Closely following the release of its second report on the U.S. financial services regulatory framework, the Department of the Treasury......
Closely following the release of its second report on the U.S. financial services regulatory framework, the Department of the Treasury released a report on the asset management and insurance industries, providing recommendations that highlight systemic risk and financial stability, and suggesting that designations of systemic importance for entities in these industries should be based on their activities and not solely on their size. The report is the third in a planned series of four reports analyzing the U.S. financial services regulatory framework and critically reviewing laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other government policies with an eye to recommending reforms that would align regulatory requirements with the “Core Principles for Regulating the U.S. Financial System.”
The recommendations in Treasury’s report on asset management and insurance are primarily directed toward the Securities and Exchange Commission (SEC) and the various state and federal insurance regulators. Of the sixty one recommendations, only four would require Congressional action. Highlights of the recommendations include:
Financial services regulatory reform was initially outlined by the Financial CHOICE Act, which passed the House of Representatives in June 2017 but has stalled in the Senate. Lacking the necessary bi partisan support, it is unlikely that the many reforms proposed in this legislation will pass as part of a comprehensive package. In its three reports to date, Treasury has crafted recommendations that rely primarily on agency actions rather than legislation, greatly increasing the prospects for effecting change. It is notable that across all three reports, a number of the recommendations have already been initiated or endorsed by individual agencies, and this pace may increase as agency leadership positions are successfully filled. Accomplishing change within the insurance industry may prove to be a higher hurdle as many of the recommendations will require achieving agreement among the fifty states which, even if all were willing to coordinate, would be difficult based simply on the number of participants.
Treasury will complete its analysis of the financial services regulatory framework with the release of its fourth report, which will address nonbank financial institutions, financial technology, and financial innovation. The report was projected to be released in the fourth quarter of 2017. Separate reports on the FSOC and its authority to designate nonbank SIFIs and the Orderly Liquidation Authority established by Dodd Frank are forthcoming as well.