The Insured Retirement Institute (IRI) says proposed revisions to the North American Securities Administrators Association’s (NASAA) model business practices rule go too far and could limit consumer access to annuities.
In comments submitted to NASAA, the IRI urged the group to withdraw the “potentially punitive proposal,” saying the revisions are unnecessary, confusing, and in conflict with existing federal and state regulations.
“By imposing cumbersome and unnecessary regulations, these revisions create barriers that hinder retirement planning.”
IRI’s Sarah Wood
“NASAA’s proposed revisions jeopardize individuals’ access to annuity products,” said Sarah Wood, IRI’s director of state policy and regulatory affairs, in a statement. “By imposing cumbersome and unnecessary regulations, these revisions create barriers that hinder retirement planning.”
NASAA proposed the revisions to its model rule regarding dishonest or unethical business practices in September. The updates are meant to acknowledge and incorporate the SEC’s adoption of Regulation Best Interest (Reg BI) in 2019. NASAA says they’re intended to define and clarify portions of Reg BI to help states interpret and enforce the regulation.
However, instead of complementing Reg BI, IRI says the revisions conflict with and deviate substantially from it, creating a new standard on top of existing regulations. The proposal also offers a menu of provisions for states to choose from, which could promote non-uniformity in rules from state to state and create confusion, IRI says.
“The availability of eight different subparts within Revision Set #2 [of the proposal] could result in numerous variations depending on which subparts a state chooses to adopt,” Wood said. “It’s concerning that the proposal claims this will promote uniformity when it does the opposite.”
IRI believes Reg BI and revisions made in 2020 to the National Association of Insurance Commissioners (NAIC) model regulation are aligned and offer enough protection for consumers. So far, 40 states have adopted the NAIC model.
In its comments, IRI notes that a recent report from NASAA found most of the firms it examined had taken or were taking appropriate steps or action to comply with Reg BI.
“NASAA has not identified any issues with the existing federal and state regulatory framework that would require a new bureaucratic layer offering no clear consumer protection benefit,” Wood said.
Instead, the IRI says existing rules should be given time to work as well as enforced properly. “NASAA’s proposed revisions threaten to undermine access to annuity products, placing workers’ and retirees’ retirement plans at risk and compromising the financial well-being of countless Americans,” Wood said. “IRI urges NASAA members to reject these changes and preserve retirees’ access to the tools they need for a secure financial future.”
SIFMA also wants proposal withdrawn
IRI is not the only organization calling for NASAA to withdraw its proposal. SIFMA, the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets, submitted a comment letter last Friday recommending that NASAA withdraw the proposal because, among other things, it directly conflicts with Reg BI in three major respects:
• the redefinition of what constitutes a “recommendation”;
• the rewriting of the Conflicts of Interest Obligation under Reg BI; and
• the treatment of “cash or non-cash compensation.”
It also directly conflicts with Reg BI in five other respects:
• the expansion of customer profile information;
• the misstatement of the “reasonably available alternatives” obligation;
• the treatment of “costs;”
• the inconsistent definition of “retail customer;” and
• the titling provision.
“The regulatory rewrite contemplated by the proposal would not only directly conflict with Reg BI, but also undermine the regulatory regime’s future development and progress”
SIFMA comment letter
“NASAA’s proposed changes would fundamentally rewrite the existing regulatory regime, including Reg BI, under which broker-dealers provide services to investors. There is a growing consensus that Reg BI is increasingly well-functioning and effective in protecting investors after more than three-years of closely watched regulatory examinations, enforcement actions, and an ever-growing body of regulatory guidance,” Kevin M. Carroll, Deputy General Counsel of SIFMA, wrote in the comment letter. “NASAA itself concedes that broker-dealer firms have demonstrated ‘helpful and steady implementation progress’ as they have ‘update[ed] their investor profile forms and enhance[ed] their policies and procedures to focus more directly on Reg BI obligations.’”
“The regulatory rewrite contemplated by the proposal would not only directly conflict with Reg BI, but also undermine the regulatory regime’s future development and progress,” the letter continued. “In doing so, the proposal would negatively impact retail investors and undercut the primary objective of Reg BI, namely, to preserve investor choice among brokerage products and services, and to preserve investor access to full-service and self-directed brokerage and investment advisory accounts. The proposal would likewise increase costs and uncertainty for investors, given the breadth and vagueness of its requirements.”
Public comments on NASAA’s proposed revisions are due by today, Dec. 4. They can be emailed to NASAAComments@nasaa.org. All submitted comments will be posted publicly, without edits or redactions, on the NASAA website.
SEE ALSO:
• SEC Charges Wealth Manager Over Reg BI Violations
• SEC Publishes Final Guidance on Reg BI