Trade Groups Ask FSOC To Delay Systemic Risk Oversight Authority

Washington

Trade groups representing the life, property and casualty and reinsurance industries are asking the Treasury Department to defer indefinitely federal oversight of institutions deemed systemically risky.

Before institutions are classified as posing a systemic risk to the financial system under the Dodd-Frank Act, a whole host of things must be clarified, the groups said in a letter to Treasury last week.

The trade groups are:

• The American Council of Life Insurers
• The American Insurance Association
• The Reinsurance Association of America

In the letter, these groups said classification of insurers should be delayed until such a time as the independent member of the Financial Stability Oversight Council having insurance expertise is nominated by the president and confirmed by the Senate, and the director of the Federal Insurance Office has also been selected by the Treasury secretary.

They are also suggesting that any FSOC action involving insurers be delayed until the agency has proposed qualitative and quantitative standards that it may use to assess insurers, and until the agency has provided the insurance industry and the public with an opportunity to comment on such standards.

"Ensuring that the appropriate insurance expertise is in place to inform the rulemaking and providing a transparent process that allows for public comments on the quantitative and qualitative standards that will be applied by the FSOC are necessary components to the successful implementation of these critical provisions of the Dodd-Frank Act," the letter said.

The letter was signed by Julie A. Spiezio, ACLI senior vice president and deputy general counsel; J. Stephen Zielezienski, AIA senior vice president and general counsel; and Tracey Laws, RAA senior vice president and general counsel.

The lawyers said that their trade groups are concerned that, notwithstanding the extensive comments provided to the FSOC in response to an October request for comment, "nothing in the actual language of the proposed rule provides nonbank financial companies with any guidance as to the standards that the FSOC intends to apply in carrying out its functions to determine whether or not to subject a financial company to the board's supervision and to enhanced prudential standards."

The letter adds that the FSOC's failure to provide meaningful standards that it will apply in making its assessments as to systemically important institutions "is particularly troubling" in view of the statement that it expects to begin assessing the systemic importance of nonbank financial companies under the proposed framework shortly after adopting a final rule.

"It is difficult to provide comprehensive comments on the FSOC's proposed rule without having the opportunity to review and comment on the metrics the FSOC states it will rely upon, as well as the conceptual foundations that underlay its judgment," the letter said.  

The letter added, "We do not believe that the insurance members on the FSOC that are awaiting appointment should take a back seat to members who have already been designated. Accordingly, we strongly believe that it would be contrary to congressional intent and do a disservice to the FSOC and to the insurance industry for the FSOC to proceed without the full complement of members who are able to provide critical input to the FSOC and participate in the FSOC's important decisions that will affect the insurance industry long into the future."