Recent notices of proposed rulemaking published by the Financial Stability Oversight Council (FSOC) and the Board of Governors of the Federal Reserve System (Board) to advance the regulatory process of implementing Section 113 of The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) have raised questions among members of Congress, state regulators and the insurance industry. In particular, there is a concern about the development and imposition of new standards that would apply to certain insurers and subject them to Board supervision without sufficient input from the insurance industry and its regulators.
The FSOC issued an advanced notice of proposed rulemaking on October 6, 2010, seeking public comments on the development of specific criteria and a regulatory framework by which it will consider designating nonbank financial companies for supervision. The FSOC reviewed the 50 comment letters submitted, many from insurers and their trade associations, and, on January 18, 2011, released the notice of proposed rulemaking (NPR). The NPR outlines the criteria that will inform, and the process and procedures established under the Dodd-Frank Act for, the FSOC’s designation of certain United States and foreign nonbank financial companies, which are defined to include insurers, to be supervised by the Board.1 The FSOC can require such Board supervision if it determines that the material financial distress at a particular firm, or the nature, scope, size, scale, concentration, interconnectedness, or mix of the activities at the firm, could pose a threat to the financial stability of the United States. 2 Public comments to the recent NPR from the FSOC identify shortcomings and potential flaws with the FSOC’s proposed framework and the lack of transparency in the process of developing the framework. The comment period ended February 25, 2011.
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