The Financial Industry Regulatory Authority has drafted an update of the rules that govern FINRA members' communications with the public about variable life and variable annuity products.
The proposed rule, FINRA Rule 2211 (Communications with the Public About Variable Insurance Products), would replace NASD Interpretive Material 2210-2 (Communications with the Public About Variable Life Insurance and Variable Annuities).
The National Association of Securities Dealers, Washington, created FINRA, Washington, in 2007, when it merged with the enforcement arm of the New York Stock Exchange.
FINRA is going through NASD and New York Stock Exchange rules and updating them as it converts the predecessor group rules into FINRA rules.
FINRA must get approval for Rule 2211 from the U.S. Securities and Exchange Commission, and the SEC has published FINRA's discussion of the proposed rule in the Federal Register.
The proposed rule "would apply to all communications with the public about variable insurance products other than institutional sales material," FINRA says.
When FINRA posted a draft of the proposed rule on its own website, the Committee of Annuity Insurers, Washington, asked FINRA to exclude correspondence – materials going to fewer than 25 investors in any 30-day period — but FINRA says it is continuing to apply the rule to correspondence, to protect consumers.
The proposed rule also would apply to communications concerning group variable contracts, unless otherwise specified, FINRA says.
Paragraphs in the rule would deal with matters such the ban on implying that variable products are mutual funds; the ban on exaggerating the issuer's financial strength; and the ban on falsely implying that variable insurance products are short-term liquid investments.
Most commenters supported these rules, but one insurers said the prohibition on implying that variable annuities are liquid investments should not apply to variable annuities that impose no surrender charges, FINRA says.
FINRA notes that the prohibition applies only to false statements, and that an issuer of a variable insurance product with no surrender charges might be able to describe it is a liquid investment.
