Thieves Won’t Be Deterred by ‘Anti-Frankel’ Rule, NAMIC Suggests

May 23, 2001

While the National Association of Mutual Insurance Companies (NAMIC) supports the efforts of the National Association of Insurance Commissioners (NAIC) to simplify its “anti-Frankel” rule to prevent theft from company assets, NAMIC is suggesting that the proposal for reporting to regulators will not stop determined thieves.

In comments submitted on behalf of NAMIC to the NAIC’s Financial Examiners’ Handbook Technical Group, NAMIC Financial Regulation Manager William Boyd said, “The reporting of withdrawals … will not deter a determined defalcator.” The NAIC Financial Examiners’ Handbook Technical Group will consider Boyd’s comments in a June 11 hearing during the NAIC summer meeting in New Orleans.

The proposed NAIC rule intends that custodians, usually banks and trust companies, report to state regulators within three days when companies withdraw all their assets from their custodial account or terminate their custodial account altogether. A previous version of the rule had been far more complex and reaped a storm of criticism from many parties, including NAMIC. Such reporting is intended to prevent thefts from insurance company portfolio assets, such as those allegedly committed by rogue financier Martin Frankel.

“The new and far simpler proposal unfortunately doesn’t give a remedy for criminal intent,” Boyd said. “We have not objected to the notion of custodial reporting per se, but what is proposed seems well intended but ineffective.”

The burden in the proposed reporting falls on the custodial entities, who in response to the first reporting proposal protested vehemently against both the reporting rules and the fact that they would have to assume responsibility. The way the proposal works is to require insurance companies to embed in their contracts with custodians the reporting requirement. The custodians are expected to protest once again during the New Orleans meeting.

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