SEC Approves FINRA Rule for Deferred Variable Annuity Sales

The Securities and Exchange Commission (SEC) has approved a new Financial Industry Regulatory Authority (FINRA) rule governing broker-dealer sales practices with respect to purchases and exchanges of deferred variable annuities.

The SEC said the rule, approved on September 7, has four primary components:

  • It imposes a suitability obligation tailored to the characteristics of deferred variable annuities.
  • It contains standards for principal review and requires principals to review transactions before the customer’s application is forwarded to the issuing insurance company for processing.
  • It requires members to establish and maintain specific written supervisory procedures reasonably designed to achieve compliance with the standards set forth in the proposed rule, and
  • It requires members to develop and document specific training policies or programs designed to ensure compliance with the requirements of the rule and salespersons’ understanding of the material features of deferred variable annuities.

Additionally, the SEC issued an order exempting FINRA members from becoming fully subject to Exchange Act Rule 15c3-3 and being required to maintain higher levels of net capital in accordance with Rule 15c3-1 while holding customer funds for no more than seven business days to complete the required principal review under the new FINRA rule.

More information is available through the SEC press release.