Effective July 1, 2010, FINRA has added three additional codes to be used by member firms in connection with the completion and submission of quarterly statistical reports concerning customer complaints under NASD Rule 3070(c) and incorporated NYSE Rule 351(d) (collectively referred to herein as "Rule 3070(c)"). FINRA Regulatory Notice 10-27. Two of the three new codes relate to annuities and result in the division of annuity products into three distinct categories for reporting purposes:
- Variable Annuities (Product Code 20). Product Code 20 had been the catchall Product Code for annuities. Effective July 1, 2010, Product Code 20 should be utilized by member firms for reporting customer complaints relating to variable annuities, i.e. annuities whose rate of return fluctuates based on the performance of underlying investments.
- Fixed Annuities (Product Code 43). FINRA has added a new Product Code 43 to be utilized by member firms for reporting customer complaints relating to fixed annuities, i.e., annuities whose rate of return is fixed.
- Equity-Indexed Annuities (Product Code 44). FINRA has also added a new Product Code 44 to be utilized by member firms for reporting customer complaints relating to equity-indexed annuities, i.e., annuities whose rate of return is linked to the performance of a particular equity index.
In addition to the new fixed and equity-indexed annuity product codes, FINRA has also established a new product code to be utilized by member firms in reporting customer complaints related to Life Settlement products (Product Code 45). In the Notice FINRA defines a Life Settlement product as a "financial transaction in which a policy owner sells an existing life insurance policy to a third-party for more than the policy's cash surrender value, but less than the net death benefit."
Member firms are required to utilize the revised codes with Rule 3070(c) quarterly reports due October 15, 2010. Compliance with the changes to Rule 3070(c) should not prove difficult. That said, failure to accurately submit information required by Rule 3070(c) could result in enforcement proceedings against a member firm. Thus, member firms should ensure that personnel charged with preparing and submitting Rule 3070(c) statistical reports are aware of revisions to Rule 3070(c) product codes and are generally familiar with the types of products that fall within the scope of each such code.
Kelley Drye & Warren LLP
Kelley Drye helps clients achieve their business objectives in the securities industry by guiding them through the ever-shifting regulatory landscape and handling their most complex corporate, regulatory enforcement and litigation matters. Kelley Drye operates a standalone broker-dealer practice that adapts to clients' needs and requirements. The broker-dealer practice team operates from offices in New York, Connecticut, Washington, D.C., New Jersey and Illinois, which allows it to track trends in regulatory agencies' regional offices and in district courts and to transform this knowledge into actionable legal strategies. With its broad, first-hand experience, the Kelley Drye team provides clients with ready corporate and business counselors, courtroom advocates and backroom guides, with the range to play the discreet specialist for complex matters as well as the seasoned generalist for those needing General Counsel-like support.
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