- "The Impact of the Current Administration on the FIO and Dodd-Frank," IRUA Journal of Reinsurance
- October 18, 2017
In an article for IRUA Journal of Reinsurance, Goldberg Segalla’s Frederick J. Pomerantz, a partner based in the firm’s New York City office, offers an analysis of the Trump administration’s impact to date on the regulation of insurance and reinsurance, and in particular on the Federal Insurance Office (FIO) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).
The repeal of Dodd-Frank was a key component in the Republican platform and in Donald Trump’s presidential campaign in 2016. While the law remains in place, the Financial Choice Act of 2017 (the Choice Act), which is the vehicle for repeal of Dodd-Frank, passed the House of Representatives on June 8 and awaits Senate consideration. Fred notes, however, that the Choice Act in particular and Dodd-Frank repeal generally face a stiff challenge from a fractious Republican-dominated Congress absent assurance of support by the Senate, where the Republican majority is much smaller and less easily controlled than the Republican majority in the House of Representatives.
While the Choice Act awaits further debate in Congress, the Treasury Department’s support for dialing back the impact of Dodd-Frank, as evidenced in its response to the Choice Act, indicates that the repeal of all, or major portions, of Dodd-Frank remains clearly in focus. President Trump has already taken action to alter Dodd-Frank with Executive Order 13772, which targeted the designation of several U.S.-based financial institutions, including certain major insurers, as “systemically important financial institutions” (SIFIs). The order effectively led to removal of those companies, which were placed on the list in the years following passage of Dodd-Frank. Critics of the SIFI designation argued that it institutionalized the concept of “Too Big to Fail,” suggesting, Fred explains, “the federal government will always be ready to bail out financial institutions that through their own risky behavior find themselves in existential danger.”
Whether the Choice Act survives the legislative process with its current provisions intact, some parts of the legislation include provisions that could have serious effects on the global insurance and reinsurance industry. In his article, Fred identifies and analyzes possible outcomes of the Choice Act’s progress through Congress, as well as the potential impact on the insurance and reinsurance industry of other Trump-administration actions, including:
- Eliminating the Federal Insurance Office (FIO) and replacing the “insurance expertise” member of the Financial Stability Oversight Council (FSOC) with a new Office of Independent Insurance Advocate
- Renaming the Consumer Financial Protection Bureau (CFPB) as the Consumer Law Enforcement Agency (CLEA) and rolling back its powers and privileges;
- Dialing back Title II of Dodd-Frank, known as Orderly Liquidation Authority, “which allows regulators to resolve a failing financial firm in a manner similar to that in which the FDIC resolves failing banks.”
The Trump administration’s actions have also thrown into question the impact of the “Covered Agreement” regarding the U.S. and EU insurance and reinsurance markets. The Covered Agreement was signed on September 22, but remains under scrutiny by some elements of the U.S. insurance industry and by many state insurance regulators because, as Fred notes, “the Covered Agreement does not explicitly call for the ‘equivalency recognition’ of the U.S. regulatory system in the EU”. The issue remains the proverbial “elephant in the room” even though the terms of the Covered Agreement were seemingly finalized on January 13, 2017, and the agreement was formally signed on September 22, 2017 by representatives for both sides. However, given the president’s distaste for bilateral and multilateral agreements, this issue remains a wild card going forward.
Read the article here:
- “The Impact of the Current Administration on the FIO and Dodd-Frank,” IRUA Journal of Reinsurance, Fall 2017