Insurance - - COMPANY CORNER -

Source: Reuters, 2 July 2013 PRU­DEN­TIAL Fi­nan­cial Inc said it will con­test a pro­posal by the new US risk coun­cil to des­ig­nate it as sys­tem­i­cally im­por­tant, a tag that would sub­ject it to stricter over­sight by fed­eral bank­ing reg­u­la­tors. The com­pany de­clared it would re­quest a closed­door hear­ing be­fore the Fi­nan­cial Sta­bil­ity Over­sight Coun­cil (FSOC). Pru­den­tial's de­ci­sion came one day be­fore the end of a 30- day win­dow to no­tify the FSOC that it in­tended to legally chal­lenge the des­ig­na­tion. The FSOC is a new body of reg­u­la­tors cre­ated by the 2010 Dodd-Frank re­form law. It is chaired by the Trea­sury Sec­re­tary and com­prised of the coun­try's top fed­eral fi­nan­cial reg­u­la­tors. It is tasked with polic­ing for sys­temic risks in the mar­ket­place. It has the spe­cific power to clas­sify large firms whose fail­ure could threaten fi­nan­cial mar­kets as "sys­tem­i­cally im­por­tant fi­nan­cial in­sti­tu­tions," or SIFIs, which trig­gers ad­di­tional scru­tiny by the Fed­eral Re­serve. The des­ig­na­tion also comes with higher cap­i­tal re­quire­ments and other costly rules. Un­der the law, a com­pany can re­quest a hear­ing if it has con­cerns about the pro­posed des­ig­na­tions. The FSOC will now have 30 days to sched­ule a non pub­lic hear­ing for Pru­den­tial. Af­ter that it will need to make a fi­nal de­ci­sion within 60 days. The FSOC last month no­ti­fied Pru­den­tial, along with GE Cap­i­tal and Amer­i­can In­ter­na­tional Group Inc that it was propos­ing to des­ig­nate all three. GE Cap­i­tal and AIG both sig­nalled they will not ap­peal the FSOC's pro­posal. Paul Atkins, a for­mer Repub­li­can com­mis­sioner at the US Se­cu­ri­ties and Ex­change Com­mis­sion who is a critic of the FSOC said that he be­lieves Pru­den­tial does not meet the cri­te­ria to be a SIFI and he is glad the firm is fight­ing back. Atkins also pre­dicted that an ap­peal could end up in the courts and noted there is al­ready an out­stand­ing law­suit chal­leng­ing the con­sti­tu­tion­al­ity of the FSOC's broad pow­ers. How­ever, he also said that Dodd- Frank lim­its the grounds on which com­pa­nies can chal­lenge a SIFI des­ig­na­tion. Alice Joe, ex­ec­u­tive di­rec­tor of the U.S. Cham­ber of Com­merce's Center for Cap­i­tal Mar­kets Com­pet­i­tive­ness, com­mented that the chal­lenge shows frus­tra­tion with how reg­u­la­tors are ap­ply­ing bank-cen­tric rules to non-banks. If Pru­den­tial is des­ig­nated, it will be a slip­pery slope for all other large insurance com­pa­nies be­cause their busi­ness mod­els aren't de­signed to put up cap­i­tal, so there will be a ma­jor trans­for­ma­tion of the in­dus­try tak­ing place.

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