As Firms Go, So Go Regulators

Just as quickly as financial services firms converge, the government bodies that regulate them are joining forces to share information.

In one of the latest agreements, the Pennsylvania Insurance Department (Harrisburg) has signed an agreement with the Office of the Comptroller of the Currency (OCC), the federal regulator of national banks, to exchange a broad array of information. For instance, if the department receives a complaint about a bank that sells insurance, it will forward the information to the OCC, and vice versa.

"As the marketplace becomes global, the inter-agency consultation section of the Grahmm-Leach-Bliley Act (GLBA) requires the sharing of information" on such things as financial solvency, insurance activities and consumer-complaint information, says Chris Doane, Pennsylvania, department council. Currently, insurers will not have to implement new technology in order to file reports, but that may change as more information is exchanged, comments Doane.

Pennsylvania also has agreements with the Office of Thrift Supervision (OTS). And the department is looking at what types of agreements should be made with other federal financial service regulators.

Doane says Pennsylvania is the eighth state insurance regulatory body (including, Alabama, Connecticut, Indiana, Michigan, Nevada, Utah and Texas) to sign an agreement with the OCC. In addition, 14 states have signed agreements with the OTS following an OTS information-sharing agreement framework from the Kansas City-based National Association of Insurance Commissioners' Financial Services Modernization Task Force.

However, while some states are just agreeing to share information with other regulators—either on the federal or state level— other states are taking the larger step of combining financial services regulators into one organization. In 2000, Michigan combined the insurance, banking and securities departments and formed the Office of Financial and Insurance Services (OFIS).

"The greatest argument for convergence of regulators is that the market is converging and consumers expect" the regulators to be converged, says Frank M. Fitzgerald, OFIS Commissioner. "The government has to recognize the realities of the market.

"We are moving past the day when insurers are just insurance companies—they are bankers and lenders and brokerages," adds Fitzgerald.

Insurers operating in Michigan will not have to change technology or regulatory procedures because of OFIS, but as OFIS begins to seek efficiencies from the combined departments, more technology may come into play. "Foreveryone, there will be more intangible benefits," adds Fitzgerald.

Other states also have combined certain financial services. The Minnesota Commerce Department oversees insurance, financial services and securities, but the three remain in separate divisions. Vermont has brought consumer finance, insurance and securities together, but it hasn't combined technology or functions.

Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio