On July 15, I sent a letter to FINRA CEO Richard Ketchum and asked, “Since 151A has been vacated and Congress says index annuities are exempt, when will FINRA be rescinding Notice to Members 05-50?” Ketchum hasn’t got back to me yet.
Five years ago, “Notice to Members 05-50 Equity-Indexed Annuities: Member Responsibilities for Supervising Sales of Unregistered Equity-Indexed Annuities” was released. The justification for attempting to assume regulatory jurisdiction for a non-security is found in Section 3, which states that if an index annuity is ever found to have been a security then FINRA will have jurisdiction. Later, Section 4 essentially says that due to this uncertainty, broker-dealers had better treat index annuities as securities if they know what is good for them.
“Might” become securities
For the last five years, FINRA has effectively required B/Ds to supervise index annuity sales because they “might” become securities and Rule 3040 generally prohibits private securities transactions. Because fixed index annuities “might” become securities, FINRA extended their interpretation of Rule 3030 to strongly suggest B/Ds control, supervise and approve any and all outside annuity activities. Congress and the courts have removed this uncertainty.