Annuities industry wins exemption from SEC regulation
July 9, 2010 by Silla Brush
By Silla Brush – 06/24/10 02:58 PM ET
Financial companies that offer annuities linked to equities won a major exemption Thursday from Securities and Exchange Commission (SEC) regulation.
As part of the Wall Street overhaul process, companies that offer equity-indexed annuities, alongside state insurance commissioners, pushed for state regulation of the products instead of federal SEC regulation.
The SEC decided in a ruling known as “151a” to treat the products as securities investment products, arguing they are both securities and a form of insurance. The commission opposed congressional efforts to remove them from SEC regulation. Supporters of the exemption disagreed with the SEC’s ruling and pushed lawmakers to ensure the products are treated as insurance products, which are traditionally regulated at the state level.
Senators on the financial conference committee voted 8-4 in favor of the exemption, backed primarily by Sen. Tom Harkin (D-Iowa). The House side of the conference on Thursday supported 12-4 a counterpart proposal from Rep. Gregory Meeks (D-N.Y.). All House and Senate Republicans who could vote on the issue supported the exemption.
“Legal precedent guarantees they are insurance products. They are not complex products,” Meeks said.
The move came over the strong objection of House Financial Services Committee Chairman Barney Frank (D-Mass.), the SEC, consumer advocacy groups, state securities administrators and financial planners.
“This amendment deprives investors in indexed annuities of the important disclosure and suitability protections of the federal securities laws,” said John Nester, spokesman for the SEC. “In addition, the amendment would create a significant loophole that may be used to deprive investors of these protections when buying other hybrid products that otherwise would be securities.”
The Certified Financial Planner Board of Standards, Inc., Consumer Federation of America, Financial Planning Coalition, among others argued the legislation weakens investor protection.
“Once again the conference committee has shown that it is far easier to find a bipartisan majority to weaken investor protections than to strengthen them,” said Barbara Roper of the CFA. “And once again it has shown that the same members who are most eager to castigate the SEC for its regulatory failings are just as eager to rein it in when it tries to act to protect investors — whether the issue is accounting from or abusive sale of equity-indexed annuities.” The planner board said the action “undermines the intent of financial reform legislation.”
Companies that offer the products lobbied vigorously for the legislation since early last year. They set up a 151 coalition and backed legislation from both Meeks and Harkin before the broad financial bill came up for debate. The House bill had 87 bipartisan co-sponsors.
