As previously discussed here and here, the United State Treasury Department has recently submitted a proposal to form a Financial Services Oversight Council (the “Council”) composed of various federal regulators to coordinate financial services regulation and oversight, but would not include a representative to the Council that has a specific insurance or reinsurance regulatory portfolio. One of the Council’s duties would be to recommend to the Federal Reserve Board (“FRB”) which financial holding companies, including insurance holding companies, should be designated as Tier 1 financial holding companies, subject to the newly proposed stringent system risk regulation of the FRB. This will likely places several insurers under a form of federal regulation based on their level of interconnectedness deemed to pose a threat to the overall financial system.
For this and other reasons, many are suggesting that representation on the Council for insurance regulators at the state level is necessary. Media sources have reported that Theresa Vaughn, CEO of the National Association of Insurance Commissioners (the “NAIC”), has stated that the NAIC should be part of the Council because state regulators offer expertise and information on the insurance markets.
In an open letter from the NAIC, the Conference of State Bank Regulators and the North American Securities Administrators Association to the heads of the Senate Banking, Housing and Urban Affairs Committee and the House Financial Services Committee, the state regulators asserted that “the responsibility of identifying and managing systemic risk should not be assigned to a single agency but should be carried out by a council made up of state and federal regulators.” According to the state regulators, such an approach is beneficial “because it will formalize regulatory cooperation and communication among state and federal regulators that oversee our financially intertwined markets.” The council, as envisioned by the state regulators, would include “representatives from all federal and state banking, insurance and securities regulators.”