| Tuesday, November 6, 2007
Nancy Condon (202) 728-8379
Herb Perone (202) 728-8464
FINRA Publishes Guidance, Text for New Rule Governing Deferred Variable Annuity Transactions
Principal Review and Approval Obligations for All Transactions
The new rule requires a registered principal to review and determine whether to approve the customer's application for a deferred variable annuity before transmitting the application to the issuing insurance company, but no later than seven business days after the customer signs the application. A principal must treat all transactions as if they have been recommended for purposes of review and can approve the transaction only if it is suitable based on the factors that a registered representative must consider when making a recommendation. However, the principal may authorize the processing of the transaction even if he or she does not approve it based on suitability if, but only if, the following two determinations are made: (1) the transaction was not recommended and (2) the customer, after being told why the principal found it to be unsuitable, still wants to proceed with the purchase or exchange.
Firm Supervisory Procedures
Rule 2821 requires broker-dealers to establish and maintain written supervisory procedures reasonably designed to achieve compliance with the rule's standards. That includes requirements that the broker-dealer implement surveillance procedures to determine whether any brokers have rates of effecting variable annuity exchanges that might evidence misconduct, and have policies and procedures in place to address inappropriate exchanges.
Firm Training Program
The new rule requires firms to create training programs for registered representatives who sell deferred variable annuities and for registered principals who review deferred variable annuity transactions.
The full text of Rule 2821 is available at www.finra.org/notices/07-53.
FINRA, the Financial Industry Regulatory Authority, is the largest non-governmental regulator for all securities firms doing business in the United States. Created in 2007 through the consolidation of NASD and NYSE Member Regulation, FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business—from registering and educating all industry participants to examining securities firms; writing and enforcing rules and the federal securities laws; informing and educating the investing public; providing trade reporting and other industry utilities; and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit our Web site at www.finra.org.