The New York State Supreme Court recently ruled that the New York Department of Financial Services ("DFS") had the authority to enact an amendment to its rules to establish a "best interest" standard for sellers of annuities and life insurance. Superintendent Linda Lacewell highlighted that the DFS is the first insurance regulator to adopt such a standard. The amendment became effective on August 1, 2019 for annuities contracts. The rule becomes effective on February 1, 2020 for life insurance products.
The case challenged DFS authority to adopt the amendment to Regulation 187 (the "Amendment"). The holding, by New York's trial Court, found that the Amendment is a proper exercise of DFS powers, not an attempt to "improperly legislate," and that it is not arbitrary or capricious. The Court stressed that its role was not to "second-guess" DFS as to the efficacy of the amendment, but to consider whether it was within DFS's powers to implement the insurance law - i.e., that if the Amendment is "consistent with enabling legislation and is not so lacking in reason for its promulgation that it is essentially arbitrary, it should be upheld."
Commentary
Steven LofchieThis is not a good direction for financial regulation. Each state regulator going its own way is like a version of Brexit. The economic consequences of state-by-state regulation for the national market would be significant.
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