Vermont Legislature SmartTranscripts:

[Robin Scheu (Chair, House Appropriations Committee)]: Good afternoon. This is the House Appropriations Committee. Is Monday, February 9, and we are here to review some budgets. Various agencies of state government to review their budget proposals for next year. And our first guest this morning is the Department of Financial Regulation. Commissioner Sampson is here, and I don't know your other partner.

[Dave (David) Cameron (Administrative Services Director, Vermont DFR)]: David Cameron, Administrative Services Director.

[Robin Scheu (Chair, House Appropriations Committee)]: Thank Welcome, both of you.

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: Thank you.

[Robin Scheu (Chair, House Appropriations Committee)]: Do you know everybody at this committee? Have you?

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: Yes.

[Robin Scheu (Chair, House Appropriations Committee)]: You were here during the BAA. Yep.

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: I was here discussing Blue Cross Blue Shield's solvency, but not from the BAA. Okay. Unless That's

[Robin Scheu (Chair, House Appropriations Committee)]: my third major this year.

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: Yes. Correct.

[Robin Scheu (Chair, House Appropriations Committee)]: And Michael Nigro is our person on the committee that worked with you. So any questions that we have after we've spoken with you, gonna be talking to you now.

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: We hope to make it easy.

[Robin Scheu (Chair, House Appropriations Committee)]: Go ahead and make sure Chris and Dave.

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: Okay. For the record, Kai Sampson, commissioner of DFR, joined by Dave Cameron, the brains behind the financial part of our operation. And then with us, we have either online or in person, all our deputies. We have four divisional deputies. So if there are any deeper questions on the budgets within their divisions, which we do budget by division and then we should have everyone here to answer any questions that come up. And Joe Valenti, our director of policy, is here and also controlling the screen here conveniently. So in terms of overview, the first slide, slide two, we are, of course, a special fund or a 100% special fund funded. We take in a lot of revenue, take what we need through the budget in these special funds and revert the rest through a direct app to the general fund. Our budget this year is what I would term a level service budget, so we do not have any additional staff or personnel or any additional programs that we're pitching to be funded, etcetera. So results in a 2.9% increase over the current budget. And you'll see on the right side here in the bullets, 86% of that increase. 86% of the increase is derived from or or rooted in just salaries and benefits. And overall, the budget is about 83% salaries and benefits. So I'm I'm gonna go through the the PowerPoint slide by slide, and I'll just pause at the end and see if there are any questions per slide, if that works, but, of course, interrupt at any time.

[Robin Scheu (Chair, House Appropriations Committee)]: Just curious.

[Dave (David) Cameron (Administrative Services Director, Vermont DFR)]: Where

[Robin Scheu (Chair, House Appropriations Committee)]: is your updated space?

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: So it's in the it's in 89 Main Street, same place we've always been. We've been there in one way or another as long I started back there in 2006 when it was Bishka, we've been shuffled around. But most recently, the update, it was really a renovation of the the largest piece of space on the 2nd Floor that began under commissioner Gaffney's tenure and updated the HVAC. You know, that's a leased space. So updated the HVAC system and put in some new new queue furniture, kitchen, etcetera. So very, very nice open space at this point and easy for and also resulted in some savings. I think year over year for for the budget we're presenting. I think we're about $60,000 65,000 reduction in

[Robin Scheu (Chair, House Appropriations Committee)]: rent.

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: The next page is our declaration of policy. We probably have an older mission statement out there, but I've always liked our declaration of policy coming out of the legislative charge for our department. It captures everything that I would wanna capture in a mission statement in terms of our responsibility to protect consumers, educate consumers, but also ensure the liquidity and solvency of our domestic companies and also ensure that licensed entities doing business in Vermont are fulfilling their promises both financially and in terms of their behavior to consumers. And also markets, we keep an eye on markets. So understanding how competitive certain markets are and how other markets are more challenged and what we can do regulatorily to introduce more players into certain markets. So it's all kinda captured by those two bullets. In terms of our organization, here you can see how we're set up. Obviously, this isn't everyone, but this is kind of by function across the four divisions. In addition to that, we have the legal division. So we have in house attorneys. We don't frequently, I know you see agencies and departments that have attorneys through the attorney general's office. Ours are staff of PFR and not affiliated with the attorney general's office. And you also can see our position count unchanged year over year. So, again, not not requesting more positions. In terms of our employees, we continue to enjoy above average, above statewide average engagement. We're very proud of that. I think, you know, I came back to the department after an eight year hiatus. There's a lot of energy. People understand what they do and how it helps Vermonters, how it helps the Vermont economy. And so I think that's part of the engagement. We have a very professional staff as well. I would just guess that about at least half of the staff are either attorneys or credentialed CPAs, CFAs, sorry, CFEs, different financial or legal credentials. And, yeah, we like to keep the engagement up. And I do think it's very tangible what we do in terms of our service to Vermont and Vermonters. I think that really helps with these scores.

