The insurance and annuities industries may have breathed a collective sigh of relief when the New York Supreme Court Appellate Division on April 29 struck down New York’s amendment to create a best-interest standard for annuities and life insurance sales. But any relief may be short-lived.
That's because the New York Department of Financial Services (DFS) is likely to appeal the decision or rewrite the Insurance Regulation 187 amendment, according to Faegre Drinker attorneys who discussed DFS’s next steps and the fallout for the industry during a recent recent podcast.
“I think the working assumption here is that N.Y. will appeal this decision in the Court of Appeals,” Faegre Drinker Attorney Robert Mancuso said.
As part of the appeal, DFS could also ask for a stay of the amendment, which would mean that companies and registered reps would need to comply with the rule until the appeal is decided.
“So perhaps we’ll find ourselves in the same spot we were before the appellate court’s decision,” said Mancuso, who said it was interesting that the appellate court honed in on the vagueness of the rule, while stating other arguments petitioners had made were “rendered academic.”
The ruling was a major victory for the insurance agents and advisors who sued to overturn the amendment. Beyond arguing that the rule is unconstitutionally vague, insurance agent trade groups argued that the rule is “unreasonable, arbitrary and capricious and lacks a rational basis.”
Agents and advisors have experienced unreasonable difficulty attempting to comply with regulation requirements that are often "subjective," the court said, echoing the arguments of the lead plaintiffs in the case, the Independent Insurance Agents and Brokers of New York and the National Association of Insurance and Financial Advisors—New York, which sued to overturn the regulation.
The court said, "While the consumer protection goals underlying promulgation of the amendment are laudable, as written the amendment fails to provide sufficient concrete, practical guidance for producers to know whether their conduct, on a day-to-day basis, comports with the amendment's corresponding requirements for making recommendations and compiling and evaluating the relevant suitability information of the consumer.”
“Our members have tried mightily to comply with the regulation, but, as the court found, it has been extremely difficult to meet the vague and subjective standards of the rule,” Marc Cadin, the CEO of Finseca, an advocacy group for securities professionals, said of the decision.
The court also said it’s difficult to determine what statements to consumers would not be reasonably interpreted by consumers to be advice under the amendment, Mancuso said.