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FDIC Chair Says Financial System Needs Restructuring

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The financial services regulatory system, including insurance regulation, needs restructuring, says the chairman of the Federal Deposit Insurance Corporation.

“We should design a regulatory system that looks like our modern marketplace,” Donald E. Powell says in remarks to the Exchequer Club of Washington.

“We should have three federal regulators,” Powell says. “These entities would oversee the banking industry, the securities industry and those companies that choose an optional federal insurance charter.”

Powell says that the nation should also establish an “authoritative forum” where the three regulators would meet, along with the Treasury Department and the Federal Reserve, on a regular basis.

This new body, he says, would sort through areas of overlap or sector-wide policy and make decisions on systemic risk, permissible activities and product regulation.

“This structure allows us to provide a federal safety net to Americas financial services industry that is streamlined and broad in scope, yet able to amass the technical expertise to deal with problems that arise in this or that sector of the financial marketplace,” Powell says.

This structure, he says, would make the functional regulation idea envisioned by the Gramm-Leach-Bliley Act more accessible and user friendly.

“It would ensure clear lines of authority and accountability,” Powell says. “And the process would be efficient enough to ensure the timely delivery of policy and consumer protection decisions on a consistent basis across the entire financial sector.”

Too often, he says, when financial regulators engage in turf warfare, the ultimate losers are the industry and the marketplace.

“The price is paid in lost opportunities and lost competitiveness,” Powell says.

The industry and the broader markets in the future will require answers from regulators much faster than they are provided today, he adds.

“In such a market, delay will be as good as denial,” he says. “A nimble and efficient regulatory structure that evaluates emerging issues and problems and moves quickly to address them is going to be increasingly important.”

Powell says that anyone can come up with 10 reasons why this structure wont work, and 10 issues he has not considered.

But his intent, he says, is not to spell out exactly how the new system would work.

His goal, Powell says, is to get both industry and his regulatory colleagues thinking about how a new and better structure would work.

In response, Jack Dolan, a representative of the American Council of Life Insurers, Washington, says that one of the encouraging elements of Powells speech is his assumption that there will be a federal insurance charter.

This is a positive development, Dolan says. It is important that a financial services regulator is thinking strategically about improving the overall financial services system.

Moreover, Dolan says, Powells speech recognizes that the life insurance and annuity businesses have more similarities with securities and banking than differences.

“It makes perfect sense to have regulators from these discrete businesses meeting on areas of common concern,” he says.

In other news, the Treasury Department last week issued a follow-up to the proposed anti-money laundering regulation that was released in September.

While the September rule outlines compliance requirements for insurance company anti-money laundering programs, the new proposal focuses on reporting requirements.

Specifically, the new proposed rule says that insurance companies must file a suspicious activity report with the Treasury Departments Financial Crimes Enforcement Network no later than 30 days after the date of the initial detection of facts that may constitute a basis for filing a report.

However, this could be extended to 60 days if the insurance company is unable to identify a suspect on the date of the initial detection.

For situations that require immediate attention, such as ongoing anti-money laundering schemes, insurance companies must telephone an appropriate law enforcement authority in addition to filing a timely report.

The proposed rule contains as exception for false information involving “routine” insurance fraud that is unrelated to money laundering. However, the proposal asks for comments on whether the exception is appropriate.

In addition, insurance companies selling variable annuities that file reports under the separate proposed requirement for broker-dealer will not have to file a second report under the insurance company proposal.

Carl Wilkerson, chief counsel for securities with the American Council of Life Insurers, Washington, praises the proposed rule.

The Treasury Department, he says, is trying to eliminate any redundancies in reporting requirements.

In addition, Wilkerson says, the proposal confirms that enforcement of the requirement will be with the Treasury Department rather than states.

This will preclude the development of multiple, inconsistent standards, Wilkerson says.

Comments on the proposal must be filed by Dec. 16, 2002.

For an update on Congressional action on terrorism insurance, visit

Reproduced from National Underwriter Life & Health/Financial Services Edition, October 21, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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