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Regulation and Compliance > State Regulation

Dodd Unveils Insurance Office Proposal

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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.


Here is the senior investment protections section of the draft for your reading pleasure:


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.

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.


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).

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.


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.
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,

7 to the extent practicable, conform to the minimum

8 requirements of the National Association of Insur
9 ance Commissioners Model Regulation on the Use of

10 Senior-Specific Certifications and Professional Des
11 ignations in the Sale of Life Insurance and Annu
12 ities, as in effect on the date of enactment of this

13 Act, or any successor thereto, as determined by the

14 Office.



17 (A) IN GENERAL.–A State shall have

18 adopted rules governing insurer supervision of,

19 suitability of, and insurer and insurance pro
20 ducer conduct relating to, the sale of annuity

21 products, including fixed and index annuities,

22 notwithstanding any delayed effective date for

23 such rules.


25 rules required by subparagraph (A) shall, to the

1 extent practicable (as determined by the Of
2 fice), provide–
3 (i) that insurers, and insurance pro
4 ducers are responsible for, and liable for

5 penalties for, the suitability of each rec
6 ommended annuity transaction;

7 (ii) that insurers and insurance pro
8 ducers are required to apply a standard for

9 determining the suitability of each rec
10 ommended annuity transaction, including

11 fixed and index annuities, that is at least

12 as protective of the interests of the con
13 sumer as rule 2821(b) of the Financial In
14 dustry Regulatory Authority (in this para
15 graph referred to as ”FINRA”), as in ef
16 fect on the date of enactment of this Act,

17 or any successor to such rule;

18 (iii) that insurers and insurance pro
19 ducers are required to maintain a process

20 for review of the suitability, and approval

21 or disapproval, of each recommended annu
22 ity transaction that is at least as protective

23 of the interests of the consumer as the

24 principal review required under rule

25 2821(c) of FINRA, as in effect on the date

1 of enactment of this Act, or any successor

2 to such rule;

3 (iv) that insurers and insurance pro
4 ducers are required to maintain processes

5 for the supervision of direct annuity sales

6 and insurance producer-recommended an
7 nuity sales (including procedures for the

8 insurer to obtain and confirm consumer

9 suitability information and for the insurer

10 to confirm consumer understanding of the

11 annuity transaction) that are at least as

12 protective of the interests of the consumer

13 as member broker and dealer supervision

14 requirements of FINRA, as in effect on

15 the date of enactment of this Act, or any

16 successor to such requirements;

17 (v) that insurers are required to verify

18 that each insurance producer successfully

19 completes, and each insurance producer is

20 required to receive, training designed to

21 ensure that the insurance producer is com
22 petent to recommend each class of annuity;

23 (vi) that insurers are required to

24 verify that insurance producers receive,

25 and insurance producers are required to

1 receive, training regarding the features of

2 each offered annuity product, to an extent

3 that is at least as protective of the inter
4 ests of the consumer as the FINRA firm

5 element training requirements, as in effect

6 on the date of enactment of this Act, or

7 any successor to such requirements;

8 (vii) for coordination of such rules

9 with the rules of FINRA governing mem
10 ber brokers, dealers, and security rep
11 resentatives, to the extent appropriate,

12 consistent with protecting the interests of

13 consumers, for State insurance regulators

14 to rely on, or to avoid duplication of

15 FINRA rules; and

16 (viii) for exemption from such rules

17 only if such exemption is consistent with

18 the protection of consumers.

19 (e) ELIGIBLE ENTITIES.–The following State agen
20 cies shall be eligible to receive a grant under this section:

21 (1) A securities commission (or any agency or

22 office performing like functions) of any State, which

23 commission has adopted standard designation rules

24 for securities, as described in subsection (d)(2) and

1 suitability rules for securities, as described in sub
2 section (d)(3).
3 (2) The insurance commission (or any agency

4 or office performing like functions) of any State,

5 which commission has adopted standard designation

6 rules for insurance products, as described in sub
7 section (d)(2) and suitability and supervision rules

8 for annuity products, as described in subsection

9 (d)(5).

10 (3) Any State consumer protection agency, if ei
11 ther the securities commission or the insurance com
12 mission in that State has met the requirements of

13 paragraph (1) or (2), as applicable.

14 (f) APPLICATIONS.–To be eligible for a grant under

15 this section, the State or appropriate State agency shall

16 submit to the Office a proposal to use the grant money

17 to protect seniors from misleading or fraudulent mar
18 keting techniques in the offer and sale of financial prod
19 ucts, which application shall–

20 (1) identify the scope of the problem;

21 (2) describe how the proposed program will help

22 to protect seniors from misleading or fraudulent

23 marketing in the sale of financial products, includ
24 ing, at a minimum–

1 (A) by proactively identifying senior vic
2 tims of misleading and fraudulent marketing in
3 the offer and sale of financial products;
4 (B) how the proposed program can assist
5 in the investigation and prosecution of those

6 using misleading or fraudulent marketing in the

7 offer and sale of financial products to seniors;

8 and

9 (C) how the proposed program can help

10 discourage and reduce future cases of mis
11 leading or fraudulent marketing in the offer

12 and sale of financial products to seniors; and

13 (3) describe how the proposed program is to be

14 integrated with other existing State efforts.

15 (g) LENGTH OF PARTICIPATION.–A State receiving

16 a grant under this section shall be provided assistance

17 funds for a period of 3 years, after which the State may

18 reapply for additional funding.


20 are authorized to be appropriated to carry out this section,

21 $8,000,000 for each of the fiscal years 2010 through

22 2014.


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