Quest Compliance Education Solutions

FINRA issued a regulatory notice on January 25, 2010 giving guidance on how FINRA rules governing communication with the public apply to social media sites that are sponsored by a financial firm or its registered representatives. The purpose of this notice is to ensure that as the use of social media sites increases over time, investors are protected from false or misleading claims and representations, and that financial firms are able to effectively and appropriately supervise their associated persons’ participation in these sites.  The following key issues are addressed in the regulatory notice:

Recordkeeping Responsibilities: Every firm that communicates through social media sites must retain records of any communications in order to comply with the Securities Exchange Act and NASD rules that require that a broker-dealer retain electronic communications related to its business. FINRA acknowledged that such a task may be challenging and could require the development of new technology systems to feed the data into existing systems for retaining email.

Suitability Responsibilities: If a firm recommends a security through a social media site, it is required to ensure that the recommendation is suitable to every investor to whom it is made under NASD Rule 2310. FINRA recommended that firms use those features of social media sites that limit access to information to a select group of individuals to meet this requirement. Further, communications that recommend specific investment products may trigger the FINRA sustainability rule and other requirements under federal securities laws, which may create substantive liability for a firm or a registered representative. As a best practice, firms should consider prohibiting all interactive electronic communications that recommend any specific investment product, and any link to such recommendation, without the prior approval of a registered principal.

Static vs. Interactive Content in a Blog: Whether content posted by a firm on a blog is “static” or “interactive” will determine which rules apply as discussed below. If a blog enables users to engage in real-time interactive communications, FINRA will consider it to be an interactive electronic forum. FINRA does distinguish between interactive and static content within the same blog. For example, a Facebook site could have static content as well as interactive posts. The portion of these networking sites that provides for this interactive communication constitutes an interactive electronic forum.

Approval or Supervision of Content Posted on a Social Media Site: If the content to be posted on a social media site is considered to be static, it must be pre-approved by a registered principal at the firm prior to posting.  If the content to be posted is considered to be interactive and unscripted, the firm is not required to have a registered principal approve these communications prior to use, but must still supervise the communications to ensure that they do not violate the content requirements of FINRA’s communications rules. Static content on social media sites includes profile, background, or wall information.  Interactive content includes such communications as interactive posts on Twitter or Facebook.

Supervision of Social Media Sites: A firm must adopt procedures and policies that are reasonably designed to ensure that electronic communications through social media do not violate FINRA or Security Exchange Act rules or laws. The supervisory system that will be optimal will be different for each firm; however, common themes of this system should include a mix of review by principal prior to use and post-use review, depending on the nature of the communication. A firm must also ensure through its procedures and policies that its associated persons who participate in social media sites for business purposes are appropriately supervised, have the necessary training and background for such activities, and do not present undue risks to investors.

Third-Party Posts: When a third party posts content on a social media site established by the firm or its personnel, FINRA generally does not treat such posts as the firm’s communication with the public, and thus the responsibilities described above do not apply to these posts. However, the third-party content will be attributable as the firm’s communication if the firm has (1) involved itself in the preparation of the content or (2) explicitly or implicitly endorsed or approved the content.

License Renewal Process

South Carolina law now requires producers to renew their license and pay a $25 license renewal fee every two years. The first deadline is May 1, 2010, which coincides with the deadline for compliance with the state’s insurance continuing education (CE) requirements.

All producers licensed in South Carolina as of June 2, 2009 are required to renew their producer license and pay a $25 license renewal fee by May 1, 2010. The $25 license renewal fee is payable as a part of the online producer license renewal process. Producers receiving a CE exemption are still required to renew their license and pay the $25 license renewal fee by May 1, 2010.

Significant changes to the laws governing insurance producers, insurance adjusters, real estate brokers, real estate salespersons, real estate appraisers, and license education providers will take effect on July 1, 2010.

Insurance Producers

Insurance producer continuing education will consist of 24 hours during each licensing period. At least 3 of those hours must be met through classroom study in the area of ethics.

Insurance producers may take all continuing education hours over the Internet or via other verifiable self-study. (But only half of the required continuing education hours may be obtained through company-sponsored courses.)

The “inactive waiver” has been eliminated. Insurance producers who are no longer actively engaged in the solicitation and sale of insurance will no longer be able to apply for a waiver of continuing education requirements.

The license renewal date will change from October 31st to the last day of the producer’s birth month. This change will be phased in according to the MN State “Birth Month Renewals” chart.

Continuing education courses provided by a bona fide trade association will no longer count as “company-sponsored” unless they are held on the premises of a company doing business in the insurance area or otherwise defined by statute as “company-sponsored.”

The Department of Commerce will no longer be required to approve any educational program approved by Minnesota Continuing Legal Education relating to the insurance field or to real estate.

Effective January 1, 2011, producers will be required to complete 24 CE hours, including 3 hours of ethics, every 2-year license term.

Producers planning to sell annuity products have special training or education requirements as described below:

Annuity Suitability Training Requirement, Rule 82

Initial 4-hour Annuity training requirement: All producers who sell annuity products must complete at least 4 hours of annuity training that addresses suitability requirements for Arkansas and the mechanics of annuity products before July 15, 2010.

