretary of the Treasury for Financial Institutions.

His comments came as the keynote speaker at the Washington ALI-ABA Conference on Life Insurance Company Products.

The Treasury proposal would give the Insurance Office the ability to negotiate and inter into international agreements on prudential matters, such as uniform solvency regulations, but would maintain the U.S. trade represenatives authoirty over international trade agreements. The office would have the authority to preempt a state law provision that is in conflict with an international prudential agreement on discriminatory treatment of a foreign firm. Prudential issues relate to the safety and soundness of the financial system.

Mr. Barr sought to reassure supporters of state insurance regulation that the FIO office would in most cases go through the National Association of Insurance Commissioners when seeking information about insurers and the industry.

The only exception would be information needed to assess the health of potentially systemically-risky insurers, he said. And, that information would only be sought from holding companies, not insurance subsidiaries.

The FIO "is not a regulator in any sense," Mr. Barr said. "It will have no examination authority."

Mr. Barr also touched on concerns raised in Congress that insurers will have no voice on the Systemic Risk Council that would be created under another piece of legislation, the Financial Stability Improvement Act currently before the House Financial Services Committee.

Specifically, he said that as assistant secretary for Financial Institutions he will oversee the FIO, and report to the Treasury secretary.

"And the secretary of the Treasury will be representing the FIO on the oversight council," He said.

The Council representation issue was also raised during debate on the bill yesterday by Rep. Spencer Bachus, R-Ala., ranking minority member of the House Financial Services Committee.

He asked that the current language be changed to allow state insurance and banking regulators to have a vote on the Council; currently they would play only an advisory role.

Rep. Barney Frank, D-Mass., said he supported some role for state insurance and banking regulators on the Council, saying that non-voting members "should have full weight" on the council.

However, Rep. Frank pointed out that there were "constitutional limitations" to the role that state regulators could play on the Council.

The National Association of Insurance Commissioners and the National Council of Insurance Legislators both have voiced concern that giving the Treasury such authority constitutes "a significant shift of authority from the states to the federal government."

Action on the legislation has been delayed while Rep. Barney Frank, D-Mass., chairman of the committee, meets with officials of the U.S. Trade Representatives Office to discuss the jurisdictional issues raised by provisions in the legislation that would give the Treasury Department the authority to negotiate insurance trade pacts with foreign countries.

Congressional staff and industry lobbyists have said in recent days that because of concerns raised by various parties, all preemption language in the bill creating an FIO would be removed.

But, Mr. Barr said, "that is certainly not my understanding of what we proposed and it not my understanding what the House FSC intends to do."

Moreover, he said, it is not his understanding as to what either the Treasury "or officials of the Ways and Means Committee are interested in."

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