Washington, D.C., Sept. 10, 2007 – LAWFUEL – The Legal Newswire – On September 7, the Securities and Exchange Commission approved a new Financial Industry Regulatory Authority (FINRA) rule that is intended to enhance broker-dealer sales practices with respect to purchases and exchanges of deferred variable annuities.
The rule has four primary components. First, it imposes a suitability obligation tailored to the characteristics of deferred variable annuities. Second, 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. Third, the rule 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 fourth, 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.
The Commission also issued an exemptive order allowing FINRA members to hold customer funds for no more than seven business days while completing the required principal review under the new rule without 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 the new rule applies to sales to all investors and not just to seniors, because deferred variable annuities are often marketed to investors looking toward retirement, it has been a particular focus in the context of protecting senior investors against financial fraud. Combating financial fraud against older investors will be a focus of the Commission’s second annual Seniors Summit being held today in Washington, D.C. The Summit will include the release of findings from regulatory examinations of 110 firms offering “free lunch” investment seminars aimed at seniors.
The SEC’s Seniors Summit will be webcast live on the SEC Web site at www.sec.gov, starting at 10:00 A.M., E.T. The event will further examine how regulators, community organizations, and others can increasingly coordinate efforts to educate older Americans and protect them from abusive sales practices and investment fraud. Registration information and other materials about the Seniors Summit are available at: http://www.sec.gov/spotlight/seniors/seniors_summit.htm.
The Commission’s order approving the proposed FINRA rule is available on the Commission’s web site at http://www.sec.gov/rules/sro/nasd/2007/34-56375.pdf.
The Commission’s order granting exemptions from Rules 15c3-1 and 15c3-3 under the Securities Exchange Act of 1934 is available on the Commission’s web site at http://www.sec.gov/rules/exorders/2007/34-56376.pdf.