Insurance industry groups are welcoming an announcement that the Financial Industry Regulatory Authority has delayed indefinitely implementation of parts of its new variable annuity marketing rule because it plans to propose amendments to the controversial provisions in the near future.

Being delayed are amendments to the rule’s suitability and supervision provisions. The provisions were scheduled to go into effect Aug. 4.

Other parts of the rule, Number 2821, will go into effect as scheduled May 5, according to Gary Sanders, senior counsel of the National Association of Insurance and Financial Advisors, Falls Church, Va. and Carl Wilkerson, chief counsel-securities and litigation, at the American Council of Life Insurers, Washington.

Sanders says NAIFA supports FINRA’s request for a delay in the effective date of paragraphs (c) and (d) of Rule 2821 to enable FINRA to reexamine the rule and propose substantive changes to these sections.

“NAIFA commends FINRA’s efforts to be responsive to concerns raised regarding these provisions, and believes it is more important to get things right than to adhere to arbitrary timetables and effective dates,” Sanders says.

Herb Perone, a spokesman for FINRA, says the decision to delay implementation of the rule was “sudden,” and said it was made to give broker-dealers as much notice as possible that they wouldn’t have to implement the suitability and supervision provisions.

Producers will now have until 6 months after the changes to the provisions are finalized to implement the provisions.

According to lawyers at Goodwin, Procter, which specializes in securities practices, concerns voiced by the industry about the regulation have focused on:

- Whether the seven business day review beginning with signature of the application is the appropriate review period.

- Whether broker-dealers that do not make any recommendations to customers should be subject to the principal approval requirements.

- Whether insurance companies should be permitted to deposit customer funds in a suspense account prior to the completion of principal review.

The provisions involved are contained in Rule 2821(c). These are a component of Rule 2821, a package of proposed deferred VA suitability and supervision guidelines, which was approved by the U.S. Securities and Exchange Commission in September 2007.

“The proposed delay of the rule’s supervisory review provisions from the August 4, 2008, effectiveness date should allow sufficient time to evaluate interpretive issues involving supervisory review, the rule’s application to non-recommended transactions, and the use of “suspense accounts” for payments pending supervisory approval,” Wilkerson says.

“Significantly, the added time will also allow better implementation of systems changes that the new rule would require for many broker-dealers and life insurers,” Wilkerson says.

Wilkerson praised FINRA for its decision. He noted that during its development, Rule 2821 elicited thousands of comment letters from the life insurance industry.

“ACLI supports the postponement without a definitive effectiveness date until the interpretive issues can be fully resolved,” Wilkerson says. “This approach reflects responsible rulemaking at its best. It is both refreshing and constructive that FINRA demonstrates sufficient flexibility to reexamine the rule to achieve clarity and greater effectiveness.”