The Financial Industry Regulatory Authority Inc. yesterday adjusted its variable annuity suitability rule, releasing the final version of the much-debated Rule 2821.
Originally, the rule had four major components.
The Financial Industry Regulatory Authority Inc. yesterday adjusted its variable annuity suitability rule, releasing the final version of the much-debated Rule 2821.
Originally, the rule had four major components.
The first established guidelines on annuity recommendations, requiring suitability considerations and disclosures to the consumer.
The second detailed the steps in the principal review and approval processes.
The third forced member firms to maintain supervisory procedures to encourage compliance with 2821.
Finally, the rule included training for registered representatives.
The components on broker recommendations and training have been in effect since May 2008. However, Finra of New York and Washington delayed putting the principal review and supervisory-procedure components into effect following industry criticism about those provisions.
A component that came under fire was Finra’s requirement that principals review and reject or accept a VA transaction within seven business days of the consumer’s having signed the application. Members felt that this was insufficient time in which to process the transaction and that difficulties — such as a client’s holding on to an application for too long — could hinder compliance.
As a result, Finra will require firms to perform a principal review for transactions within seven business days after the firm’s office of supervisory jurisdiction has received a complete and correct copy of the application.
An addendum also clarifies how firms are supposed to handle customer funds prior to principal approval.
The provisions will go into effect Feb. 8.
