ACLI Will Fight NASDs New Definition Of Branch Office
The American Council of Life Insurers, Washington, is planning to challenge a new proposed rule issued last week by the National Association of Securities Dealers that would change the definition of “branch office” in a way that could impose substantial new costs on limited service broker-dealers affiliated with life insurance companies.
The proposed rule would alter the current function-based definition of branch office to a numerical one. Specifically, “branch office” would be defined as any location where one or more associated persons regularly conducts business.
Carl B. Wilkerson, ACLIs chief counsel for securities and litigation, says the proposed new definition would have a disparate impact on insurance-affiliated broker-dealers.
Unlike securities, he says, which usually are sold from central locations, variable annuities and other insurance products often are sold in small offices that are widely dispersed geographically.
The numerical test, Wilkerson says, would bring a lot of small offices under the definition of branch office, subjecting them to new administrative and record-keeping requirements.
Moreover, Wilkerson says, the proposed rule change would represent a “windfall” for the NASD. Bringing countless small offices under the definition of “branch office,” he says, would greatly increase the NASDs fee income.
Indeed, in the proposed rule, the NASD acknowledges that some commentators insist that they could be hit with increased registration fees of up to $450,000.
But the NASD counters that as part of its new definition, it is providing an exemption for an office that is a primary residence and that is not held out to the public as an “office.”
This, the NASD says, should alleviate compliance burdens.
In addition to challenging the proposed rule change, Wilkerson says he also will challenge the timing of the proposal.
The proposal was published in the Dec. 16, 2003, issue of the Federal Register and the NASD is asking that all comments on the proposal be filed by Jan. 6, 2004.
Wilkerson says he will ask the Securities and Exchange Commission, which oversees the NASD, for an extension of the comment period.
He notes that the proposal was issued at a time when many business people are away from their offices due to the Christmas and New Year holidays.
Many concerned parties, Wilkerson says, may not even know about the proposed change until it is too late.
Reproduced from National Underwriter Life & Health/Financial Services Edition, December 19, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.