Mr. Harkin's amendment would clarify that these funds are insurance products that should be overseen by states rather than the Securities and Exchange Commission.
Most Republicans joined Sen. Tom Harkin, D-Iowa, last night to pass an amendment to the massive financial regulatory reform bill that would maintain state regulation of equity-indexed annuities.
Mr. Harkin's proposal was approved 8-4 by the Senate side of the House-Senate conference committee during negotiations on the underlying 1.974-page legislation. House negotiators could respond as early as 1 p.m. today when talks resume. The committee wants to finish its work reconciling the House and Senate versions of the financial reform bill by tomorrow.
Mr. Harkin's amendment, which would clarify that these funds are insurance products that should be overseen by states rather than the Securities and Exchange Commission, was opposed by most of his Democratic colleagues. “This is an insurance product,” he said. “It always has been and still is today. The SEC's got a lot of other things to do than regulate what is now an insurance market.”
Opponents of the Harkin proposal argue that the complex instruments — which guarantee an income that is linked to securities index — are too-often sold to vulnerable customers, such as elderly investors, who lose access to their money for many years unless they pay huge penalties.
Past problems with the annuities have been addressed by a suitability standard developed by the National Association of Insurance Commissioners, according to Mr. Harkin. The model regulation requires that an agent selling the product obtain information about a customer's age, income, financial experience, investment horizon and liquidity needs, among other factors.
Mr. Harkin asserted that the U.S. District Court of Appeals for the District of Columbia recently held that the SEC does not have authority to regulate the annuities. A consortium of insurance companies brought the suit against the SEC in response to its Rule 151A, that put the product under SEC jurisdiction.
Sen. Jack Reed, D-R.I., countered that Mr. Harkin's amendment was a misinterpretation of the decision. He said that the court upheld SEC oversight but remanded the rule to the agency because it didn't take into account how it would affect market efficiency, competitiveness and capital formation.
“The Harkin amendment would effectively trump the court's decision,” Mr. Reed said.
Mr. Reed argued that “there have been repeated abuses of this product.” He also contended that Mr. Harkin's amendment could not be inserted at this point because it was not contained in the bills passed by the House and Senate.
“This is a major amendment of securities law without any hearings or debate,” Mr. Reed said. “I don't think this is the proper place to make such a change.”
Mr. Harkin didn't respond to Mr. Reed on the timing of his amendment. But he did defend annuities as an investment vehicle.
“No one has lost their money — period,” Mr. Harkin said.
