On July 22, the Securities and Exchange Commission made public a report conducted by its staff that suggests that life settlements be redefined by Congress as securities, thereby putting them under the purview of the SEC and subjecting them to regulation under federal securities laws.
The report comes on the heels of a July 9th Government Accountability Office report that drew similar conclusions.
In April of 2009, SEC Chairman Mary Shapiro, submitted a letter to Sen. Herb Kohl, D- Wis., chairman of the Senate Subcommittee on Aging, citing inconsistent jurisdictions over the sale of variable life insurance policies on the secondary market. By August of that year, the SEC had formed a task force to closely examine the life settlement industry.
Currently, life settlements are regulated on a state- by- state basis with only 38 states fully regulating the industry. In those states, industry professionals say, the state regulators only have the capacity to take policyholder interests into account and not investor interests. If life settlements were reclassified as securities, those selling the product would have to be FINRA- registered reps and comply with all full and fair disclosure laws. Intermediaries in the marketplace would have to register as broker-dealers or as registered investment advisors. Companies heavily involved in the life settlement industry also may be required to register as investment companies under the Investment Company Act of 1940 as amended.