Actuaries Back Systemic Risk Oversight
White paper says a federal regulator could work in concert with state insurance regulators.
Insurance Networking News, May 6, 2010
As an overhaul of financial services regulation is debated in Washington, the American Academy of Actuaries is throwing its support behind creation of a federal systemic risk regulator for the entire financial services sector.
A whitepaper by the association’s Financial Regulatory Task Force anticipates a significant role for state insurance regulators in supporting a proposed federal risk regulator.
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“Considering the diversity and complexity of modern corporations, a federal systemic risk regulator would be best-positioned to coordinate at a national level and across international lines to monitor and manage systemic risk,” Jesse Schwartz, chairperson of the American Academy of Actuaries Financial Regulatory Task Force said in a statement. “But the American Academy of Actuaries envisions a federal regulator that would work in conjunction with the current state-based insurance regulatory system and not detract from the state insurance regulators’ public responsibilities.”
In addition to cooperation with state regulators, the whitepaper stresses a new systemic risk regulator will need to work closely with corporate management of systemically significant companies to ensure that appropriate risk-management practices are in place.
“Poor internal risk management, and not surpassing a generic size requirement, will contribute to systemic risk development that will affect a broader aspect of the marketplace or the economy,” Schwartz said. “If a systemically significant company’s internal processes fail, a regulator will need to step in.”
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