December 17, 2008
By Steven A. Morelli, Senior Editor
SOURCE: InsuranceNewsNet, Inc.
On the same day SEC Chairman Christopher Cox said the agency failed to prevent one of the biggest swindles in world history, the commission voted to extend its regulatory power by grabbing control of indexed annuities.
The commissioners voted 4-1 to adopt Rule 151A, which considers indexed annuities as securities. That puts the products under the jurisdiction of the Securities and Exchange Commission, requiring sellers to have a securities license. The industry has said the rule would destroy the distribution network, costing thousands of jobs and millions if not billions of dollars.
The staff left the rule, introduced in June, essentially unchanged despite 4,800 comments, which they called an "extraordinarily large" number. One of the main changes is extending the grace period to two years, up from one, meaning it would not go into effect until Jan. 12, 2011. Staff members said they also limited the rule to indexed annuities to not include "traditional fixed annuities."
Cox and his staff cited unscrupulous sellers and regulatory uncertainty as the chief reasons for the rule. Carriers and consultants have said states and the industry have cracked down on rogue agents and conduct is not sufficient reason for the SEC to take over an insurance product.
Commissioner Troy Paredes, who voted against the rule, said the agency is overextending its reach. He said the characteristics of indexed annuities make them insurance products as defined by federal law. Although stories of bad salespeople engender sympathy, it was no excuse for violating the law and decisions in courts, including the Supreme Court, he said.
Paredes also disagreed with the staff on the SEC's ability to limit the rule to indexed annuities. Once the agency had disregarded the law and courts for one product, there is no reason the rule could not be extended to others, he said.
The ruling came on the same day the SEC was dealing with the fallout of the Bernard Madoff case, which is said to be a $50 billion Ponze scheme. The agency failed to act on many credible tips on Madoff datinig back to 1999, Cox admitted.
Click here for Paredes' comment.
Click here for the page with links to webcast of Cox's remarks.
Rep. Barney Frank blasts SEC decision.
Steve welcomes comment at smorelli@insurancenewsnet.com
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