More On Legal & Compliancefrom The Advisor's Professional Library
- The New and Improved Form ADV Whether an RIA is describing its investment strategy in advertisements or in the new Form ADV Part 2, it is important the firm articulates material risks faced by advisory clients and avoids language that might be construed as a guarantee.
- Suitability and Fiduciary Duty Recommending suitable investments is more than just a regulatory obligation. Many investors bring cases claiming lack of suitability, so RIAs must continuously put the onus on clients to notify the advisor of changes in their financial situation.
MetLife could be designated a systemically important financial institutions (SIFI) as early as next week, Bloomberg News said today, even though the article did not name a source.
John Nadel, an analyst at Sterne, Agee and Leach in New York, said he was not surprised and that institutional investors had been expecting it. “For some time, it has been just a question of when,” Nadel said.
Suzanne Elio, a Treasury spokeswoman, declined to comment on the possible designation of MetLife, but did confirm that the Financial Stability Oversight Council will hold a meeting next Thursday, July 31, and that nonbank designations are on the agenda.
John Calagna, a MetLife spokesman, declined to comment.
If designated a SIFI, MetLife will be subjected to stricter capital, leverage and liquidity requirements as a result of supervision by the Federal Reserve Board as well as state regulators. It would join American International Group and Prudential Financial as insurance SIFIs. General Electric Capital Corp. is the only other non-bank SIFI.
However, Janet Yellen, chairman of the Federal Reserve, has made clear in congressional testimony that insurance companies are different than banks, and that the Fed is in the process of creating metrics and adjusting its regulation to recognize the differences.
It could also demand stress testing for crisis scenarios, but stronger regulation of insurance SIFIs is unlikely to be unveiled until next year.
Steve Kandarian, MetLife chairman and CEO, acknowledged that in comments to MetLife institutional investors June 10. He said then that it was too early to know exactly what a systemic designation would mean for his company. Regulators “could still come up with draft rules that we would find reasonable or come up with draft rules that maybe we wouldn’t find as reasonable,” he said.
In designating MetLife at this time, the FSOC would be ignoring the House Financial Services Committee (FSC). The panel reported out two pieces of legislation that would establish at least a moratorium of up to one year on SIFI designations. The conservative leadership of the House FSC arguments that the FSOC SIFI designation process “is not transparent.”
At a June 24 hearing of the FSC, Treasury Secretary Jacob Lew disagreed. He testified that the FSOC process is transparent, and argued that House members and others who criticize it as “opaque” are “simply wrong.”
MetLife has been in Stage Three, the final stage of the FSOC designation process, for more than a year. The FSOC decided to re-evaluate its process for designating insurance companies as SIFIs after running into internal opposition to its ultimate designation of Prudential Financial as a SIFI.
These included Roy Woodall, the independent FSOC member with insurance expertise, as well as John Huff, the Missouri insurance commissioner and one of five non-voting members of the FSOC, and Ed DeMarco, acting head of the Federal Housing Finance Agency (FHFA). Pru was first designated a SIFI in late March of last year, but requested a hearing, as allowed under FSOC regulations. It was ultimately designated a SIFI Oct. 31. A two-thirds vote of the council is required to label a company systemically important.
A SIFI designation has been aggressively challenged by Steve Kandarian, MetLife chairman and CEO. As part of a Washington lobbying campaign last year, he met with analysts, members of the Chamber of Commerce and members of Congress. His argument is that, “We truly believe we’re not systemically important.”
MetLife executives have met more than 10 times with council staff members to argue it doesn’t pose a risk.
The council vote would be a proposed designation, and MetLife would have 30 days to request a hearing before the FSOC to contest the decision. After a hearing, the regulators would hold a final vote on whether to designate MetLife. The company reports earnings after the market closing July 30 and will hold an investor call July 31, the same day the FSOC is planning to meet.
Check out Dodd-Frank’s FSOC Under Fire as Americans Push for Wall Street Crackdown on ThinkAdvisor.