Life Settlements or Viaticals should be Considered “Securities,” Recommends the SEC to Congress

The Securities and Exchange Commission staff report is recommending that the US Congress define life settlements as securities to make sure that investors of these types of transactions receive federal securities law protection. The SEC says there are several benefits to making such an amendment to securities laws:

• This would clarify life settlements’ status under federal securities law, which would allow the federal government and the states to deal with them in a more consistent manner.
• Life settlement market intermediaries would then fall under the regular framework of the Financial Industry Regulatory Authority and the SEC.
• FINRA and the SEC would have clear authority to police the life settlement market, which could help detect securities fraud and discourage financial abuses.

The Life Settlements Task Force prepared the report, which notes “inconsistent regulation of participants” in the life settlements market and that pools of life settlements and individual transactions “would benefit” from “baseline standards of conduct to market participants.” SEC staff is also recommending that the commission:

• Urge Congress and state officials to think about regulating life expectancy underwriters in a more consistent and significant manner.
• Tell staffers to make sure that providers and brokers are meeting legal standards of conduct.
• Have staff members look for the development of a life settlement securitization market.

It was just in early July that US Senator Sen. Herb Kohl released a General Accountability Office report that found that the inconsistent regulation of life settlements create several challenges:

• Some police owners in certain states are not as well-protected.
• Some individual investors may have a hard time getting enough information about their investments and the risks that may be involved.
• Because laws across states are not consistent, this can pose a problem for some providers and brokers.

Related Web Resources:
SEC Releases Report of the Life Settlements Task Force, SEC, July 22, 2010
Sen. Kohl Says GAO Report Supports Tougher Settlement Regs
, LexisNexis, August 2, 2010
Read the Life Settlement Task Force Report (PDF)

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