The Financial Industry Regulatory Authority (“FINRA”) has filed with the SEC proposed rule changes to NASD Rule 2821, which establishes suitability, supervisory and training requirements for sales and exchanges of deferred variable annuities. The Rule has been covered in three previous Alerts: September 18, 2007 (initial Rule requirements); November 20, 2007 (interpretive guidance); and April 29, 2008 (effective date delay).
The proposed amendments respond to various comments submitted after the SEC and FINRA approved the initial version of Rule 2821. The FINRA filing addresses three key points. First, FINRA proposes to amend the rule so it applies only to recommended purchases and exchanges of deferred variable annuities and recommended initial subaccount allocations. The industry had objected to the requirement in the initial Rule that non-recommended transactions be subject to the new suitability and principal review obligations. Second, FINRA proposes to modify the beginning of the seven-business-day period for principal review. Under the proposal, the period would begin to run from the date the broker-dealer’s office of supervisory jurisdiction receives a complete and correct copy of the application (rather than from the date of the customer’s signature on the application). Third, FINRA proposes to add a “supplementary materials” section following the Rule to provide guidance on certain implementation issues, including the holding of funds during the principal review process and the use of insurance company suspense accounts.The SEC has not yet issued a release setting forth the proposed changes. FINRA proposes that the effective date of the proposed Rule changes would be 120 days following the publication of a FINRA Regulatory Notice announcing SEC approval.