Podcast Center
Video Center
Webcasts
Resource Center
Events
August 19, 2010 at 08:00 PM
The Financial Industry Regulatory Authority (FINRA) is leaving “non-securities” products out of a proposed suitability rule update.
The U.S. Securities and Exchange Commission has published a notice of the filing of the proposed FINRA Rule 2111 rule change today in the Federal Register.
The SEC can take as little as 45 days or as long as 90 days to decide whether to approve the rule or hold further proceedings on the rule.
Comments are due Sept. 9.
FINRA, Washington, was formed by the merger of the National Association of Securities Dealers and the enforcement arm of the New York Stock Exchange (NYSE) in 2007.
Because the SEC classifies variable insurance products and variable annuities as securities, FINRA has jurisdiction over the individuals and organizations that sell those products.
The regulatory organization has been getting SEC approval to update and combine the organizations’ rules section by section.
FINRA now is seeking approval for FINRA Rule 2111 and for FINRA Rule 2090, the Know Your Customer rule.
The proposed Know Your Customer rule is based on NYSE 405(1), and it creates an obligation for the broker-dealers regulated by FINRA to use “due diligence” when they open and maintain customer accounts, and to “know the essential facts concerning every customer,” FINRA officials say in the description of the proposed rule published in the Federal Register.
The proposed rule would eliminate NYSE Rule 405(1) requirements for broker-dealers to learn the essential facts relative to every order, officials say.
The proposed suitability rule, FINRA Rule 2111, would require a broker-dealer or associated person to have ”a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer,” officials say. “This assessment must be ‘based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer’s investment profile, including, but not limited to, the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer may disclose to the member or associated person in connection with such recommendation.”
Some commenters in the insurance industry told FINRA that the Know Your Customer language requiring them to exercise due diligence when maintaining customers’ accounts is vague and could be difficult to implement in the retirement plan market.
The commenters asked FINRA to do more to explain what it means by “maintenance.”
