Skip to main content

Publications

May 2012
15
May 15, 2012

“Heads Up” from Recent Routine FINRA Examination Document Request


Spring is in the air and FINRA’s 2012 B-D inspections are in full swing. The other day, we received word from a client of a particular document request that merits a “heads up” to broker-dealers with regard to certain records and supervisory systems for subaccount transfers within variable annuities.

FINRA asked for an activity log or trade blotter of all subaccount transfers.  In the alternate, if the firm didn’t keep such a document, FINRA asked for a written statement from the firm as to how subaccount transfers are monitored and the associated documentation evidencing review by firm personnel.

Asking around, we noticed more than a few firms who don’t routinely capture or supervise and monitor these variable annuity subaccount transfers.

This recent FINRA examination document request serves as a good reminder to firms that those variable annuity subaccounts are each separate securities, just as is the case with each mutual fund within a mutual fund family. Both FINRA and SEC books and records rules require that each such securities transaction, especially those initiated or recommended by registered representatives, be included in the firm’s trade blotters, including those done on a direct-way basis (i.e., that don’t go through the automated record-keeping processes of a clearing firm). Additionally, it also means that the firm has a duty to supervise the blottered trades and monitor for suitability, just as with any other security recommended by a representative.

Certain variable annuity products have automatic asset allocation and rebalancing programs for subaccounts. Since these are initiated by the insurance company’s own systems and bypass the representative, they don’t need to be recorded since they weren’t initiated or recommended by the representative. Of course, the initial suitability review of using such an automatic system for a given client is still required, but out of the purview of this current topic.

So you’re not blind-sided by any similar future regulatory request, we’d recommend a review of your written supervisory procedures to assess the adequacy of the supervisory systems and related recordkeeping for internal subaccount transfers. And if you’re not also capturing mutual fund exchanges, we’d urge a similar review for those.  Please feel free to contact me at ddawe@wnj.com or any other member of our group if you have any additional questions or comments.

NOTICE. Although we would like to hear from you, we cannot represent you until we know that doing so will not create a conflict of interest. Also, we cannot treat unsolicited information as confidential. Accordingly, please do not send us any information about any matter that may involve you until you receive a written statement from us that we represent you.

By clicking the ‘ACCEPT’ button, you agree that we may review any information you transmit to us. You recognize that our review of your information, even if you submitted it in a good faith effort to retain us, and even if you consider it confidential, does not preclude us from representing another client directly adverse to you, even in a matter where that information could and will be used against you.

Please click the ‘ACCEPT’ button if you understand and accept the foregoing statement and wish to proceed.

ACCEPTCANCEL

Text

+ -

Reset