Representing Life Insurers' Positions in Regulatory Initiatives Governing Derivatives - Examples of Different Approaches in Different Venues

Abstract

The 2008 turmoil in the financial markets provided the primary impetus for significant financial reform of U. S. financial service institutions. The profound economic disruption had multiple causal factors, including, in part, the widespread use of privately negotiated over-the-counter derivatives instruments. Transactions outside the structure of exchanges or centralized clearing facilities did not universally face collateralization, margin and transparency typically associated with exchange traded derivatives. As a consequence, a significant volume of derivatives transactions lacked the limiting brakes of traditional collateral and were largely opaque to financial service regulators. These, and other factors, magnified structural and regulatory gaps that accelerated economic and financial challenges in U. S. and global markets.On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) into law. Title VII of the Dodd-Frank Act amends the federal commodities and securities laws to establish a comprehensive new regulatory framework for swaps. The legislation seeks to reduce risk, increase transparency, and promote market integrity within the financial system by, among other things: (1) Providing for the registration and comprehensive regulation of swap dealers and major swap participants; (2) imposing clearing and trade execution requirements on standardized derivative products; (3) creating robust recordkeeping and real-time reporting regimes; and (4) enhancing the rulemaking and enforcement authorities of the SEC and CFTC with respect to, among others, all registered entities and intermediaries subject to the Commission's oversight. To implement the Dodd-Frank Act, the agencies issued 55 advance notices of proposed rulemaking or notices of proposed rulemaking, two interim final rules, 12 final rules, and one proposed interpretive order. These collective actions represented a significant new regulatory framework under Title VII of the Dodd-Frank Act. The revised laws and regulations bore directly on life insurers' management of their asset and liability risks through derivatives hedging. This document demonstrates a series of substantive advocay approaches to unique regulatory initiatives in different venues essential to constructive rulemaking under the Dodd-Frank Act.