A Financial Industry Regulatory Authority representative clashed with Therese Vaughan and former Sen. John Sununu earlier this week here at a forum on regulatory modernization.
Thomas Selman, an executive vice president at FINRA, Washington, appeared in the panel discussion with Vaughan, the new chief executive of the National Association of Insurance Commissioners, Washington, and Sununu, a Republican who represented New Hampshire in the Senate, at a marketing conference organized by NAVA, Reston, Va.
Regulatory reform must give equal priority to both protecting investors and to managing systemic risk, Selman said.
Selman defined "systemic risk" as a potentially catastrophic collapse of the financial system due to the failure of one or more major institutions.
In years past, Selman, regulators viewed these objectives as being independent of, or at odds with, each other.
"Managing systemic risk and protecting investors are essential to the smooth operation of our financial markets and to the financial health of our citizens," Selman said. "In my view, they are two sides of the same coin. We must develop a more coherent way to calibrate risk-taking, as well as monitor and correct systemic deficiencies across all financial institutions."
To that end, he added, regulators must decide how to oversee financial institutions that are too big or interconnected to fail.
The U.S. Securities and Exchange Commission's adoption of Rule 151A, which is scheduled to bring most equity-indexed annuities under the agency's jurisdiction in January 2011, will permit such equal protection, Selman said.
Without the shift to SEC regulation, he said, the EIA fee disclosure rules and suitability rules that apply to a specific consumer would depend on where a consumer lives, Selman said.
"Why should a purchaser of an equity-indexed annuity receive less protection than the purchaser of a variable annuity?" Selman asked. "How are investors better off by maintaining this regulatory disparity? I fully acknowledge that state insurance commissioners have made great strides in recent years by imposing standards on insurance products. However, the disparity still exists."
Vaughan noted the NAIC and the National Conference of Insurance Legislators, Troy, N.Y., jointly filed a petition for review earlier this month with the U.S. Court of Appeals for the D.C. Circuit to block implementation of the rule.
Implementing 151A would undermine existing state consumer protections and implementation of future safeguards, Vaughan said.
Vaughan also questioned why insurers should not be allowed to sell EIAs outside of the current system of securities regulation.
Vaughan noted that the NAIC chose not to make account changes requested by the American Council of Life Insurers, Washington, in November 2008.