[Dave (David) Cameron (Administrative Services Director, Vermont DFR)]: So

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: this year's presentation's a little bit different than last year, and I like the way we've presented this. In the past, we've shown you certain kind of metrics by division. Here, we're showing them in two categories, who we regulate and how we regulate them. So I'll just hit some highlights here in banking. Of course, we're looking at an environment where you have federal and state authorized banking, and you'll you'll see the numbers here of the state chartered banks and credit unions. It doesn't mean we don't have some kind of market authority or consumer facing authority over all the other licensed or chartered banks. But it gives you the numbers there. And the the licenses, like that 2,000 plus number would include lenders. And then there's individual licenses licensees as well that are tracked by the banking division. In securities, broker dealers, investment advisers, both at the entity and individual level, and what really pops out there as well as on the insurance space. If you look almost directly across from that 155,000 number, you have insurance agents, like adjusters and individuals licensed in Vermont. It seems like, boy, do we really need that many people. But, you know, I think Yeah. Right. But what what you see happening just from a compliance point of view in both those areas is that national companies that run, you know if if you're gonna call a national company, insurance company, to ask about insurance, change your insurance direct rather than working with an agent locally, that company is just gonna license their entire staff in all 50 states to avoid compliance issues. And I think the same thing can happen on the security side with that broker dealer number. So, yeah, that doesn't mean we have 200,000 insurance agents in Vermont. We have 200 and it's also multiple licenses within that category, adjusters included there as well. And then in captive, that's one of the three divisions that doesn't really have a consumer facing and that is truly a business to business type transaction. And, of course, we are the the global leader in terms of captive insurance domicile. So we're at 707 active licenses at this point. That changes almost on a weekly basis in terms of new captive interest, and then other other captives can go dormant or, you know, finish their operations. So they some of them do have a life cycle, and some of them will redomesticate to other areas.

[Robin Scheu (Chair, House Appropriations Committee)]: I have a question.

[Dave (David) Cameron (Administrative Services Director, Vermont DFR)]: Next question. Foreign agents, foreign agencies, same kind of deal as with the brokers?

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: Yes. Yep. Exactly.

[Dave (David) Cameron (Administrative Services Director, Vermont DFR)]: So perhaps off the beaten track, there's a thing that I've been vaguely aware of in the great world, but it's really gotten a lot of press release in New York for what they call prediction Oh, yes. Are they regulated at all to your to the best of your knowledge?

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: Federally, I believe. We we do not regulate them in Vermont in terms of my understanding, and I've had some back and forth with commissioner Knight, is there's been a concern when the prediction markets are perhaps encroaching upon sports. Right? So if you're doing sports prediction, I believe and that'd be a commissioner Knight questioned. But I don't know. Deputy Ferentz, do you have any insight on I I believe it's not something we regulate or I don't know if we're preempted prediction markets.

[Deputy Ferentz (Banking Division, Vermont DFR)]: Yeah. Thank you. Thank you, commissioner. It is not something that the banking division has any oversight. I believe the reason these markets have proliferated is because of the CFTC, the commodities futures trading commissions rules. So I think there's a federal preemption issue ultimately at play that we cannot oversee.

[Dave (David) Cameron (Administrative Services Director, Vermont DFR)]: Prediction markets to me, once upon a time when I was going be, oh my god, we

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: can bet on anything, bet Lloyd's, right? And that seems to me like what this is. This is betting on it's making up bets. Almost It's like everything's a prop bet, like, in terms of is that

[Dave (David) Cameron (Administrative Services Director, Vermont DFR)]: the right way of thinking about these markets?

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: I mean, my experience with what they are is, yeah, you can there's some international ones. I know of one that was popping up in, like, around 2010 called Infraed, where they would do elections, primaries, and to actually invest in it invest or or be engaged in it, you had to send money to an Irish to a bank in Ireland to set up your account. So it was almost kind of not even probably authorized by you know, within The US at that point. But because of that preemption, not something I followed closely. Do you have anything on that, Aaron, in terms of reaction to senator's question?

[Deputy Ferentz (Banking Division, Vermont DFR)]: No. I don't I don't have any more to add. I mean, we we've we've touched a little bit on this when there might be a crypto cryptocurrency touching because that may involve a DFR license called money transmission. But generally speaking, it is it's something outside of my scope.

[Robin Scheu (Chair, House Appropriations Committee)]: Thank you. Thanks.

