ING Direct 2011 Annual Report Download - page 304

EU Insurance Guarantee Scheme
In July 2010, the European Commission released a white paper detailing the need to establish minimum levels of protection for consumers
of life and non-life insurance products in the event that insurance companies in the European Union with which they do business were to
become insolvent. Though the mechanisms for providing any such protections remain under review by the European Commission, the
European Parliament and the member states, the European Commission may currently be considering providing this protection by (i)
mandating the creation of (or harmonisation of existing) national level insurance guarantee schemes and/or (ii) implementing an EU-wide
insurance guarantee scheme, which such scheme(s) may require significant prefunding by insurance companies. The implementation of
an insurance guarantee scheme requiring significant levels of prefunding (or, in the event that prefunding is not required, the occurrence
of circumstances requiring the commencement of event-driven contributions) may have a material and adverse impact on the liquidity,
financial condition and operations of companies engaged in the insurance business, including us.
Dodd-Frank Act
Furthermore, in the United States, the Dodd-Frank Wall Street Reform and Consumer Protection Act (‘Dodd-Frank’ or the ‘Dodd-Frank
Act’) has imposed comprehensive changes to the regulation of financial services in the United States and has implications for non-US
financial institutions with a US presence, such as ING. Dodd−Frank directs existing and newly−created government agencies and bodies
to promulgate regulations implementing the law, a process that is underway and is expected to continue over the next few years. While
some studies have already been completed and the rulemaking process has begun, there continues to be significant uncertainty regarding
the results of ongoing studies and the ultimate requirements of regulations that have not yet been adopted. We cannot predict with any
certainty how Dodd−Frank and such regulations will affect the financial markets generally, impact the Group’s business, credit or financial
strength ratings, results of operations, cash flows or financial condition or advise or require the Group to raise additional capital. Key
aspects of Dodd-Frank that we have identified to date as possibly having an impact on the Group include:
• The newly established risk regulator – the Financial Stability Oversight Council (the ‘FSOC’) – may designate the Group as a company
whose material financial distress, or whose nature, scope, size, scale, concentration, interconnectedness or mix of activities, could
pose a threat to the financial stability of the United States. In such an instance, the Group would become subject to the oversight of
the Federal Reserve. If the Group becomes subject to the examination, enforcement and supervisory authority of the Federal Reserve,
the Federal Reserve would have authority to impose capital requirements on the Group and its subsidiaries. The Group cannot predict
what capital regulations the Federal Reserve will promulgate under these authorisations, either generally or as applicable to
organisations with the Group’s operations, nor can management predict how the Federal Reserve will exercise potential general
supervisory authority over the Group as to its business practices or those of its subsidiaries. If designated as systemically important by
the FSOC, the Group would become subject to unspecified stricter prudential standards, including stricter requirements and limitations
relating to risk−based capital, leverage, liquidity and credit exposure, as well as overall risk management requirements, management
interlock prohibitions and a requirement to maintain a plan for rapid and orderly dissolution in the event of severe financial distress.
The Group may become subject to stress tests to be promulgated by the Federal Reserve in consultation with the newly created
Federal Insurance Office (discussed below) to determine whether, on a consolidated basis, the Group has the capital necessary to
absorb losses as a result of adverse economic conditions. We cannot predict how the stress tests will be designed or conducted or
whether the results thereof will cause the Group to alter its business practices or affect the perceptions of regulators, rating agencies,
customers, counterparties or investors about the Group’s financial strength. The FSOC may also recommend that state insurance
regulators or other regulators apply new or heightened standards and safeguards for activities or practices that the Group and other
insurers or other financial services companies engage in;
• Title II of Dodd−Frank provides that a financial company may be subject to a special orderly liquidation process outside the federal
bankruptcy code, administered by the Federal Deposit Insurance Corporation as receiver, upon a determination that the company is in
default or in danger of default and presents a systemic risk to US financial stability. We cannot predict how ratings agencies or creditors
of us or our subsidiaries will evaluate this potential risk or whether it will impact our financing or hedging costs;
• Title VII Dodd−Frank creates a new framework for regulation of the over−the−counter (OTC) derivatives markets and certain market
participants which could affect various activities of the Group and its subsidiaries. New margin and capital requirements on market
participants contained in final regulations adopted by the Commodity Futures Trading Commission (‘CFTC’) (and in regulations that may
to be adopted by the SEC) and the CFTC could substantially increase the cost of hedging and related operations, affect the profitability
of our products or their attractiveness to our customers, or cause us to alter our hedging strategy or change the composition of risks we
do not hedge;
• Dodd−Frank establishes a Federal Insurance Office (‘FIO’) within the Department of the Treasury to be headed by a director appointed
by the Secretary of the Treasury. While not having a general supervisory or regulatory authority over the business of insurance, the
director of this office would perform various functions with respect to insurance (other than health insurance), including participating
in the FSOC’s decisions regarding insurers (potentially including the Group and its subsidiaries), to be designated for stricter regulation.
The FIO may recommend enhanced regulations to the states;
• Dodd−Frank establishes the Bureau of Consumer Financial Protection (‘BCFP’) as an independent agency within the Federal Reserve
to regulate consumer financial products and services offered primarily for personal, family or household purposes. The BCFP will have
significant authority to implement and enforce federal consumer financial laws, including the new protections established under
Dodd−Frank, as well as the authority to identify and prohibit unfair and deceptive acts and practices. In addition, the BCFP will have
broad supervisory, examination and enforcement authority over certain consumer products, such as mortgage lending. Insurance
products and services are not within the BCFP’s general jurisdiction, and broker−dealers and investment advisers are not subject
to the BCFP’s jurisdiction when acting in their registered capacity;
Risk factors continued
302 ING Group Annual Report 2011