Insurance, Securities Differ?

A top official at the U.S. Securities and Exchange Commission has suggested that there may be differences in the way banks, securities firms and insurers should be regulated.

Ethiopis Tafara, director of the Office of International Affairs at the SEC, has presented that view in a speech delivered in Chicago at a meeting organized by the American Bar Association, Chicago.

Tafara, who emphasized that he was expressing his own, personal thoughts, talked about the need to create a new financial services regulatory framework that will address the issue of systemic risk and prevent regulatory arbitrage.

“Many products, actors and markets have the same underlying economic characteristics, motivations or clientele, yet are regulated based on connection to an institution that can be described as having either a securities, banking or insurance function,” Tafara said, according to a written version of his speech posted on the SEC website.

When the regulators have different rules, the market participants will search for the path of least regulatory resistance, Tafara said.

“By the same token, we need to be vigilant not to pursue uniform regulation for the sake of ease given that there are instances where the fundamental differences in the nature of securities, banking and insurance — and hence their regulation — are legitimate and indeed important,” Tafara said.