Interpretive Letter to Name Not Public
January 2, 2002
I am responding to your letter of August 20, 2001, in which you ask whether Firm A is required under NASD Rule 3070(a)(8) to report to the Association a non-securities related automobile insurance settlement exceeding $15,000. The settlement is between an automobile insurance policy holder and an insurance agent who is registered with the NASD to sell mutual funds and variable insurance products. You state that the policyholder may also be a mutual fund or variable insurance product customer.
You note that Rule 3070(c), pertaining to the requirement to report customer complaints, defines "customer" as "any person other than a broker or dealer with whom the member has engaged, or has sought to engage, in securities activities." You state that if the situation you describe resulted in a complaint, the complaint would not need to be disclosed under Rule 3070(c). You ask whether the definition of "customer," which has been deemed not to include insurance customers under Rule 3070(c), is the appropriate definition to rely on in analyzing Rule 3070(a)(8).
Rule 3070(a)(8) requires a member promptly to report to the Association whenever a person associated with a member is the subject of any claim for damages by a customer, broker, or dealer that is settled for an amount exceeding $15,000. As you have noted, Rule 3070(a)(8) does not specifically define "customer." The definition of "customer" in Rule 3070(c) applies specifically to the discussion of "customer complaints" in Rule 3070(c). It is the staff's view, however, that Rule 3070(a)(8) does not require Firm A to report the settlement you describe. The purpose of Rule 3070 is to permit the Association "to separately collect data on a timely basis to substantially enhance regulatory initiatives relating to the detection of sales practice violations through the early identification of problem registered representatives."1 The settlement at issue concerns an associated person's dispute with an automobile insurance policyholder over an automobile insurance claim, relating neither to securities activities nor allegations of theft or misappropriation of funds or securities or forgery. Therefore, the settlement is beyond the purview of Rule 3070(a)(8), and it need not be reported.
I hope this letter is responsive to your inquiry. Please note that the opinions expressed in this letter are staff opinions only and have not been reviewed or endorsed by the Board of Directors of NASD Regulation. This letter responds only to the issues you have raised and does not necessarily address any other rule or interpretation of the NASD or all the possible regulatory and legal issues involved.
Shirley H. Weiss
1 See Exchange Act Release No. 36211, 60 FR 48182 (Sept. 18, 1995) (Approving Release).