Federal officials are getting ready to look closely at insurance regulation while crafting a “blueprint for an improved U.S. financial regulatory structure.”
David Nason, U.S. Treasury assistant secretary for financial institutions, described the thinking that will go into the blueprint today in London, in remarks delivered before the City of London Corp.
The Treasury Department recently published a Federal Register notice seeking public comment on questions related to regulatory structure reform.
Since then, the department has received more than 350 comment letters, Nason said, according to a written version of his speech.
“This level of participation in the department’s study highlights the importance and complexity of our task,” Nason said.
Because “many political and parochial concerns” will lead to resistance to major changes, the department will propose some concrete, “intermediate steps” toward improving the financial services regulatory structure, Nason said.
But the department also wants to propose “broad ideas for an optimal regulatory structure to match the globally integrated U.S. financial services industry,” Nason said.
The broader proposal “will recognize the global nature of our capital markets, the greatly increased complexity of financial products, the importance of technology to the financial services sector, and the importance of consumer and investor protection in the provision of financial products, Nason said.
Most of the current U.S. financial services regulatory structure has been knit together over many years, Nason said.
“Much of this framework was put into place for particular reasons in a different time and in response to circumstances that no longer exist,” Nason observed.
Nason noted that the insurance regulatory structure dates back to an 1869 U.S. Supreme Court decision as well as to the McCarran-Ferguson Act of 1945 and the Gramm-Leach-Bliley Financial Services Modernization Act of 1999.
“Under our current state-based regulatory system, each state has an insurance regulator charged with administering state insurance laws, promulgating regulations, and other duties pertaining to the supervision of the insurance business,” Nason said.
The National Association of Insurance Commissioners, Kansas City, Mo., is the primary vehicle for attempting to “bring about some degree of uniformity,” Nason observed.
Companies from outside the United States often have difficulty adapting to more than 50 different state standards, and that “can limit international firms’ operations in the United States, ultimately hurting U.S. consumers,” Nason said.
Meanwhile, the U.S. market has changed, and the European Commission has changed the European market with the proposed Solvency II legislation and the Reinsurance Directive, Nason said.
Because of the changes, “the NAIC is currently considering updates to the U.S. risk-based capital and reinsurance policies,” Nason said. “As we evaluate proposals to modernize our own system of insurance regulation, we must consider what will best serve our interests and the global economy in maintaining an insurance marketplace that attracts capital and does not set up artificial and costly barriers.”
A copy of Nason’s speech is available