Financial Services Laws Modernized — At Last
After nearly a generation of effort, Congress has approved sweeping legislation to overhaul federal financial services laws. The new legislation will affect banks, insurers, and securities firms. As a financial services provider, New York Life paid close attention to the process.

Ron Lefrancois of New York Life's Office of Governmental Affairs said, "We welcome the long-overdue changes to those laws that affect our business. It clarifies the question of regulatory authority over insurance companies and banks, which had become confused in some financial service areas over the years."

The new law, known as the Gramm-Leach Financial Services Modernization Act of 1999, ensures that state regulators will remain the primary overseers of insurance and that federal bank regulators will stick to the business of banking. In recent years, some federal officials have intruded on insurance issues that historically have been handled by state insurance commissioners. Under the new law, state officials will continue to handle matters, whether or not a bank, insurance agent, or broker sells insurance products.

The principal authors of the bill, Senator Phil Gramm [R-Texas] and Congressman Jim Leach [R-Iowa], made sure that the legislation also protects the public in matters of privacy. The law makes certain that banks and insurers cannot disclose personal information to unrelated third parties without customer consent.

Companies may now share account information only with affiliates and others with whom they have a formal, contractual relationship that requires the third party to maintain the data's confidentiality. The law requires disclosure of this policy, seeing that customers are regularly informed about their right to privacy and how it is protected.

On the organizational front, the measure generally prohibits combinations of banks and commercial firms. Many in Congress were not inclined to allow large, non-financial companies to purchase or merge with banks, having serious concerns over mixing banking with commerce.

Reflecting the importance of maintaining solid, long-term reliability for insurance products, the new law prohibits national banks from underwriting insurance in their operating subsidiaries. Again, state regulators maintain authority over insurance operations, whether a bank or any other type of financial entity owns the operation.

The law also reaffirms that the fifty states may not prevent or restrict insurer/bank affiliations. However, they remain free to regulate all aspects of insurance, as long as they do not prevent or significantly interfere with a banks' direct or indirect insurance sales activities.

The authors of this landmark legislation believe that it will bring the financial services industry into the twenty-first century and provide more cost-effective services to the public.

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