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Regulation and Compliance > Federal Regulation

CFA Suggests Debating Mandatory Federal Charters

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The Consumer Federation of America is asking why the U.S. Treasury Department is not pushing to replace the entire state-based insurance regulatory system with a federal system.

If the department really wants to promote uniformity in insurance regulation, not simply weaken consumer protection rules, “the appropriate approach is to create a federal regulator with strong consumer protections and not allow insurers to run back to the states when oversight is tougher than they would like,” CFA officials say in a statement about the department’s new financial services reform blueprint report.

In the report, Treasury Department officials recommend giving insurers and producers the option of choosing between being regulated by the states and being regulated by a new federal insurance regulatory agency.

“CFA strongly opposes an optional federal charter for insurance that allows the regulated entity, at its sole discretion, to pick its regulator,” CFA officials say. “This is a prescription for regulatory arbitrage that can only undermine needed consumer protections.”

Treasury officials also have recommended putting responsibility for supervision of market conduct in many different financial services markets, such as the banking, securities and insurance markets, under the jurisdiction of a new, combined market conduct regulator.

“Having, for better or worse, largely erased the lines that separate the banking, insurance, and securities industries, it makes sense to adopt consumer protections based on the nature of products and services offered rather than on archaic industry divisions,” CFA officials say.

But consumers will benefit only if the new market conduct agency has the authority, resources, independence and will to impose high standards of conduct and enforce compliance with those standards, CFA officials say.

But the Treasury Department’s support for the Commodity Futures Trading Commission’s “principles-based” approach to regulation is “industry-cozy,” and the department’s emphasis on self-regulation also indicates that the department is more interested in loosing regulatory oversight than in strengthening market conduct oversight, CFA officials say.

CFA officials also criticize the mortgage market provisions of the blueprint as being irrelevant to the current market problems.

“Rolling out this plan in the middle of the current crisis is like telling Hurricane Katrina victims stranded on their rooftops in New Orleans, ‘don’t worry, if you can hold for a few years, we’ve got a really great plan to restructure the federal emergency response system,’ ” CFA officials contend.

Meanwhile, in related news, California Insurance Commissioner Steve Poizner also has come out with a statement criticizing the blueprint report.

“I cannot support another bureaucratic behemoth out of Washington regulating California’s insurance marketplace,” Poizner says in the statement. “States know their own markets and the needs of their consumers best, so the states’ insurance regulators are best equipped to rapidly respond to changing market conditions. An optional federal charter would unnecessarily centralize diverse, market-based regulations.”


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