SEC Eases Life Broker-Dealer Control Rule
By Steven Brostoff / NU Online News Service, July 7, 2004, 7:51 p.m. EDT Washington
Limited-service broker-dealers affiliated with life insurers will not have to maintain inspection reports relating to the safeguarding of customer funds.
The U.S. Securities and Exchange Commission gave that guidance in an amended rule relating to supervisory control procedures that was first disclosed in the Daily Insurance Reporter. The SEC was responding to comments filed by the American Council of Life Insurers, Washington, stating that broker-dealers should not have to create and implement new inspection and supervisory procedures if they do not engage in activities involving control of customer assets.
The issue involves a rule developed by NASD, Washington, aimed at combating fraud involving full-service broker-dealers. In particular, NASD targeted one case of fraud in which a full-service broker-dealer misappropriated more than $115 million from customers over a 15-year period. NASD says that these activities occurred due to a lack of supervisory controls.
As a result, NASD proposed that broker-dealers develop written inspection reports which include, without limitation, several elements, including testing and verification of supervisory policies and procedures aimed at safeguarding customer funds, maintaining books and records, and transmittal of funds between customers and registered representatives and between customers and third parties.
The ACLI objected to parts of the proposal, arguing that limited purpose broker-dealers affiliated with insurance companies do not generally hold customer assets or securities, maintain cash management accounts or hold free cash balances.
Generally, the ACLI said, life insurance broker-dealers distribute only variable life and variable annuities.