A member of the U.S. panel charged with preventing another financial crisis said he’s concerned that global regulators have too much sway over American policy, especially on insurance.
“International regulatory organizations may be attempting to exert what I consider to be inappropriate influence on the development of U.S. regulatory policy,” Roy Woodall, the member of the Financial Stability Oversight Council with insurance expertise, said in testimony prepared for a Senate Banking Committee hearing Tuesday.
Woodall said U.S. interests may be underrepresented at the Financial Stability Board, a group of regulators from around the world, including the U.S., that makes recommendations to the Group of 20. While the board’s decisions reflect the consent of the U.S. Treasury Department, Federal Reserve and Securities and Exchange Commission, they exclude U.S. state insurance regulators and other agencies, Woodall said.
Because insurance regulation rests primarily with states, the federal government can’t commit to fully implement international agreements on the industry, Woodall said. That could lead to a situation where other governments subject U.S. insurers operating abroad to stricter regulation, he said.
U.S. commitments to global accords should be consistent with state regulations and should give the U.S. “discretion as to whether, or how, those standards will be implemented in the United States,” Woodall said.
Insurers Designated
The U.S. council, known as FSOC, has designated as systemically important four non-bank companies: American International Group Inc., Prudential Financial Inc., General Electric Co.’s finance unit and MetLife Inc. Woodall said the FSOC had decided “not to advance for further review” five other non-banks, without naming them. As part of a broad restructuring General Electric announced this month, the finance unit will apply to lose its systemically important label sometime next year.
In separate testimony prepared for the same hearing, Mark Van Der Weide, deputy director of the Fed’s Division of Banking Supervision and Regulation, said the central bank is working on rules for insurers it oversees.
The Fed is “committed to following formal rule-making processes to develop our insurance capital framework,” including an open comment period on a proposal, Van Der Weide said. The testimony for the hearing was released on the committee’s website Monday.
Clarification Approved
President Barack Obama in December signed into law a clarification that insurance companies had been seeking since the Dodd-Frank Act was adopted in 2010. The change means the Fed doesn’t have to use bank-based rules to supervise insurance companies.
Dodd-Frank had left both the insurance industry and regulators with doubts about how much flexibility the Fed had in applying capital standards to insurers it regulates such as Prudential and AIG.
With the change, the Fed can focus on “constructing a domestic regulatory capital framework” that is “well-tailored to the business of insurance,” Van Der Weide said.
The Fed supervises insurers designated systemically important by the FSOC and those that own banks.
Michael McRaith, director of the Treasury Department’s Federal Insurance Office, told the committee that the government is “positioned to provide U.S. leadership” on insurance issues that “fosters competition, promotes financial stability and protects consumers.”