The
Financial Industry Regulatory Authority has proposed a delay in the principal review portion of Rule 2821, which sets guidelines for the sale of variable annuities.
After an outcry from member broker-dealer firms, Washington and New York-based FINRA proposed pushing back part C of Rule 2821, delaying implementation of that section until Aug. 4 instead of the original May 5 deadline.
FINRA filed the proposal with the Securities and Exchange Commission on Dec. 27.
The rest of the rule, which includes guidelines for recommendation requirements, supervision and training of registered reps, will still go into effect on May 5.
Specifically, firms argued that it would take more than seven business days from when the customer signs the application to ensure thorough principal review.
They also wondered whether broker-dealers that don’t make any recommendations to their customers — and therefore don’t have principals to perform suitability reviews — should be subject to that requirement.
Finally, the rule keeps firms from depositing clients’ checks for the annuity in an account at the carrier before principal review.
However, the broker-dealers said that the insurers used an identifier to track the money held in this “suspense” account and promptly returned the cash to the client if the annuity contract isn’t issued.
The firms said that the process has been used without problems and requested that FINRA permit the use of suspense accounts in certain circumstances.
FINRA’s consideration of the suspense account and delay on enforcement is “a major step in the right direction,” noted Joan E. Boros, an attorney at Jorden Burt LLP in Washington.
But smaller firms will still face difficulties in meeting the time limits of principal review, despite the August deadline, she added.
“August will be a challenge for the smaller shops,” Ms. Boros said.
“FINRA certainly didn’t contemplate that in the initial release, and there’s nothing there to say that they’ll cut [smaller firms] a break.”
