Industry balks at quid pro quo on FBI data

Congress has a deal for state insurance regulators.

If they agree to honor the licenses of agents licensed by other states, they get access to FBI files about financial criminals.

But insurance regulators say no deal.

In a bill approved June 13 by a House Financial Services subcommittee, the quid pro quo is one of several provisions that could pose problems as the measure moves through Congress.

Several leading Democrats have also criticized the bill because it would remove liability from insurance companies for conducting background checks on employees.

And state insurance regulators oppose another provision that would allow the General Accounting Office to audit their internal records.

Financial Services’ subcommittee on financial institutions and consumer credit approved the Financial Services Antifraud Network Act by a 20-1 vote.

The full committee could act on the bill as early as this week, and House leaders are planning a floor vote before the August recess.

The bill would give financial regulators two years to set up a network to share criminal data so that they can prevent people with disciplinary and criminal backgrounds from entering the financial services industry.

if only …

Insurance regulators say they might have been able to prevent Martin Frankel from entering the business if they could have more easily found out he had been barred from the securities industry.

Mr. Frankel is in federal prison in Connecticut, awaiting trial on charges that he looted insurance companies of $200 million.

The bill allows insurance regulators, for the first time, to have access to FBI criminal files.

If financial regulators did not set up their own network within two years, one would be formed by a newly created anti-fraud subcommittee of the President’s Working Group on Financial Markets. The group was set up under executive order during the Reagan administration.

Rep. Maxine Waters, D-Calif., the ranking minority member of the subcommittee, had complained during a hearing on the bill in March that the network could violate the privacy of potential industry employees.

As a result, the bill was narrowed so regulators could share information only on final public disciplinary and enforcement actions.

Financial regulators have agreed to cut back on the information they will share.

Consumer groups have not been following the legislation. However, Robert Hunter, director of insurance for the Consumer Federation of America in Washington, thinks reducing the information shared among regulators is a mistake.

“I think that’s dangerous,” he says. “You have to be able to exchange information. It doesn’t make sense.”

warnings important

Mr. Hunter says that when he was an insurance commissioner in Texas in 1993 and 1994, he would meet with other state officials to discuss multistate investigations.

“They would exchange whatever they knew about people in order to protect consumers,” he says. “Those warnings are very important to make regulation work, especially in a state-based system.”

Iowa’s insurance commissioner, Terri Vaughan, who is also vice president of the National Association of Insurance Commissioners, says that accepting the narrower information-sharing limits was a tradeoff for insurance regulators.

Ms. Vaughan says insurance regulators are more concerned about tying uniform agent licensing to access to an anti-fraud database. Under pressure that a federal agent licensing system might be created, most states have agreed to recognize licenses issued by other states.

But agent groups are complaining that major population areas representing much of the premium volume in the country still are not part of a reciprocal system.

“We don’t disagree with the uniformity issue,” she says. “We have questions about whether we should tie access to the FBI database, which is clearly good for consumers, to the uniformity issue.”

State sovereignty is at issue when it comes to GAO audits of state insurance departments, which the bill would authorize. The GAO has been at odds with Mississippi, which has refused to release some of the information the GAO has sought concerning the Frankel case.

Mr. Harrell says Mississippi opposes the provision in the legislation.

“Our state auditor can audit us and keep the materials confidential and privileged. I’m sure the [state] attorney general and the U.S. attorneys, if they issue secret grand jury subpoenas, they don’t want the potential target or defendant seeing that in a GAO report given to all members of Congress.”

Rep. Mike Rogers, R-Mich., who helped draft the bill, says the provision would bring insurance and banking regulators under the same oversight.