NAIC Likes Most Of The Obama Financial Regulatory Plan

NU Online News Service, June 18, 1:23 p.m. EDT

WASHINGTON–The Obama administration's financial services regulatory reform proposal, that basically leaves the state insurance regulatory system intact, has drawn a positive response from the National Association of Insurance Commissioners.

However, Therese Vaughan, the NAIC's chief executive officer, said in a statement, the group would lobby to have state insurance commissioners included in the council of finance that the plan calls for.

State regulators "offer expertise and information on the insurance markets," said Ms. Vaughan.

On the positive side, she said, "While no one proposal is completely perfect, our initial read of the Administration's financial overhaul plan seems to reflect what is most important to us: preserving the consumer protections and financial solvency oversight of the historically strong and solid system of state-based insurance regulation."

As she has in the past, Ms. Vaughan said the state system's strong solvency programs and consumer protections "have served consumers well, as evidenced by the relative stability in the insurance markets."

Ms. Vaughn said the proposal "appropriately focuses on the problems that need fixing," citing systemic risk and other regulatory gaps.

She also said state regulators will continue to work with Congress and the administration to underscore the benefits of the current insurance regulatory system.

"Consumer protection has been, is and will remain priority one for state insurance officials," she said.

"We advocate for insurance consumers and objectively regulate the U.S. insurance market, relying upon the strength of local, accountable oversight and national collaboration," she added.

Under the proposal, the only role for federal authorities in insurance would be creation of an Office of National Insurance within the Treasury Department.

However, a Treasury white paper detailing the reform plan adds that the administration would support "increased national uniformity through either a federal charter or effective action by the states."

It also said the ONI (Office of National Insurance) within Treasury would have the authority within Treasury to recommend to the Fed any insurance companies that the Office believes should be supervised as Tier 1 financial holding companies."

Ms. Vaughn's specific concerns about the proposal centers on the Financial Services Oversight Council that would be created to advise the Federal Reserve Board on which non-bank institutions the Fed would oversee as potentially systemically risky.

The document provides for no state role in this agency.

The criteria for establishing a firm as potentially risky would be those firms "whose failure could pose a threat to financial stability due to their combination of size, leverage, and interconnectedness." These would be called Tier Financial Holding Companies.

The regulators who would constitute this panel would include the secretary of the Treasury, who would serve as chairman; the chairman of the Federal Reserve; and the director of the combined Office of the Comptroller of the Currency/Office of Thrift Supervision.

It will also include the director of the Consumer Financial Protection Agency, the chairman of the Securities and Exchange Commission, the chairman of the Commodities Future Trading Commission, the chairman of the Federal Deposit Insurance Corporation, and the director of the Federal Housing Finance Agency.

Administration officials said no decision has been made whether insurance products would be subject to the authority of the new Consumer Financial Protection Agency that would be established under their proposal.

In a meeting with reporters after President Obama unveiled his white paper for regulatory reform, Treasury secretary Timothy Geithner said the administration is "redrawing the boundaries of authority" for consumer protection through its proposals.

Asked if the authority of the new agency would include responsibility to regulate sale of annuities and homeowner's insurance, he said, "not all products respect these boundaries neatly.

"There's a bunch of question we're going to have to work through about where those boundaries are and we don't believe we've solved all these problems and got all those details perfect in this one document and that's one reason why I said at the beginning this will evolve going forward but what we're trying to do is make sure we have better mechanism in place to cover any gaps and to adapt as the markets evolve as they will going forward."