TheFinancial Stability Board(FSB) published today its peer review of the United States.
The report examines the progress made in the US on three topics that are important for financial stability and relevant for the broader FSB membership: systemic risk oversight arrangements; supervision and oversight of financial market infrastructures (FMIs); and insurance supervision. To a large extent, the reforms analysed in this review focus on the need to ensure effective and efficient coordination and information sharing arrangements and to address any overlaps or gaps in the roles and responsibilities of the relevant US agencies, given the complex and fragmented US regulatory and supervisory structure.
Good overall progress has been made by the US authorities in following up on the recommendations made by the International Monetary Fund under the 2010 Financial Sector Assessment Program (FSAP) on the above three topics, particularly as regards systemic risk oversight arrangements and the supervision and oversight of FMIs. Progress in implementing the FSAP recommendations has been less advanced in the case of insurance supervision.
The Dodd-Frank Wall Street Reform and Consumer Protection Act addressed the systemic risk oversight gap in the US regulatory framework by creating the Financial Stability Oversight Council (FSOC) and by making it directly accountable to Congress. To support the activities of the FSOC and its member agencies, the Dodd-Frank Act also created the Office of Financial Research within the Treasury Department. The peer review found that good progress has been made to date by the FSOC to establish systemic oversight arrangements and made some recommendations to further enhance its effectiveness. These involve:
Substantial progress has been made by the relevant US agencies (Federal Reserve Board, Securities and Exchange Commission, and Commodity Futures Trading Commission) in strengthening the oversight and supervision of systemically important FMIs. In terms of further strengthening the FMI framework, the peer review recommends that:
These issues are particularly relevant given the global importance of US-based FMIs and the increasing reliance of some US-based market participants on FMIs in other jurisdictions.
The US federal and state authorities have also begun to address the FSAP recommendations on the insurance sector. In particular, the Federal Insurance Office was established under the Dodd-Frank Act; the FSOC recently designated an insurance company as systemically important, which will be subject to enhanced regulation and supervision by the Federal Reserve Board; information sharing and coordination between US state regulators and federal authorities has increased; and state authorities have taken useful steps to improve insurance group supervision, modernise solvency requirements, and improve disclosures required for securities lending operations by insurance companies.
Despite these accomplishments, however, significant additional work is required to fully address the FSAP recommendations in this area. The architecture for insurance supervision in the US, characterised by the multiplicity of state regulators, the absence of federal regulatory powers to promote greater regulatory uniformity and the limited rights to pre-empt state law, constrains the ability of the US to ensure regulatory uniformity in the insurance sector. Given the drawbacks of the current regulatory set-up, the US authorities should consider whether migration towards a more federal and streamlined structure may be a more effective means of achieving greater regulatory uniformity. The report sets out several other recommendations to enhance the effectiveness of insurance supervision, including:
the US state authorities to implement the FSAP recommendation concerning the terms of state commissioners' appointments, the rulemaking powers of state insurance departments, and their funding and staffing to bolster specialist skills.