In a Dec. 8 filing with the U.S. Court of Appeals for the District of Columbia Circuit, the Securities and Exchange Commission said it would put a two-year stay on the effective date of Rule 151A. Prior to the SEC's concession, the rule would have been effective for products sold on or after Jan. 12, 2011. However, in this same December 8th filing, the SEC indicated that it was continuing its work to reissue Rule 151A. Basically, a two-year implementation period for the SEC's proposed federal regulation of fixed indexed annuities under Rule 151A is expected to begin in the fourth quarter of 2010, and a two-year implementation period should take us to approximately this time next year.
Those in our industry, or better yet, those concerned with real competition, the consumer, the insurance agent, the current distribution system, and with the small business, are very happy with the latest development. In a nutshell, the recent development was good news and bad news:
- Good news: The soonest 151A will become effective is Q 4 2012 or Q1 2013 -- basically we have obtained an additional two years, perhaps a few more months if the Rule is vacated but the SEC chooses to re-issue. Court may rule before Christmas.
- Bad news: The SEC all but says they are proceeding with their work to reissue or retain the Rule.
We all know the fight is far from over, and we must ramp-up our legislative efforts to get Congress to enact HR 2733 and S 1389, but many of us wholeheartedly believe this was important, regardless of what you hear anywhere else.
Sources close to the case told me, "I am not saying it is impossible, but it will be very difficult for the SEC to make their case, relative to the effect on the consumer, the economy, and capital formation." The SEC, it is assumed, was not initially prepared to fight this court case, as the world was on the brink of economic collapse and everyone was pointing in the direction of the SEC, blaming them for playing a major role in the crisis -- failing to keep a watchful eye on an array of concerns.
Perhaps the SEC has still not had ample time to prepare an argument. Some suspect the SEC was not confident in their ability to make their case today, and that they may have decided it was best, at this time, to live to fight another day and push this fight out another two years. The SEC still bears the responsibility of proving something to be rational that is, at its core, irrational. The problem, as we have seen in the headlines, is that real life is stranger than fiction, and therefore, as illogical as the SEC's argument is, they could take our business away, if they really wanted to. Cynical I know, but it is possible.
This latest development which buys us more time to fight was generally the result of the legal work of Eric Marhoun of Old Mutual and the continuing legislative grassroots of agencies and agents across the country. We understand that Old Mutual took a path that many in the industry were not sure was the appropriate one, as it petitioned the D. C. Court of Appeals after its July 2009 decision to reconsider the 2011 date. Many people who were simultaneously working very hard to defeat 151A were concerned Old Mutual would anger the SEC and leave the FIA industry vulnerable to unwanted backlash. In my opinion, waiting, believing, or hoping diplomacy will help our cause is not the prudent path. Today, as a Monday morning quarterback, I think we are all glad Old Mutual acted as it did by acting on its own to file its petition to delay the 2011 effective date.
Eugene Scalia, the attorney representing American Equity and the other insurers in the case, noted that the SEC's brief shows why vacating Rule 151A would be the right thing for the appeals court to do. "The SEC doesn't identify harm from vacating the rule," Mr. Scalia said. "They indicate that they're amenable to the rule not being effective for a lengthy period of time." "The brief also says that this is a process the SEC expects to take into the spring, and that its staff believes notice and comment will be necessary if they readopted it," he added. "That indicates that vacating is the proper remedy."
We are all this together. Keep up the pressure, andstay on top of your Congressman and Senators. Legislation is the best outcome we could possibly hope for, as it would kill the ability of the SEC to ruin our industry.
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