Regulatory reform of the financial industries is all the buzz on Capitol Hill. Several bills have been and will be introduced in Congress this session that propose financial industry reform, all to address from America’s current economic condition.
The danger is that the lawmakers may prove to be too quick to speak on these issues and too slow to listen to what financial practitioners have to say about the matter.
A recent example is the Financial Oversight Commission Act of 2009, H.R. 74. Introduced in the House in January, it proposes to create a commission charged with identifying, reviewing and evaluating the lessons learned from the crisis.
Likewise, the Financial Crisis Investigation Act of 2009, S.400, introduced in the Senate in February, proposes to create an oversight panel charged with reviewing all aspects of financial regulation, including financial markets and the insurance industry.
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In proposing these two bills, Congress is seeking to create commissions charged with understanding the events and decisions made prior to the sub-prime mortgage meltdown and also with identifying the triggering events that have caused so much financial tumult.
But many critics are cautioning against regulatory duplication that would be created by establishing federal oversight of certain state matters, including the insurance industry. They maintain that unnecessary duplication of federal regulation adds to the expense of doing business and creates governmental waste. They also maintain that such regulation does little to curb unwanted practices, which is usually at the heart of the legislative initiative.
Along these lines, a bill to be watched is H.R. 2733, the Indexed Annuities and Insurance Products Classification Act of 2009, which was introduced in the House in early June. Co-sponsored by Rep. Gregory W. Meeks, D-N.Y., and Rep. Tom Price, R-Ga., this bill proposes to clarify the exemption for certain annuity contracts and insurance policies from federal regulation under the Securities Act of 1933.
H.R. 2733 .
During former SEC Chairman Christopher Cox’s era, indexed annuities were touted as a plague among senior consumers. Rule 151A was adopted to address that by deeming indexed annuities to be securities and therefore subject to SEC regulation, not state regulation.
It would be interesting to compare those senior consumers’ retirement savings today now that they have experienced 8 months of market volatility. Had those same seniors purchased an indexed annuity, their principal and past interest credited to the policy would be intact and protected from the market downturn.