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Industry Spotlight > Broker Dealers

S. 3217: More Talk, More Amendments

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Senators are continuing to try to add language to S. 3217, the Restoring Financial Stability Act bill, that could affect matters such as insurer contributions to bailout efforts and the responsibilities of broker-dealers.

Senate leaders hope to have work on the bill completed by May 14, according to insurance industry policy specialists.

Fiduciary Standard Of Care

Sen. Daniel Akaka, D-Hawaii, and Sen. Robert Menendez, D-N.J., filed Senate Amendment 3889, which would set standard of care rules for brokers, dealers and investment advisors.

If adopted, the amendment would put the original version of Section 913 back in of S. 3217. It would require broker-dealers to use the same fiduciary standard rules that now apply to investment advisors when selling investments.

Under current rules, investment advisors must put customer interests first, without having any conflicts of interest.

Broker-dealers, including insurance producers who are representatives of broker-dealers, have followed a suitability standard, which required only that they verify that products sold to customers suit the needs of the consumers.

Insurance producer groups have argued that traditional life insurance agents who have contracts to sell products from only one company, or a small group of companies, would find meeting a strict fiduciary standard difficult or impossible, because they would not be able to offer customers products from companies off their vendor lists.

S.A. 3889 states that “the sale of only proprietary or other limited range of products by a broker or dealer shall not, in and of itself, be considered a violation” of the standard of care that would be imposed by the amendment.

Sen. Arlen Specter, D-Pa., also has proposed a fiduciary standard amendment, S.A. 3806. Specter wants the fiduciary standard to apply to broker-dealers that serve all investors, not simply broker-dealers that serve retail investors. Specter’s amendment would impose criminal penalties for willful violations of the broker-dealer standard of care. More discussion of the fiduciary standard is available at S. 3217: Fiduciary Standard In Play.

Crisis Fund

The Senate voted Wednesday to adopt S.A. 3827, an amendment offered by Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking, Housing and Urban Affairs Committee, and Sen. Richard Shelby, R-Ala. A section of the Dodd-Shelby amendment has removed an S. 3217 provision that could have required financial institutions with more than $50 billion in assets to help contribute to a $50 billion financial institution “resolution” fund before the fund was needed.

S.A. 3827 would limit insurers’ exposure to assessments but would not eliminate it, according to Blain Rethmeier, a spokesman for the American Insurance Association, Washington.

S.A. 3838, a bipartisan amendment introduced Wednesday, would exempt insurers from having to help cover the cost of handling crises at large, non-insurance financial services companies.

If approved, the amendment would exempt insurers from paying for any of the costs associated with winding down systemically risky institutions other than insurers that were subject to liquidation or rehabilitation.

The Federal Deposit Insurance Corp. would borrow money from the Treasury Department to cover the initial cost of resolving problems at large, failing financial institutions. The government would get the money back by selling the firm’s assets, and by making creditors and shareholders take losses. The FDIC would impose assessments on other large financial institutions only as a last resort, through a “post-assessment” mechanism.

Under S.A. 3838, “insurers would continue to operate in the state-based regulatory environment and not be forced to pay for the failures of riskier institutions,” Rethmeier says.

S.A. 3838 was sponsored by four New England senators: Sen. John Kerry, D-Mass.; Sen. Scott Brown, R-Mass.; Sen. Jeanne Shaheen, D-N.H.; and Sen. Judd Gregg, R-N.H. At the recent annual meeting of the Risk and Insurance Management Society in boston, Liberty Mutual Insurance Company, Boston, used a video to urge all insurance agents and users of insurance products to call their senators to oppose the imposition of assessments on insurers to pay for winding down troubled non-banks.

The Big Picture

New S. 3217 amendments filled 62 pages of the Congressional Record on Thursday alone.

Here is a list of some of the amendments filed Thursday that might have implications for insurers and financial services professionals:

S.A. 3862 (Collins) – Would add a state insurance commissioner to the Financial Stability Oversight Council described in S.A. 3739, the substitute version of S. 3217 proposed by Sen. Christopher Dodd, D-Conn.

S. 3867 (Ensign) – Would require rating agencies to consider information from entities other than the organizations being rated.

S. 3876 (Menendez) – Would required the proposed Office of National Insurance to have an Office of Women and Minority Advancement.

S. 3884 (Cantwell) – Would prohibit depository institutions from engaging in the business of writing insurance or reinsurance.

S. 3889 (Akaka) – Would set fiduciary duty requirements for brokers, dealers and investment advisors.

S. 3890 (Bayh) – Would require the Financial Services Oversight Council to report to Senate, in detail, on international financial regulatory efforts, including insurance regulatory efforts.

S. 3897 (Dorgan) – Would set credit default swaps clearing rules.


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