Dodd Says Soon On Financial Reform Bill

Earlier in the week, in remarks to a business group obtained by National Underwriter, Frank said he expects the Senate to pass its version of financial services regulatory reform legislation by the end of March.

Frank added that "that there would then be a difficult negotiation" between the House and the Senate, even though Frank claimed that there was agreement between the House and Senate "on the vast majority of issues in their respective bills," according to a transcript of the meeting.

There are two key issues of great concern for the insurance industry in financial services reform legislation.

For underwriters, a priority issue is a proposal that would require financial services companies, including insurers, with assets of $50 billion or more, to prefund a new resolution authority that would be used to wind down systemically risky financial services firms.

The second is a proposal included in a prior bill proposed by Dodd in November that would require all financial professionals who provide investment advice to adhere to the fiduciary duty standards of the Investment Advisors Act.

In a statement last week, Jack Dolan, a spokesman for the American Council of Life Insurers, reiterated the ACLI's position.

"The ACLI is deeply concerned by any suggestion of including life insurers in a resolution authority fund," Dolan said.

"Among many problems with this idea is that it would amount to a double hit on the industry," he said. "By that, I mean that we are already assessed by a state guaranty association when a company fails."

Earlier, in a letter to Dodd and Shelby, the ACLI said, "We are alarmed by proposals that would require financial companies, including insurers, that are not even subject to the new resolution authority, to pre-fund this authority through assessments based on asset size and other vague criteria that do not accurately reflect the degree to which such companies present systemic risk."

On the fiduciary standard issue, agents and financial planners are divided.

Those leading the efforts to water down the bill include the National Association of Insurance and Financial Advisors; the Association for Advanced Life Underwriting; and the National Association of Independent Life Brokerage Agencies.

In a November letter to members of the Senate Banking Committee, these groups said the provision is "enormously costly" and would have a "counterproductive impact."

The industry is asking that the panel replace the provision whose language calls for a single standard with a requirement that the Securities and Exchange Commission conduct a detailed study of the issue.

Jill Edwards, a vice president of government relations at NAIFA, said that she has no information as to what the committee plans to do on the so-called "harmonization" issue.

At the same time, a number of consumer groups sent a letter on Feb. 4 to Dodd and Shelby urging that the higher standard be sustained.

The consumer groups' letter urged committee members to "resist calls" to eliminate Section 913 entirely, "as some in the securities and insurance industry have suggested, or to water down its protections by replacing it with a new, lowest common denominator 'fiduciary duty lite' as advocated by many in the brokerage industry."

"Weakening the legislation in this way would harm all investors, but the vulnerable senior population would be hit the hardest," the letter said.

The letter was signed by AARP, the Consumer Federation of America, Fund Democracy and the North American Securities Administrators Association.

The letter argues that a fiduciary standard is needed "to protect investors from pervasive abuses."

The letter denounced efforts by the broker-dealer industry to weaken the strong investor-friendly language originally proposed by Dodd in his earlier bill.

That bill would have eliminated the broker-dealer exclusion from the Investment Advisors Act, but Dodd dropped it in mid-December in favor of initiating talks aimed at producing a bipartisan bill.

"These efforts have caused significant concern for older investors and their financial security," the letter said.

The talks between Dodd and Shelby apparently broke down over the issue of the authority that would be given a consumer protection unit that both Democrats and Republicans in the Senate Banking Committee believe should be housed within the Treasury Department.

House financial services reform legislation creates a Consumer Financial Protection Agency, which is opposed by the banking industry. The key problem the banking industry has with the CFPA provision in the House bill is that it provides "reverse preemption," that is, it allows states to impose their consumer protection standards on products sold in their states.

As contained in legislation passed by the House, the insurance industry is exempt from the CFPA.

Dodd said, "While I still hope that we will ultimately have a consensus package, it is time to move the process forward," adding that he has instructed his staff "to begin drafting legislation to present to the committee later this month."

That means Dodd will likely start with the "Restoring American Financial Stability Act of 2009," legislation he introduced in November but later abandoned in favor of having all members of his committee participate in drafting a more bipartisan bill.

The original Dodd bill created an Office of National Insurance; calls for a study and report on modernization and improvements to the system of insurance regulation; and includes the Non-admitted and Reinsurance Reform Act of 2009, as introduced last year in both the House and Senate.

The surplus lines provisions, as well as provisions creating an ONI, are also included in the House bill.

In his comments, Dodd said in his new bill he would incorporate components of provisions hammered out in the bipartisan talks.

"Over the past two months we have had productive bipartisan negotiations in a number of areas and I intend to incorporate many of those agreements in this new proposal," he said, noting however, that "Last night, Sen. Shelby assured me that he is still committed to finding a consensus on financial reform, but for now we have reached an impasse."

Sen. Shelby responded by saying that he is "hopeful" that a bipartisan agreement can be reached.

"I remain willing to work with Chairman Dodd to see whether that is possible."

Shelby said in a statement that there is more at issue than consumer protection provisions. Besides the problem of resolving troubled institutions, he said other issues involved in the disagreement include derivatives regulation and corporate governance.

"Consumer protection is not the only issue that remains unresolved," he said. "We must craft a resolution regime that ensures taxpayers will never again bear the losses for risks taken in the private marketplace.

"I will not agree to any legislation until I am satisfied this goal is also achieved."