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November 10, 2009 at 07:00 PM
WASHINGTON BUREAU — Sen. Christopher Dodd has drafted a bill that would create an Office of National Insuranceand authorize an insurance regulation modernization study.
Dodd, D-Conn., chairman of the Senate Banking, House and Urban Affairs Committee, unveiled the 1,163-page Restoring American Financial Stability Act discussion draft today at a press conference.
Links to the draft, and a summary of the draft, are available here.
See a more recent article about the bill here.
Dodd probably will revise the draft next Monday, to reflect the comments he gets, then have his committee start marking up the bill Tuesday, an industry lobbyist says.
Most of the Dodd draft deals with banking and securities issues and only indirectly relates to insurance.
The bill would, for example, let the U.S. Securities and Exchange Commission keep all of the fee revenue it generates, rather than requiring it share revenue with the rest of the government. The draft also would create a new regulator that would take responsibility for bank regulation. The Federal Reserve System would then focus on monetary policy, and the Federal Deposit Insurance Corp. would focus on insuring deposits.
A number of provisions cross financial services sector boundaries.
One section, for example, would require large insurers to help cover the cost of “resolving” insolvencies of large financial institutions, including insurers and other types of financial institutions.
The House Financial Services Committee is preparing to mark up a bill containing a similar provision.
The Dodd draft also would impose new insurance and securities product sales rules. Those changes would affect the U.S. Securities and Exchange Commission, state securities regulators and state insurance regulators.
The SEC would have to police sellers’ use of professional designations. The government would use grants to encourage states to create suitability requirements for annuities and other products, and to adopt and change other laws affecting financial services’ companies dealings with consumers.
Another provision that would affect insurers along with other types of financial services companies deals with the rules for handling credit default swaps and other derivatives. Trade groups, insurers are reading that provision carefully to see how it would affect insurers.
The ONI section, which would create an ONI at the Treasury Department, is similar to the draft language that the Treasury Department submitted to Congress, but the Dodd draft would restore subpoena and enforcement provisions that were removed from the House bill.
Like the House bill, the Dodd draft explicitly states that the ONI is not a regulator. As written, the Dodd draft would give the new agency little authority to preempt state laws dealing with insurance, or actions by other federal agencies that relate to insurance.
House Financial Services Committee efforts to create a Federal Insurance Office, which would be similar to the ONI, have run into obstacles related to trade policy controversies.
To avoid those kinds of obstacles, the Dodd draft includes a savings provision stating that nothing in the bill shall be construed to affect the development and coordination of U.S. international trade policy or the administration of the U.S. trade agreements program.
The draft requires the Treasury secretary to consult with the U.S. Trade Representative before initiating or concluding any international insurance agreements on “prudential measures,” or measures concerning financial stability.
The Dodd draft would put the proposed ONI in charge of the proposed insurance regulation study.
The study should look at “how to modernize and improve the system of insurance regulation in the United States,” according to the discussion draft text.
The Treasury Department and its ONI should consult with the National Association of Insurance Commissioners, Kansas City, Mo., “consumer organizations, representatives of the insurance industry and policyholders, and other organizations and experts, as appropriate” when conducting the study, according to the Dodd draft.
The Dodd draft also incorporates the text of the Nonadmitted and Reinsurance Reform Act of 2009, which would put a reinsurer’s state of domicile in charge of regulating the reinsurer’s solvency.
A RAFSA SAMPLE
Here is the senior investment protections section of the draft for your reading pleasure:
SEC. 989A. SENIOR INVESTOR PROTECTIONS.
12 (a) DEFINITIONS.–As used in this section–
13 (1) the term ”misleading designation”–
14 (A) means the use of a purported certifi
15 cation, professional designation, or other cre
16 dential, that indicates or implies that a sales
17 person or adviser has special certification or
18 training in advising or servicing seniors; and
19 (B) does not include any legitimate certifi
20 cation, professional designation, license, or
21 other credential, if–
22 (i) such credential has been offered by
23 an academic institution having regional ac
24 creditation; or
1 (ii) such credential meets the stand
2 ards for certifications, licenses, and profes
3 sional designations outlined by the North
4 American Securities Administrators Asso
5 ciation (in this section referred to as the
6 ”NASAA”) Model Rule on the Use of Sen
7 ior-Specific Certifications and Professional
8 Designations in the Sale of Life Insurance
9 and Annuities, adopted by the National
10 Association of Insurance Commissioners,
11 as in effect on the date of enactment of
12 this Act, or any successor thereto, or it
13 was issued by or obtained from any State;
14 (2) the term ”financial product” means securi
15 ties, insurance products (including insurance prod
16 ucts which pay a return, whether fixed or variable),
17 and bank and loan products;
18 (3) the term ”misleading or fraudulent mar
19 keting” means the use of a misleading designation
20 in selling to or advising a senior in the sale of a fi
21 nancial product; and
22 (4) the term ”senior” means any individual who
23 has attained the age of 62 years or older.
