Displaying items by tag: regulations

A form reviewer at the Securities and Exchange Commission recently said he wants to make sure life insurers give investors a clear picture of how their registered index-linked annuity (RILA) contracts work. RILAs are annuity contracts that can expose the holder to the risk of investment-related loss of principal, but that tie crediting rates at least partly to the performance of investment indexes, rather than to the performance of funds that resemble mutual funds. At the Life Insurance Products Conference, held recently in Washington, D.C., Michael Kosoff, an attorney on the staff of the SEC’s Division of Investment Management, stated that he wants one strategy to be available throughout the life of the contract. He also wants to require issuers to disclose maximum losses. Essentially, the SEC wants life insurance company clients to say which crediting strategy the clients' guarantee will be available for the life of a RILA contract. A crediting strategy includes a reference to a particular index such as the S&P 500. Kosoff’s concern is that many issuers have a provision stating, “After the first year, we can terminate any and all options currently available. So, in essence, after year one, investors have no idea what they’re getting.”

Finsum:Due toconcerns over changing crediting changes in registered index-linked annuities, an SEC form reviewer stated that he wants one strategy to be available throughout the life of the contract.

According to retirement industry experts, the new DOL Fiduciary Rule is not expected to be released until the first quarter of 2023 due to two ongoing and related legal cases. The rule, which aims to create a universal fiduciary guidance standard for financial professionals, was previously expected to be released in December. The original Fiduciary Rule proposed under the Obama administration, was overturned by the Fifth Circuit Court of Appeals in New Orleans citing that the DOL's execution of the rule amounted to "an arbitrary and capricious use of regulatory power." Under the Trump presidency, the DOL released PTE 2020-02 in December 2020, allowing investment advice fiduciaries to receive payment in connection with rendering fiduciary investment advice. The Biden administration allowed that regulation to proceed and was expected to be published next month. However, the Federation of Americans for Consumer Choice (FACC) filed a lawsuit in federal court in Dallas claiming that the DOL does not have the jurisdiction to enlarge the list of advisors who are required to serve as fiduciaries for pension savings. Another lawsuit was filed by The American Securities Association in a federal court in Florida arguing that the rule breached the regulations requiring a period of public input.

Finsum:The release of the new Fiduciary Rule is facing additional delays as the DOL fights two separate, but related lawsuits.

The resounding takeaway from a recent FINRA conference call is that the regulatory body is taking a “no one-size-fits-all” approach to Reg BI compliance. FINRA explained that it is moving away from good faith efforts reviews and into “deeper dives” on how firms comply with Form CRS and the Reg. BI Care, Compliance, Disclosure, and Conflicts of Interest obligations. The conference call focused on FINRA’s expectations during exams and the types of violations that its exam teams will refer to their enforcement colleagues. FINRA mentioned several common violations that it will refer to its Department of Enforcement, including the failure to recognize the applicability of Reg BI and Form CRS deficiencies related to incorrectly answering the disciplinary history question. It also indicated that firms that were previously cited for Reg BI CRS deficiencies, and made no efforts to correct findings, are more likely to be referred to Enforcement. The overall message for firms is that they should document the steps they have taken to further Reg. BI and Form CRS compliance. This could be the difference between an exam deficiency or an enforcement action.

Finsum: In a recent conference call, FINRA’s explained that there is no one size fits all approach to Reg BI compliance and firms shoulddocument the steps they have taken to make sure they’re compliant.

The advent of digital advice has not only made investing easier but has also allowed client interactions to become more seamless. With more client interactions moving online, do online content and advice still put a client's best interest first? That’s a question the SEC, industry lawyers, and other regulators are contemplating. While online firms such as Robinhood came under scrutiny for gamifying investor behavior, something as simple as an investment calculator on an advisor website can be construed as a recommendation. Last August, the SEC issued a request for comment about broker-dealers’ and investment advisors’ digital engagement practices. Keith Kessel, a senior principal consultant at ACA Group, told Financial Advisor IQ that the SEC “is trying to ascertain in what set of scenarios would a recommendation or solicitation exist versus what are those engagement practices that are outside of the purview of the scope of the solicitation of the suitability rule and/or Regulation Best Interest regulation duty as such.” He also noted that the SEC’s request for comment “emphasizes the regulator’s concern about the blurring of the lines between engagement and advice.”

Finsum: As more client interactions occur online, the SEC is trying to determine what constitutes advice and what constitutes engagement.

During recent testimony before the Senate Banking Committee, SEC Chair Gary Gensler told senators that the agency needs more resources for exams. He said the exam division’s “work is essential to ensuring strong compliance across the board,” including “work to test for compliance with Regulation Best Interest.” Gensler said the enforcement division “is doing more with less” and “more cases are being litigated and going to trial.” He also stated, “The SEC has tried the same number of cases to verdict in federal courts in FY22 (14) as we did in the prior three fiscal years combined.” For fiscal 2021, Gensler said the SEC received 46,000 tips, complaints, and referrals from the public. This was up from about 16,000 five years earlier. For the exam division, Gensler said the division exceeded the previous year’s numbers by completing more than 3,000 exams and the fiscal 2023 budget request supports an additional 4% increase in full-time examiners.

Finsum: In recent testimony, SEC Chair Gary Gensler asked the Senate for more funding for exams, including compliance with Reg BI.