The US Securities and Exchange Commission established a Life Settlement Task Force in 2009 to examine then-emerging issues in the life settlement market and advise whether market practices and regulatory oversight could be improved. Fourteen years later, the task force is yet to deliver its recommendations to Congress.
Life Risk News reached out to attorneys and others in the industry for insights as to why.
“I don’t have an opinion on why more has not been done, other than to observe that the task force recommended that Congress change the definition of security to include life settlements, but getting any law changed is difficult,” said JoAnn M. Strasser, Partner and Chair, Investment Management, with the Columbus, Ohio, office of law firm Thompson Hine LLP. “The SEC staff does not seem to have any interest in this topic, and [SEC Commissioner Gary] Gensler has the staff extremely busy with rule making and enforcement, so anything outside of Gensler’s agenda is, in my opinion, not possible for the staff.”
Strasser’s view is echoed by Ron S. Geffner, Founding Partner at law firm Sadis & Goldberg LLP in New York City.
“There does not appear to be anything sinister in the lack of SEC action related to the life settlement industry,” he said. “People often forget that the government has limited resources. In an effort to best utilize those limited resources, it is not surprising that the SEC would focus on the private fund industry which, as of 2022, had over $26trn in assets. Also, given the hyperbolic growth in the cryptocurrency industry, it is reasonable that the SEC is trying to best determine how to protect the public by focusing on that at this moment.”
Others pointed to the complexity behind the redefinition of an asset as a security and the possibility of relying on alternatives, such as updating regulations at the state level.
“The problem with the task force’s recommendations is that redefining the asset as a security won’t protect investors,” added an industry executive who asked to remain anonymous. “If whole policies become securities, nearly everyone in the industry would either be out of business or have to comply with a host of regulations and rules that could stop the industry cold for a very long period of time.”
The process started in August of 2009 when then-SEC Chairman Mary L. Schapiro established the Life Settlements Task Force, noting that the market for life settlements had grown over the previous decade, raising questions about its regulation and oversight.
On July 22, 2010, the SEC released a staff report recommending that life settlements be clearly defined as securities so that the investors in these transactions are protected under the federal securities laws.
In particular, the report noted the inconsistent regulation of participants in the life settlements market, including those who arrange for the buying and selling of policies and those who provide estimates of an insured’s life expectancy. In addition, the report noted that investors in individual life settlement transactions, or pools of life settlements, would benefit from the application of baseline standards of conduct to market participants.
“The life settlements market calls out for enhanced and coordinated regulatory oversight to protect the emerging class of investors interested in this market, as well as the many seniors who consider selling their life insurance policies,” Schapiro said in a 2010 news release. “Standards can be improved to ensure that those participating in this market are given a fair deal and are provided the information they need to evaluate such a consequential decision.”
In the Life Settlements Task Force report, the staff outlined its findings about the life settlements market, making a series of recommendations it claimed would improve transparency, oversight, and investor protections.
One of the key recommendations put forward by the task force was the amendment of the definition of security under federal securities laws to explicitly include life settlements. The task force said this change would provide a consistent regulatory framework for life settlements, bridging the gap between federal and state securities laws. By doing so, market intermediaries operating within the life settlements space would be subject to SEC and FINRA oversight, further safeguarding investors from potential abusive practices, according to the report.
The second recommendation emphasized the need for continued monitoring of legal standards of conduct by brokers and providers in the life settlements market. This would entail rigorous examination and enforcement efforts to ensure compliance with federal securities laws and FINRA rules.
It also recommended that the Commission instruct the staff to monitor for the development of a life settlement securitization market and encourage Congress and state legislators to consider more significant and consistent regulation of life expectancy underwriters.
The final recommendation sought to enhance investor education by considering the issuance of an Investor Bulletin focused on life settlements. This informational resource would help potential investors understand the complexities and potential risks associated with life settlements. By providing investors with the tools to make informed decisions, the SEC said at the time that it aims to reduce the likelihood of investment misunderstandings and losses.