24 (b) GRANTS TO STATES FOR ENHANCED PROTEC
25 TION OF SENIORS FROM BEING MISLED BY FALSE DES
1 IGNATIONS.–The Office of Financial Literacy within the
2 CFPA (in this section referred to as the ”Office”)–
3 (1) shall establish a program in accordance with
4 this section to provide grants to States–
5 (A) to investigate and prosecute misleading
6 and fraudulent marketing practices; or
7 (B) to develop educational materials and
8 training aimed at reducing misleading and
9 fraudulent marketing of financial products to
10 ward seniors; and
11 (2) may establish such performance objectives,
12 reporting requirements, and application procedures
13 for States and State agencies receiving grants under
14 this section as the Office determines are necessary
15 to carry out and assess the effectiveness of the pro
16 gram under this section.
17 (c) USE OF GRANT AMOUNTS.–A grant under this
18 section may be used (including through subgrants) by the
19 State or the appropriate State agency designated by the
20 State–
21 (1) to fund additional staff to identify, inves
22 tigate, and prosecute (through civil, administrative,
23 or criminal enforcement actions) cases involving mis
24 leading or fraudulent marketing of financial prod
25 ucts to seniors;
1 (2) to fund technology, equipment, and training
2 for regulators, prosecutors, and law enforcement in
3 order to identify salespersons and advisers who tar
4 get seniors through the use of misleading designa
5 tions;
6 (3) to fund technology, equipment, and training
7 for prosecutors to increase the successful prosecution
8 of those targeting seniors with the use of misleading
9 designations;
10 (4) to provide educational materials and train
11 ing to regulators on the appropriateness of the use
12 of designations by salespersons and advisers of fi
13 nancial products;
14 (5) to provide educational materials and train
15 ing to seniors to increase their awareness and under
16 standing of designations;
17 (6) to develop comprehensive plans to combat
18 misleading or fraudulent marketing of financial
19 products to seniors; and
20 (7) to enhance provisions of State law that
21 could offer additional protection for seniors against
22 misleading or fraudulent marketing of financial
23 products.
24 (d) GRANT REQUIREMENTS.–
1 (1) MAXIMUM.–The amount of a grant under
2 this section may not exceed $500,000 per fiscal year
3 per State, if all requirements of paragraphs (2), (3),
4 (4), and (5) are met. Such amount shall be limited
5 to $100,000 per fiscal year per State in any case in
6 which the State meets the requirements of–
7 (A) paragraphs (2) and (3), but not each
8 of paragraphs (4) and (5); or
9 (B) paragraphs (4) and (5), but not each
10 of paragraphs (2) and (3).
11 (2) STANDARD DESIGNATION RULES FOR SECU
12 RITIES.–A State shall have adopted rules on the ap
13 propriate use of designations in the offer or sale of
14 securities or investment advice, which shall meet or
15 exceed the minimum requirements of the NASAA
16 Model Rule on the Use of Senior-Specific Certifi
17 cations and Professional Designations, as in effect
18 on the date of enactment of this Act, or any suc
19 cessor thereto, as determined by the Office.
20 (3) SUITABILITY RULES FOR SECURITIES.–A
21 State shall have adopted standard rules on the suit
22 ability requirements in the sale of securities, which
23 shall, to the extent practicable, conform to the min
24 imum requirements on suitability imposed by self
25 regulatory organization rules under the securities
1 laws (as defined in section 3 of the Securities Ex
2 change Act of 1934), as determined by the Office.
3 (4) STANDARD DESIGNATION RULES FOR IN
4 SURANCE PRODUCTS.–A State shall have adopted
5 standard rules on the appropriate use of designa
6 tions in the sale of insurance products, which shall,
