The Financial Industry Regulatory Authority has notified member firms that they must comply with the rules governing variable life policy sales when participating in the life settlement business.

In Regulatory Notice 09-42, FINRA, Washington, says it is concerned about the use of variable life settlements as investments because the policies involve materially different issues than securities do.

FINRA also notes that variable life settlement deals are directed almost exclusively toward senior investors, who, it says, may not be aware of the risks involved with selling their policies.

Settlements that involve variable life policies are securities transactions, and that means they are subject to federal securities laws and all relevant FINRA rules, FINRA says.

Any FINRA firm that seeks to enter the business of variable life settlements must apply for approval of this “material change in business” under a National Association of Securities Dealers rule, FINRA says.

FINRA firms entering the life settlement business also are required to provide “balanced and fair information” in marketing variable life settlements and to comply with NASD suitability requirements, FINRA says.

In addition, FINRA members in the life settlement business must make sure to disclose their fees, and to charge fair and reasonable commissions, FINRA says.

NASD rules apply in some cases because FINRA was formed by a merger of NASD and the enforcement arm of the New York Stock Exchange in 2007. FINRA is still in the process of converting NASD rules into FINRA rules.

More information about the notice is available here.