In the fall of 2014, the head of the G-20's Financial Stability Board delivered a letter to the U.S. Treasury Secretary concerning Berkshire Hathaway Inc.'s sizable reinsurance operations. It came at a time when international financial services regulators were weighing global systemic risk designations for reinsurers, expected to be announced that November.

The letter, from then-G-20 Chairman and Bank of England head Mark Carney to then-Treasury Secretary Jack Lew, was subsequently classified under U.S. national security strictures. It is now the subject of a lawsuit that raises old international policy influence issues. Behind the scenes, Berkshire Hathaway's inclusion as a global systemically important insurer was seen as a catalyst for global reinsurance designations, according to sources. Global designations for insurers are formally made by the Financial Stability Board (FSB) through the assessment work and methodology of the International Association of Insurance Supervisors.

Retroactively classified

Back in April 2015, SNL Financial — now S&P Global Market Intelligence — submitted a Freedom of Information Act request for the now-classified letter. Treasury finally denied the request on March 27, 2017, on the grounds that "the record sought is a foreign record controlled by the Bank of England which makes it not an agency record releasable from the Department of Treasury." The Treasury FOIA official recommended writing to the Bank of England directly for the letter, a request that went unanswered. In response to a separate FOIA request, the Securities and Exchange Commission said it did not have the letter. The SEC chair is also a member of the FSB and the Financial Stability Oversight Council (FSOC).

However, on June 13, 2017, without further prompting from S&P Global Market Intelligence, the FOIA official wrote again to inform that a further review had been undertaken, and as a result Treasury deemed the letter "properly classified" in accordance with the protocol for classified national security information.

So what happened in the interim? At least two developments: The Competitive Enterprise Institute, a libertarian think tank, submitted its own FOIA request for the letter on April 24, 2017. Treasury denied that request.

Then, on April 26, 2017, Alex Pollock referenced the letter in testimony before the House Financial Services Committee. Pollock is a distinguished senior fellow at the R Street Institute, a free market think tank. Pollock suggested in his testimony that the letter could shed light on deal-making among FSB participants to match domestic systemic risk designations with global ones. The House Financial Services Committee had long chastised FSOC for an alleged lack of transparency in its designation process, with some parties fearing the designations had been partially arranged beforehand on the global stage.

"This letter allegedly reveals the international discussions about American companies, including it is said, whether Berkshire Hathaway should be designated a systemically important insurer (an idea not politically popular with the Obama administration)," Pollock testified. "A Freedom of Information Act request for the letter has previously been denied by the Treasury, which admits however that it exists." He then urged Congress to "immediately request a copy" of the letter while considering the "international processes" section of the proposed Financial CHOICE Act, a sweeping Republican financial reform package.

"While at it, Congress should request any other correspondence regarding possible agreements within the FSB," Pollock told the committee.

The committee did not respond to queries about whether it submitted such requests.

The letter triggers a lawsuit

After its FOIA request was denied, the Competitive Enterprise Institute (CEI) filed a lawsuit Aug. 9, 2017, in the U.S. District Court for the District of Columbia against Treasury, alleging an improper denial of plaintiff's requests.

The lawsuit cites the document, a "letter from The Bank of England and Financial Stability Board head Mark Carney sent to U.S. Treasury Secretary Jacob Lew in September 2014, asking why Berkshire Hathaway Inc.'s reinsurance operation was not included in the Financial Stability Board’s provisional list of systemically important financial institutions."

When asked why the letter was classified, a Treasury spokeswoman noted via email Aug. 4, 2017, that the document was deemed to meet Treasury's classification guidelines. She said this is "not uncommon when it comes to materials from foreign governments relating to economic or national security matters." Treasury did not return emails asking about the CEI lawsuit.

Sam Kazman, general counsel of CEI, told S&P Global Market Intelligence that while CEI awaits a response, he personally was "dubious about the agency’s new-found national security rationale for keeping this document under wraps." In part, he stated, "this is because its previous rationale, that the letter did not belong to Treasury, was so baseless, and because the agency has dragged its feet on this document for over two years."

Pollock believes the letter could shed light on key governance questions: "to what extent were U.S. regulators and central bankers making deals with foreign regulators outside the process and control of U.S. law? Do international regulatory committees think they have the authority to instruct the U.S. about what to do?"

Reinsurers escape systemic designation

There is a three-part process to designate domestic nonbanks as systemically important financial institutions in the U.S. First, companies must pass a threshold of size and financial services business concentration. They are then reviewed in a deeper dive, where many are ostensibly rejected for a further review. The process is confidential and can take months.

Only four nonbank companies have been designated, and due to reduction in size and systemic risk, in the case of GE, or due to litigation, in the case of MetLife Inc., only two remain: Prudential Financial Inc. and American International Group Inc. No company is thought to be under active review at this time, based on FSOC meeting minutes. Under an executive order, Treasury is reviewing FSOC's nonbank designation process, and is expected to furnish a report at some point this year.

In fact, the National Association of Insurance Commissioners told Treasury in a Sept. 6 letter that it thinks the process needs "significant reform, if not outright elimination, and the FSOC should employ alternative approaches in lieu of, or prior to, considering a firm-specific designation."