WASHINGTON BUREAU – Joan Boros, an annuity law expert, says the U.S. Securities and Exchange Commission may still have trouble classifying indexed annuities as securities.

A 3-judge panel at the U.S. Court of Appeals for the D.C. Circuit ruled Tuesday, in American Equity Investment Life Insurance Company et al. vs. SEC, No. 09-1021,that the SEC failed to conduct an adequate of analysis of the effects of the proposed regulation, Rule 151A, on the financial services market.

The panel held, however, that the SEC has the ability to interpret its own regulations, and that it appeared to be making a reasonable interpretation when it decided that annuities with returns linked partly to groups of securities, or to securities indices, are securities and not insurance products.

The National Association of Fixed Annuities, Milwaukee, expressed disappointment about the decision and said it will be focusing on lobbying for bills that would classify indexed annuities as state-regulated insurance products, rather than as SEC-regulated securities.

But Boros, of counsel with Jorden Burt L.L.P., Washington, says the SEC has a lot of work to do before the proposed Rule 151A becomes a regulation, even absent legislation.

The appeals court found the SEC’s conduct was “arbitrary and capricious” in not properly considering the effect of the proposed rule on efficiency, competition, and capital formation, as required by Section 2(b) of the Securities Act, Boros says.

The court remanded the regulation back to the SEC and asked it to make such findings.

Fully considering the effects of a proposed rule is “a formidable and time-consuming task, and there is no assurance that the court will find that the SEC’s follow-up meets the statutory standard,” Boros says in a statement. “The task, among other things, may require the SEC to subject its review to still another round of public comment. In view of the current pressures on the SEC regarding proposed financial regulatory reform, it is quite uncertain whether (and when) the SEC will choose to assume these tasks.”