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: Moving on to the next slide, which is how we regulate. So I gave you a flavor of the different type of entities and individuals that fall under our jurisdiction. Now what are we actually doing? What does regulation look like? And this isn't by any means an exhaustive list. This is some of the high points with some metrics for you. But examinations of both individuals and firms, a

[Dave (David) Cameron (Administrative Services Director, Vermont DFR)]: lot

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: of that is number is coming from domestic captives and domestic insurers, investment advisory firms or individuals, and then banks where we have, in all of those cases, some type of compulsion to do periodic examinations. Another big number on here is insurance filings. So we have about 25 domestic 24 domestic insurance companies, not including the captive and risk retention groups, but in traditional insurance. But, of course, we have hundreds, if not maybe encroaching on a thousand that are that are licensed with us. And anyone who's selling a product in Vermont in terms of insurance has to go through, depending on the line of insurance, some level of rate review and policy review with the department. Because the business of insurance is regulated by the state, which in that realm really means that we dictate what's allowed and what isn't allowed for coverages and conditions, etcetera, in an insurance policy. So that gives you an idea of the volume of insurance filings we review. Consumer inquiries and complaints, that's a five year annual average you see there. It does sometimes get lumpy, but we deal with a lot of calls from consumers asking questions, you know, could be coverage related, could be claims experience. Right? They told me this is denied or they limited me to this many days on my rental car. Is that allowed? Etcetera. So we work with consumers there. A lot of those consumer complaints can lead to market conduct investigations, and that kind of brings you further down the page when you look at fines and penalties from enforcement and restitution order in addition to so restitution order means that through an enforcement actioned on an individual or an entity, we've required them to compensate affected individuals for that behavior. And then in addition to ordering restitution, we'll also collect fines and penalties as appropriate. Questions on how we regulate? And then the reason we're all here, the budget itself. Oh, not quite. This is just a revenue kind of an actual from s of the the most completed most recently completed fiscal year showing in three columns kind of the DFR revenue we process. That's, you know, mostly license fees, etcetera, totals over a $130,000,000. And then we don't take take credit for the tax revenue, but just from an economic driving point of view, you can see tax revenue that's collected by the Department of Taxes for each of those areas giving and and then in that expenditures column, that's our fiscal year '25. That was our actual expenditures or budget, but wasn't quite

[Dave (David) Cameron (Administrative Services Director, Vermont DFR)]: I think we're a little

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: under budget that year perhaps. And it's that difference between the first and third column that becomes the direct application or the direct app to the general fund. Did I get that right?

[Dave (David) Cameron (Administrative Services Director, Vermont DFR)]: Pretty close. It's not all direct app, but it all goes to the general fund.

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: All ends up there. One way or another. So essentially, our budget for those four areas we regulate insurance banking securities and captives, 21,000,000 you'll see the once we get to this year's budget. But, yeah, with this completed year, we spent $19,000,000, selected a 132,000,000 with the balance going to the general fund.

[Robin Scheu (Chair, House Appropriations Committee)]: Yes.

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: Recognitions and this flick it one more time, Joe. There we go. Got fancy here. So these are going to come up one by one. No fireworks, though. These are the different of course, we work very closely with other states, like the NAICs, the National Association of Insurance Commissioners. We're very cooperative and collaborative with all the all my counterparts across the 50 states and six jurisdictions in terms of making sure we're where appropriate, united and aligned on how we regulate. CSBS on the banking side, as well as NASCUS. And captives, we have, were recently, again, awarded the number one captive domicile ranking. And in all these areas we have, or most of these areas, certainly in banking and insurance and captives, we are subject to periodic accreditation. And we recently went through the once every five year NAIC accreditation and came out of that with really high marks in terms of the quality and efficiency of our regulation. And that's a pretty strenuous program of kind of state peer review, as one way to look at it, that ensures that how we regulate our insurers and our markets can be relied upon by the other states. So without that accreditation program and that stamp of approval, you would have other states. For instance, we have a 50 state company in National Life Insurance Company up the hill here. The way we regulate that is our domestic company is relied upon by all the other states that they do business in. And part of that is really empowered by the accreditation program, where those other regulators can see kind of from a quality peer review how Vermont has done, and so they can rely on our work rather than 49 other states each doing financial exams and analysis of a multistate insurer like that. Same goes for Vermont Mutual, Union Mutual to co op, but I'll do insurance business in other states.

[Robin Scheu (Chair, House Appropriations Committee)]: But likewise, do you rely upon other states? Yes. I mean, the State Farm that might be headquartered, but some place else Yep.

