FINRA’s Variable Annuities Rule
On September 7, 2007, the SEC approved Rule 2821 proposed by the Financial Industry Regulatory Authority (FINRA). Rule 2821 is designed specifically to address broker-dealers’ sales practices regarding purchases and exchanges of deferred variable annuities.
This version of the rule was proposed in SR-NASD-2004-183 and has been approved by the Securities and Exchange Commission, but the effective date has not been determined.
According to the SEC release approving Rule 2821’s adoption, FINRA will publish a Notice to Members announcing the effective date of the new rule no later than November 6, 2007, and the effective date of the new rule will be 120 days following publication of the Notice to Members (no later than March 5, 2008).
Rule 2821:
- Sets specific suitability obligations for the sale or exchange of deferred variable annuities;
- Sets standards for principal review and requires principals to review transactions before the customer’s application is forwarded to the issuing insurance company for processing;
- Requires firms to develop and maintain written supervisory procedures designed to achieve compliance with the rule; and
- Requires firms to develop and document training policies and programs to ensure compliance with the rule and the salespersons’ understanding of the features of deferred variable annuities.
Action Steps/What Firm’s Should Do:
- Review and address the sales practice, principal review and supervision requirements of Rule 2821;
- Identity the principal(s) responsible for reviewing the purchase or exchange of deferred variable annuities;
- Develop training materials regarding deferred variable annuities and the requirements of the new rule;
- Establish a schedule for compliance training; and develop a record-keeping system demonstrating compliance with the new rule.
Exemptive Order:
In light of the new requirement regarding principle review, the SEC simultaneously issued an exemptive order allowing FINRA members to hold customer funds for no more than seven business days while completing the principal review without:
- Becoming fully subject to Exchange Act Rule 15c3-3;
- Being required to maintain higher levels of net capital in accordance with Rule 15c3-1.
Regulatory Update Request:
If you would like to receive timely regulatory updates regarding Rule 2821, please click here (click here) and fill out the request for information form. Quest CE will send updates as soon as they are available.
The SEC release approving the proposed FINRA rule:
http://www.sec.gov/rules/sro/nasd/2007/34-56375.pdf
The SEC’s order granting exemptions from Rules 15c3-1 and 15c3-3 under the Securities and Exchange Act of 1934: