In testimony yesterday before the House Agriculture Committee, New York State Insurance Superintendent Eric Dinallo announced that the Insurance Department would delay indefinitely those parts of Circular 19 (2008), which would regulate as financial guaranty insurance credit default swaps in which the buyer of protection holds or is reasonably expected to hold a material interest in the reference obligation. In its press release, the Insurance Department noted that it would be best to have a single credit default swap market with a single regulatory scheme and that the federal government has made progress towards addressing risks in credit default swaps. The Insurance Department referred to the initiatives announced last week by the President’s Working Group on Financial Markets, the Memorandum of Understanding between the Federal Reserve, the SEC, and the CFTC, and the priority given to establishment of a central counterparty for credit default swaps, as evidence of that progress. Suggestions were made by the Insurance Department for elements of an effective regulatory scheme, including capital adequacy for sellers of credit protection, a guaranty fund, dispute resolution mechanisms, transparency, and comprehensive regulatory oversight. Yesterday, the Insurance Department issued a supplement to Circular 19 (2008) to remove the application of insurance regulations to credit default swaps.
Alston & Bird has issued an Advisory on this subject.