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: Exactly. Yep. And that's kind of that that's how, in my opinion, and that's how a 50 state regulatory system that's state based is really kind of the only way it can function. If every state really went its own way, it would be pretty wouldn't last long before the industry themselves went to congress and said, can you guys take this over? Because we're dealing with 50 different states doing 50 different things, some good, some bad. And I think backing up, of course, insurance of all the areas we regulate, insurance is different in that it's entirely state based. Effectively, no federal meaningful regulation going on. Lots of exceptions and nuance there. But in banking and securities, of course, there's a very big federal footprint in terms of how regulation is done. And then in terms of market conduct, if State Farm or another national company that's not Vermont based, if we do have our own authority, of course, on how they treat consumers and whether they follow Vermont laws. And so we can pursue that all we want. That primacy of state regulation is is very much focused on the organization, finances, the solvency, that sort of thing. Now we get to the policy, what we're asking for. Compared to the fiscal year twenty five, which is closed, last year's budget or the current budget we're in, and the three 2.9% increase. You can see how that flows across those three areas. And, yeah. I think maybe I'll I'll kinda close with that, see if there are any questions. And then the following slides get really into the ups and downs and details that Dave lives and breathes in or has for the last couple months.

[Robin Scheu (Chair, House Appropriations Committee)]: Yes, Wayne.

[Wayne Laroche (Member, House Appropriations Committee)]: We have some restitution. You perhaps do

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: Yes, so we have a special fund that we're allowed to or someone who's subject to an enforcement order with us has the option to put, I believe, up to 15% of that amount into an education and restitution fund. And that can be used we have a grant program that just closed for applications. We, I think, have nine applicants looking to use that money to kind of spur outreach and education events, financial literacy, antifraud. And then the restitution piece has actually played a bigger part. We've given, I think, about $400,000 restitution to date from that fund. So that's when we encounter a bad actor, and they may be insolvent or unable to pay back for their lack of good behavior the impacted Vermonters. And so we've been able to provide restitution. I think the law allows us to go up to perhaps 50¢ on the dollar. Is that right, Amanda? Or maybe yeah. So we've been able to provide some meaningful restitution to Vermonters that can't collect it from the party.

[Wayne Laroche (Member, House Appropriations Committee)]: So money flows in through the restitution Enforcement actions. Restitution, and then again, go back out to businesses, essentially businesses?

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: No, we're granted it to nonprofits and schools, community organizations. I believe our policy is not to grant to businesses, certainly not to regulated entities, just

[Wayne Laroche (Member, House Appropriations Committee)]: to avoid any conflict with yeah. John? The $3,339,000, is that the total in that special fund? Is that what that represents? I'm sorry?

[Dave (David) Cameron (Administrative Services Director, Vermont DFR)]: The 339,000 in the grants and restitutions line, is that the total? It 339,000?

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: Yeah. Spent that year. That's you

[Robin Scheu (Chair, House Appropriations Committee)]: spent that year.

[Dave (David) Cameron (Administrative Services Director, Vermont DFR)]: Yeah, in 2025. How much is in the special fund? I think it's about $500,000 in the special fund right now. So the $100,000 essentially is spending authority for you to give out what's being Yes, correct.

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: Thanks.

[Robin Scheu (Chair, House Appropriations Committee)]: Questions? Yes, I'm just noting that you have negatives in the vacancy savings line, and I'm just wondering what your vacancy rate is over there.

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: Yeah. Currently, we're we're at about 10% vacancy at this moment right now. So we have a 110 positions. We have 10 open positions right now. I think we our budget is six six and a half. Roughly six. Okay.

[Dave (David) Cameron (Administrative Services Director, Vermont DFR)]: I think we're trending upwards, which I'm assuming you're seeing across departments. So they're probably trending upwards. Okay.

[Robin Scheu (Chair, House Appropriations Committee)]: Looking at the tip was looking obviously at the ups and downs. The other questions, it looks like they're quite several appropriations.

[Dave (David) Cameron (Administrative Services Director, Vermont DFR)]: Number two.

[Robin Scheu (Chair, House Appropriations Committee)]: Are there any particular questions that you have?

[Dave (David) Cameron (Administrative Services Director, Vermont DFR)]: Not at the moment.

[Robin Scheu (Chair, House Appropriations Committee)]: Well thank you very much for coming. We appreciate appreciate your thorough description here. You have questions, we'll pass it through the mic.

[Kaj Samsom (Commissioner, Vermont Department of Financial Regulation)]: Excellent. Thank you. You.

[Dave (David) Cameron (Administrative Services Director, Vermont DFR)]: Good to

[Robin Scheu (Chair, House Appropriations Committee)]: see you, David. Yeah,

[Dave (David) Cameron (Administrative Services Director, Vermont DFR)]: bet. Get out of trouble.

[Robin Scheu (Chair, House Appropriations Committee)]: Safety coming in at 02:00, so we have a bit of a break.