A Securities and Exchange Commission task force recommending federal oversight of life settlement intermediaries could hinder the market in the short-term, but ultimately could give more comfort to investors, according to several attorneys.

The task force recommended that life settlements be defined as securities under federal securities laws in a 43-page report released yesterday, which resulted from almost a year of study. The recommendation would have to be acted upon by the full commission and then would need congressional approval.

But the task force is not recommending that securities laws regulate the sale of a policy from an insured to the provider, which is regulated by state insurance departments.

"I don't think it's a surprise in an age of increasing regulation," said Jule Rousseau, an attorney with Arent Fox in New York, in response to the SEC staff report. "I'm hoping it will be good for the industry. It's just like all the life settlements laws [in the states] are good for the industry."

But he said the one impediment that makes the asset difficult for investment is the fact that most states allow challenges on insurable interest after the two-year contestability period.

Nick Williams, an attorney with Clifford Chance in New York, said the recommendations for federal oversight would put "a burden on an already burdened asset class. One has to wonder if the SEC doesn't have better things to do than focus on this asset class at this time."

On the other hand, he said there's an argument to be made that if the SEC is regulating the market as a security, it could give confidence to investors.

Under the recommendations, a whole or fractionalized policy would be treated as a security, according to Tom Weinberger, an attorney with Stroock & Stroock & Lavan in New York. Up until now, two legal decisions have differed on whether fractional policies are securities.

In addition, he said all providers would have to register as broker-dealers, which means people at the firms would have to pass exams and be subject to certain rules. "I think it will be difficult for providers. It will increase the cost of business for them," he said.

The amendment of the security laws also would bring other intermediaries, including producers and brokers, under the supervision of the SEC and a self-regulatory organization, such as the Financial Industry Regulatory Authority (FINRA).

Also, Weinberger said another significant recommendation requires more oversight of life expectancy providers by state and federal regulators. Life expectancy firms now only are regulated by Florida, which requires such firms to register.

As to when the task force report could come before the commission for review, an SEC official didn't know. The SEC official, who asked not to be named, also declined to speculate on the likeliness of the recommendations being enacted by Congress.