America’s life insurers’ most critical mission is helping people take care of the things that matter most. We serve 90 million American families, helping them build a financial safety net that protects them through all stages of life.
Unfortunately, a proposal from Washington D.C. is threatening to disrupt the ability of America’s life insurers to provide financial certainty to their customers.
A little-known regulatory agency created by the Sarbanes-Oxley law 20 years ago is threatening to greatly expand the responsibilities of auditors of public companies, including life insurers, in a way that does not benefit consumers and may, in fact, harm them. The Public Company Accounting Oversight Board (PCAOB), technically under the purview of the Securities and Exchange Commission (SEC), has proposed amendments to auditing standards that would require auditors to examine and understand the legal landscapes of the companies they audit, and to make determinations as to whether a company “may” have violated an applicable law or regulation.
Auditors are highly trained professionals, but they are not lawyers. Highly regulated companies such as life insurers are subject to robust consumer protections from state, federal and international laws and regulations. Asking skilled professionals such as auditors to expand dramatically the scope of their work, without demonstrable consumer protection benefits, is misguided.
Previous standards on this subject were carefully developed by the PCAOB in cooperation with the American Bar Association. This time around, the PCAOB apparently believes their mandate to protect investors allows them to upend the careful balancing of roles reflected in the previous standards. The American legal system, with its important considerations of privilege and confidentiality, is not designed to work with standards that compel uninformed legal conclusions that will be part of public records.
The big beneficiaries of the proposed standards will be plaintiff attorneys bringing more “investor” class action lawsuits against the public companies and the auditing firms. The costs of this misguided proposal have not been calculated by the PCAOB but are likely to be enormous. Audits will take longer and companies will have to provide more resources to help the auditors, instead of serving their customers. In addition, public companies and the auditing firms will likely face increased legal expenses.
A number of groups, including ACLI and the U.S. Chamber of Commerce, are ringing alarm bells over these developments. The PCAOB is wrong in trying to claim an expanded legislative scope in order to turn auditors of public companies into de facto, unlicensed lawyers. Congress and the SEC should reign in the PCAOB. Letting auditors audit and lawyers be lawyers is the best prescription for investor protection.
Patrick Reeder was Deputy General Counsel for the American Council of Life Insurers (ACLI). At ACLI, Pat served members by maintaining a broad portfolio, including state and federal financial and product regulatory matters.
David Leifer is Vice President and Associate General Counsel with the American Council of Life Insurers (ACLI). David is responsible for policy issues relating to distribution, producer licensing, big data, market conduct and various other issues. He also works on all issues associated with ongoing Dodd-Frank implementation and macroprudential surveillance.
