As an overhaul of financial services regulation is debated in Washington, the American Academy of Actuaries is throwing its support behind creation of a federal systemic risk regulator for the entire financial services sector.

A whitepaper by the association’s Financial Regulatory Task Force anticipates a significant role for state insurance regulators in supporting a proposed federal risk regulator.

“Considering the diversity and complexity of modern corporations, a federal systemic risk regulator would be best-positioned to coordinate at a national level and across international lines to monitor and manage systemic risk,” Jesse Schwartz, chairperson of the American Academy of Actuaries Financial Regulatory Task Force said in a statement. “But the American Academy of Actuaries envisions a federal regulator that would work in conjunction with the current state-based insurance regulatory system and not detract from the state insurance regulators’ public responsibilities.”

In addition to cooperation with state regulators, the whitepaper stresses a new systemic risk regulator will need to work closely with corporate management of systemically significant companies to ensure that appropriate risk-management practices are in place.

“Poor internal risk management, and not surpassing a generic size requirement, will contribute to systemic risk development that will affect a broader aspect of the marketplace or the economy,” Schwartz said. “If a systemically significant company’s internal processes fail, a regulator will need to step in.”

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