NASAA Supports SEC Equity-Indexed Annuities Proposal

WASHINGTON, D.C. September 11, 2008—The North American Securities Administrators Association (NASAA) today endorsed a proposed rule by the U.S. Securities and Exchange Commission that would subject equity-indexed annuities (EIAs) to regulation under the federal securities laws and would help protect millions of investors across the country, many of them senior citizens, from the fraud and abuse that is taking place in the sale of EIAs.

“NASAA strongly supports the SEC’s proposed rule. Equity-indexed annuities are extremely complex investment products that have often been used as instruments of fraud and abuse. Although these products are securities, they remain largely unregulated under federal securities law,” said NASAA President and North Dakota Securities Commissioner Karen Tyler.

“For years, they have taken an especially heavy toll on our nation’s most vulnerable investors, our senior citizens,” Tyler said. “We commend the SEC and Chairman Cox in particular for taking this important step, and we urge the SEC to adopt the proposed rule expeditiously so that the investing public can benefit from the protections it will afford.”

In a comment letter filed with the SEC, Tyler wrote: “The proposed rule will enable the SEC to address these abuses with the regulatory tools available under the federal securities laws, ranging from mandatory registration and disclosure requirements to strong suitability standards and antifraud remedies.”

Statistics compiled by NASAA indicate that variable or equity-indexed annuities were involved a third of all cases in which senior citizens were subjected to securities fraud or abuse. “The plain fact is that EIAs are often sold through deceptive marketing tactics and often to senior citizens for whom they are clearly unsuitable,” Tyler wrote.

NASAA said regulating EIAs as securities is “clearly appropriate” from the standpoint of legal and economic analysis. “Contrary to insurance industry claims, EIAs impose significant risks upon investors, including fluctuations in the applicable equity index and potential loss of principal. In addition, issuers and agents routinely market EIAs as investments, not insurance products,” Tyler wrote.

NASAA also pointed out that none of the arguments being advanced against the rule are valid. “State insurance laws alone cannot protect the public from the abuses associated with EIAs. The safeguards they provide are no substitute for the investor protections contained in the federal securities laws,” Tyler wrote.

Further, Tyler wrote, attempts to disparage the rule as part of a regulatory “turf” battle are also wrong. “Critics who level that charge ignore the fact that the rule will not interfere with the continued regulation of EIAs by state insurance commissioners,” Tyler wrote. “The rule expressly provides that it will only apply to EIAs that are ‘subject to regulation under the insurance laws.’ Nor will the rule impose unreasonable burdens on industry. It will simply require compliance with the same regulatory standards that have applied to issuers for the past 75 years. In short, the rule will provide much needed protections for investors without unfairly burdening industry.”

A copy of NASAA’s comment letter is available on the NASAA website here.

NASAA is the oldest international organization devoted to investor protection. NASAA’s membership consists of the securities administrators in the 50 states, the District of Columbia, the U.S. Virgin Islands, Canada, Mexico and Puerto Rico.

For more information:
Bob Webster, Director of Communications

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2008 Headlines, Newsroom