IRI Submits Comments on SEC Investor Interactions Conflicts Proposal
Last week, IRI submitted comments strongly urging the SEC to withdraw its proposal titled Conflicts of Interest Associated with the Use of Predictive Data Analytics by Broker-Dealers and Investment Advisers. The letter focuses generally on members’ view that the proposal is overbroad, overreaching, and rife with flaws. It would significantly expand financial services firms’ obligations far beyond the effective standards of conduct that already apply to recommendations and would apply to nearly all types of technology that could be used in connection with a wide range of already appropriately regulated activities, including marketing, research, and even investment education. In our comments, IRI outlined several reasons why the SEC should withdraw the proposal, including:
It is outside the scope of the SEC’s statutory authority;
Lacks an adequate economic analysis to demonstrate that the benefits to be achieved by the proposed conflict rules would outweigh the associated costs;
Fails to consider the unique and substantial adverse impact of the proposed conflict rules in the annuity and insurance space;
Overreaches in applying the use of nearly all forms of technology;
Unjustifiably disregards precedent by purporting to cover conduct other than recommendations;
Needlessly extends to a far broader universe of investors than existing standards of conduct;
Disregards the well-established meaning of “conflict of interest” in favor of a unique and far-reaching approach;
Rejects a core principle of the federal securities laws by disallowing disclosure as a method to address conflicts; and
Unnecessary as the current regulatory framework already serves to effectively address conflicts of interest that could arise from the use of technology
IRI will continue to develop our post-comment advocacy and collaborate with our fellow trades on outreach and engagement with the SEC.
IRI Submits Comments on the NAIC E-Commerce Framework
IRI continues to stay engaged with the work of the NAIC E-Commerce Working Group and recently provided comments on the Working Group’s updated framework. While we appreciate the Working Group providing a summary of the top e-commerce issues facing the industry, it’s unclear how states would use the framework for guidance going forward. In our comment letter, we urged the Working Group to work towards developing a Model Bulletin or Guidance that would address the following items:
Modernize or revise the affirmative consumer consent and reasonable demonstration requirements in the Uniform Electronic Transactions Act (UETA) and Electronic Signatures in Global and National Commerce Act (E-Sign).
Support electronic signatures vs. “wet signatures” whenever possible as a default method.
Clarify that all annuity-related disclosures and notices under NAIC model regulations do not require wet signatures or initials and may be delivered electronically.
IRI continues to have individual conversations with regulators and members on what recommendations will be most meaningful for regulators, the industry, and consumers.
IRI Submits Comments on DOL’s RFI Regarding SECURE 2.0 Reporting and Disclosure
In August, the Department of Labor released a request for information to solicit feedback on a number of provisions of SECURE 2.0 that impact the ERISA reporting and disclosure framework. Over the past several weeks the IRI SECURE 2.0 Implementation Task Force, in coordination with IRI’s ERISA Disclosures Working Group, provided feedback to develop IRI’s comment letter, which was submitted on October 10.
Our letter provided feedback on nearly all topics presented in the RFI, but primarily we urged the Department to focus on consolidation and streamlining notices and disclosures and to take a very narrowly tailored approach to implementation of the provision in SECURE 2.0 that requires delivery of at least one statement in paper form when relying on DOL’s 2020 safe harbor for the use of electronic delivery as a default for meeting delivery requirements.
EBSA Officials Share Top Priorities with IRI Members
Last week, four senior leaders from the Department of Labor’s Employee Benefits Security Administration (EBSA) met with our Retirement Plans and Tax Committee. Director Joe Canary and Deputy Director Jeffrey Turner from the Office of Regulations and Interpretations, Director Chris Cosby from the Office of Exemption Determinations, and Karen Lloyd from the Division of Fiduciary Interpretations spent more than an hour with the Committee and provided a robust and comprehensive review of the Department’s current and near-future priorities for retirement plans and SECURE 2.0 implementation.
Mr. Canary provided a high-level overview of EBSA’s top-priority projects, many of which are in consideration of timeframes and deadlines outlined in directives to the Department based on SECURE 2.0. Mr. Canary also highlighted the Department’s work on the Auto-Portability Exemption, Retirement Savings Lost and Found, Employee Stock Ownership Plans (ESOPs), and continued work on Form 5500.
Mr. Cosby shared some notable updates on two key IRI advocacy workstreams: the DOL’s Proposed Amendments to its PTE Procedures and the Proposed Amendments to the QPAM Exemption, also known as PTE 84-14. With respect to both proposals, Mr. Cosby emphasized that the public comments received, along with testimony provided at the public hearings, significantly impacted what will be in the final rules. He shared with the Committee that both final rules should be forthcoming, and we will remain attentive to any developments.
Indiana released a regulatory proposal to adopt the 2020 updates to the NAIC Suitability in Annuity Transactions Model Regulation, and the proposal closely tracks the NAIC model language. Currently, the effective date would be 30 days after the final regulation is filed. IRI plans to submit comments in support of the proposal, along with a request to extend the time to come into compliance, unless other significant concerns are brought to our attention.
FINRA Reg BI Enforcement Action
FINRA recently released information related to a Reg BI complaint investigation where the representative allegedly churned and excessively traded four customer accounts between July 2020 and July 2021. The activity included over 5,300 trades that resulted in net trading of more than $350 million. Collectively, the customers lost over $2.3 million in value from their accounts and paid more than $715,000 in trading costs and margin interest, including over $595,000 in commissions.
In addition, FINRA’s Department of Enforcement alleges the representative repeatedly lied during the investigation in response to staff requests for information and testimony and denied preparing and delivering fake account statements to customers. It’s interesting to note that during this time the representative was affiliated with a firm that was also charged with Reg BI violations by the SEC in June 2022. Those violations included selling high risk and illiquid L Bonds to retirees and customers with a fixed income, which also took place during the same period of time investigated by FINRA in the complaint.
Upcoming Meeting & Events
SECURE 2.0 Implementation Task Force
Tuesday, October 17 | 1p.m. ET
RILA Issues Task Force
Wednesday, October 18 | 4 p.m. ET
IRI Town Hall & Business Meeting
Thursday, October 26 | 3 p.m. ET | Register