This past March the Department of the Treasury released its Blueprint for a Modernized Financial Regulatory Structure, which sets forth an argument for the need for change, followed by an examination of the financial industry and its regulation as it is now and a proposal for some rather radical modifications–a few of which have state insurance regulators bristling.
The document cites five major forces affecting the financial services industry: globalization of capital markets, the rapid advance of technology, the growth of difficult-to-understand sophisticated products, the institutionalization of capital markets, and the convergence of financial services providers and financial products. It also points toward gaps in regulation and regulatory agency coverage, the age of the current system (“much of it created over 70 years ago”), and the need to prevent and anticipate financial crises. The document notes that “no single regulator possesses all the information and authority necessary to monitor systemic risk” or the potential for events associated with financial insitutions to adversely affect “the real economy.”
Further cited are jurisdictional disputes “between and among the functional regulators” of converging financial services providers and their products; these are accused of “hindering the introduction of new products, slowing innovation, and compelling migration of financial services and products to more adaptive foreign markets.” Lastly, the document mentions duplication of efforts across regulators as yet another reason to change the system.
Changes that Treasury proposes for the insurance industry begin with an Optional Federal Charter (OFC) in the near term, which would exempt those companies choosing it from the jurisdiction of states, although some continued compliance with other state laws would still be required.