Financial Reform Watch

Since President Obama signed Dodd-Frank into law on July 21, 2010, the financial industry has been anxiously awaiting the appointments of the key individuals to lead the newly-created offices of Financial Research (OFR) and Federal Insurance (FIO), along with the Consumer Financial Protection Bureau (CFPB). But now the wait is over—at least for the one director position that doesn’t require Senate confirmation.

Treasury Secretary Tim Geithner announced on Thursday that Michael McRaith, the director of the Illinois Department of Insurance, will assume the helm of the new FIO. Under Dodd-Frank, the Treasury-housed office will be charged with collecting, analyzing, and disseminating data and information gathered from the insurance industry in order to help coordinate federal insurance policy. (Health insurance and long term care insurance are excluded from the FIO’s purview).

In an effort to preserve the longstanding state-based regulatory structure for the insurance industry, Congress crafted language that explicitly prohibits the FIO from exercising regulatory or enforcement authority. However, voices on Capitol Hill and within the financial industry have expressed concerns with the FIO’s sweeping authority to collect data and how that may impact business compliance costs and data security.

One of McRaith’s primary functions as FIO director will be to serve as a non-voting member on the Financial Stability Oversight Council (FSOC)—a council of regulators charged with monitoring the broader financial system—requiring consultation with the Treasury Secretary as to whether certain insurers or insurance practices may pose systemic risk.

As the FSOC continues to issue proposed rules that will ultimately determine how regulators designate non-bank financial companies for heightened supervision, a bipartisan group of lawmakers—including Reps. Barney Frank (D-MA) and Ed Royce (R-CA)—have been urging the Obama administration to quickly fill the FIO director position in order for the insurance industry to have a voice at the table during the FSOC’s rulemaking process.

Under Dodd-Frank, the FIO Director is also empowered to negotiate—along with the U.S. Trade Representative—all international insurance agreements on behalf of the U.S.

Mr. McRaith has served as secretary/treasurer of the National Association of Insurance Commissioners (NAIC) and has represented state regulators in negotiations with the International Association of Insurance Supervisors and the international Organization for Economic Cooperation and Development.