WASHINGTON President Obama has signed financial services reform legislation, setting in motion an intense effort by interested parties to shape the regulations that will implement the bill to their liking.

In signing the bill H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act President Obama said, “For years, our financial sector was governed by antiquated and poorly enforced rules that allowed some to game the system and take risks that endangered the entire economy.”

“This reform will help foster innovation, not hamper it,” he said.

He added, “It is designed to make sure that everyone follows the same set of rules, so that firms compete on price and quality, not tricks and traps.”

The president signed the bill at the Ronald Reagan Building in downtown Washington.

For insurers, the bill generally retains state regulation of insurance while giving federal financial regulators authority to prevent future market meltdowns by forcing prompt correction action and, in a pinch, take over institutions, including insurers, that they deem constitute a potential systemic risk.

In other words, despite the fact that strong government intervention was needed by federal regulators to stabilize American International Group, the final bill “allows federal regulators’ whiskers, not their nose, under the tent of state regulation,” as stated by one industry lobbyist.

It creates a Financial Stability Oversight Council to monitor large institutions and take them under control, if necessary.

But the provision also gives state insurance regulators the authority to “wall off” operating insurance companies from troubled holding companies.

State regulators will retain their role to monitor consumer protections in the insurance sector.

The bill also establishes a Federal Insurance Office (FIO) with limited powers.

Through the FIO, the Treasury Department will share the ability to conclude bilateral trade agreements on insurance with foreign countries that preempt inconsistent state laws with the U.S. Trade Representative’s Office.

The office will have no regulatory authority, but it will have the power to monitor all activities related to the business of insurance except for health insurance and long-term care insurance.

The bill contains a provision to modernize and substantially streamline the surplus lines and non-admitted market. This provision dictates that in any multistate placement of surplus lines, the only state whose rules govern access to the products is the state in which the insurance is placed the "principal place of business" for the insured.

The bill would also impact industry investment and hedging activities.

Leigh Ann Pusey, president and CEO of the American Insurance Association (AIA), said, “It will be important in the months ahead to work with Treasury and other federal regulators to ensure the implementing regulations and related rule-making are consistent with the legislative intent.”

Officials of the National Association of Professional Surplus Lines Offices said the association was “pleased to see its efforts to establish a more rational and efficient method of paying surplus lines taxes and conducting multistate surplus lines transactions become a reality.”

David Sampson, president and CEO of the Property Casualty Insurers Association of America, noted that the FIO will go into effect immediately. “We are pleased that Congress ultimately limited the scope of the FIO and recognized that it should not be a duplicative federal insurance regulator.”

Robert Rusbuldt, president & CEO of the Independent Insurance Agents and Brokers of America, said the trade group is “pleased that the final financial services regulatory reform legislation leaves day-to-day regulation of the insurance market at the state level,” noting that property and casualty insurers were not to blame for the financial crisis and pose no systemic risk to the economy.

Charles Chamness, president of the National Association of Mutual Insurance Companies, said, “For the most part, our arguments were accepted and the legislation rightly respects the role of state insurance regulators.”

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