Supervision lacking at broker-dealers: NASAA

VA violations down, but state securities group worried that not enough resources are going toward compliance

Sep 10, 2012 @ 4:34 pm

By Dan Jamieson

State regulators are seeing fewer problems with variable annuity sales but continue to see violations in some areas of supervision at broker-dealers, according to a review of 236 exams conducted in the first half of this year.

The top five types of violations: failure to follow written supervisory policies, suitability, correspondence/e-mail, maintenance of customer account information and internal audits, according to the results of the

>review, released Sunday at the annual meeting of the North American Securities Administrators Association Inc. in Coronado, Calif.

States found violations with written supervisory procedures in 24% of exams where they looked at such issues, and 20% of the time when they looked at suitability.

Regulators at the state level are concerned that problems are popping up as compliance resources at brokerage firm have been squeezed.

“We are concerned about [broker-dealers’] having enough staff to service regulatory inquiries and [provide] customer service,” William Reilly, special assistant to the director of Florida’s Office of Financial Regulation, said at a meeting of NASAA’s broker-dealer section.

“It is a concern, with the staff reductions at firms,” he said.

Firms also are skimping on exception reports they buy from their clearing firms, Mr. Reilly added.

The Florida regulator warned industry compliance people to make sure they speak with customers who have a complaint, rather than just the broker involved. In addition, firms need to beef up branch audits and follow up to ensure problems are fixed, Mr. Reilly said.

In many cases, “there are no meaningful branch office audits” being conducted, he said.

On a positive note, variable annuity violations have dropped off since a similar review in 2010.

Two years ago, VA suitability violations were No. 3 on the top-10 list of violations. This year, VA-related violations fell to the ninth spot.

“There have been some studies recently that indicated sales of VAs have dropped within the last three or four years, so we’re having fewer violations in this area,” Mr. Reilly said.


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