Senate Passes Dodd-Frank Financial Reform Bill, Now It's Up to Regulators

As widely reported on July 15, 2010, the Senate passed the Dodd-Frank Wall Street Reform and Consumer Protection Act by a vote of 60-39 with the support of three Republicans and the opposition of one Democrat. The bill will be signed into law by President Obama in short order, bringing an end to a process initiated by the Treasury Department in March 2009.

The act will fundamentally reshape the financial system and make the most changes to American bank regulatory practices since the Great Depression. Its impact will extend far beyond regulated financial institutions and reach all public companies, consumers and Main Street businesses which employ financial products in their businesses.

The enactment of this major rewrite of financial industry law does not end the debate. The next and perhaps more important phase of regulatory interpretation and implementation begins immediately. The financial regulatory agencies are given considerable latitude to interpret most provisions in Dodd-Frank. The act includes hundreds of regulations, over 60 studies and more than 90 Congressional reports on topics as broad as systemic risk and as narrow as enhancing investment advisor tests. The effects of this legislation on the U.S. and global financial systems will not truly be determined until this rule-making process has been completed.

On the insurance front, Dodd-Frank establishes a Federal Insurance Office within the Treasury Department with limited authority to collect data from insurance companies (save for health and long-term care) with the goal of enhancing federal understanding of insurance issues and making recommendations to Congress about systemic risk and federal regulation of insurance. The office will be involved in the negotiation of international insurance agreements and has the authority to pre-empt state regulations deemed to be less favorable to foreign insurers.

The director of the office is required to conduct a study on improvement and modernization of insurance regulation, with consideration given to the effect of a potential federal regulator and a federal resolution authority for insurance, international coordination of insurance regulation, and other issues. A report on this study is due to Congress within 18 months of the bill's passage.

Talk has already begun of a "technical corrections" bill to correct the many errors included in the text that was quickly drafted in the final moments of the marathon 20-hour last day of conference committee action.

The public will have a limited window of opportunity to influence the shape and scope of these new rules (or the technical corrections component), as much of the rulemaking and studies are required within one to two years of the passage of Dodd-Frank. The regulatory agencies have been preparing over the past several weeks to begin that process as it became clear the bill was likely to be enacted. Now is the time to act on issues of concern to your business.