On April 25 state advocates called a Treasury Department plan to revamp regulation of U.S. financial services a virtual death blow to state-based regulation, predicting significantly less protection for consumers if the proposal becomes law. The comments came during a meeting of the National Conference of State Legislatures (NCSL).

Maryland Securities Commissioner Melanie Lubin called the proposal “a Wall Street wish list,” saying the plan, if enacted, would allow state regulators to support federal enforcement efforts, leaving the states largely incapable of helping their citizens in the way they do now.

“We’ve got 100 years of experience protecting Main Street investors. If the Blueprint passes, that's essentially going to be gone,” Lubin told state legislators during testimony before the NCSL’s Financial Services and Interstate Commerce Committee. She said a dual system is needed to protect consumers and ensure a high level of confidence that encourages investment. “There’s nobody who can take care of everything. The states can’t, the feds can’t, which is why the system works,” she said.

Kansas Insurance Commissioner and NAIC President Sandy Praeger, who said the plan would result in “a massive preemption of our ability to regulate insurance in our states,” said many large insurance firms would quickly head for the exits. “Large national companies would obviously choose a national charter over a state charter,” she said.

Federal Advocates Admit Strategy Shift 

Interestingly, Gary Hughes, executive vice president and general counsel of the American Council of Life Insurers (ACLI), which staunchly supports an OFC, said the “rules of engagement” had changed regarding debate over an OFC. He said initially, the debate largely centered on the alleged inefficiencies of the state system. Now, he said, the debate has shifted to coordination of international insurance operations. According to news reports, he then issued what sounded like a thinly veiled threat. According to Hughes, some companies, weighing significant economic consequences, have decided to move overseas if the U.S. regulatory system remains in its present configuration. “Already, that’s the kind of thinking that people are giving this issue,” he said.

April 29, 2008