Insurers are responsible for ensuring that any producer that markets its product has received the appropriate training.

Ongoing 4-hour Annuity training requirement: After meeting the initial training requirement, producers must complete 4 hours of annuity training every year.

Licenses issued or renewed after January 1, 2010, will renew on the last day of the producer’s birth month every two years.

Department of Insurance Contact Information:

North Dakota Insurance Department
5th Floor, State Capitol Building
600 E. Boulevard Ave.
Bismarck, ND 58505-0320
Phone:  (701)328-3548 ext. 2 or (701) 328-3548 ext. 1
Fax: (701)328-4880
State Website:  http://www.nd.gov/ndins/default.asp

Effective December 30, 2009, a North Carolina licensee’s individual National Producer Number (NPN) will be required as the unique identifier when submitting rosters. The NPN will also be required to access a licensee’s online transcript.

As of December 30, 2009, the Prometric online roster submission program will no longer accept the last 4 digits of an individual’s social security number as the student’s unique identifier. The roster submission process remains essentially the same; the only change will be the NPN replaces the last 4 digits of the SSN.

Department of Insurance Contact Information:

North Carolina Department of Insurance
Agent Services Division
1201 Mail Service Center
Raleigh, NC 27699-1201
Phone: (919) 807-6800
Fax: (919) 733-6495
State Website:  www.ncdoi.com.

After March 31, 2010, agents will only be able to sell variable life/variable annuity products if they hold the variable life/variable annuity line of authority and have been appointed by their insurer for this line.

Agents can apply online at www.sircon.com/wisconsin.  The application fee is $75, and the agent will be required to provide the CRD number from the Financial Industry Regulatory Authority (FINRA) showing that the agent holds a Series 6 or Series 7 registration. No test is required for the variable life/variable annuity line of authority. OCI will process the application and provide the agent with an updated license copy.

Insurers are required to appoint each agent for the variable life/variable annuity line of authority. Insurers will be charged $16 for residents and $50 for nonresidents for the new appointment.  After March 31, 2010, insurers will not be able to accept variable life/variable annuity business from any agent unless this new appointment has been completed.

Department of Insurance Contact Information:

Wisconsin Office of the Insurance Commissioner Agent Licensing Section
P.O. Box 7872
Madison, WI 53707-7872
Phone: 608-266-8699
Fax: 608-267-9451
State Website: http://oci.wi.gov/oci_home.htm

The CFP Board announced upcoming changes to CFP Board’s continuing education policies. The following is an overview of some changes that went into effect January 1, 2010:

•    CE Sponsor registration with CFP Board is required on an annual, calendar year basis.
•    CE programs offered by registered CE Sponsors must be registered with CFP Board on an annual, calendar year basis, with program application fees determined by the length of each individual program (number of hours).
•    The CFP Board discontinued the “Web link” option and associated fee for CE Sponsors who wished to have their Web site appear as a link on CFP Board’s listings of CE Sponsors; CFP Board’s Web site will hold links for all sponsors who provide valid Web site addresses.

The updated policies were established by the CFP Board in an effort to best meet the needs of a growing sponsor registry, to ensure the ongoing widespread availability of quality continuing education options, and to maintain the standards the CFP Board has established.

CFP Board Contact Information:

1425 K Street Ste 500
Washington, DC 20005
Phone: 800-487-1497
Phone: 202-379-2200
Fax: 202-379-2299
email: renewal@CFPBoard.org
Information: info@CFPBoard.org
Website: www.cfp.net

Online continuing education courses for Oklahoma must provide review questions at the end of each chapter/unit and prevent access to the final exam until each set of questions are answered at a 70% rate. CE providers have until March 1, 2010 to comply.

Additional Requirements Include:

•    Clearly defined objectives and course completion criteria.
•    Specific instructions to register, navigate and complete the course work.
•    Technical support/provider representative be available a minimum of 14 hours.
•    Include information as to the minimum system requirements.
•    Process to authenticate student identity by signature or electronic identity verification. The signed Affidavit of Course Attendance serves as the Provider’s sworn statement that the students on the Course Attendance report are the individuals who hold the license and took the course.
•    Include a statement that the student information will not be sold or distributed to any third party without prior written consent of the student. Taking the course shall not constitute consent.
•    Provide some type of encryption. All personal information, including credit card number, name and address of the student must be encrypted so that the information cannot be read as it passes across the internet.
•    Inform the student as to the period of time that a course is accessible from the date of purchase.
•    Inability to print, launch or complete an online exam prior to reviewing the course material.
•    A final exam is required at the end of the course to measure the student’s successful completion of course material and for evaluating the learning experience. A student is NOT allowed to go back to view the course content.

Department of Insurance Contact Information:

Oklahoma Insurance Department
Licensing Division
P.O. Box 53408
Oklahoma City, OK 73152-3408
Phone: (405) 521-3916 or (405) 522-4626
Fax: (405)522-3642
State Website: http://www.oid.state.ok.us/

On April 15, 2009, the SEC approved amendments to NASD Rule 2821 governing purchases and exchanges of deferred variable annuities.

Rule 2821 establishes sales practice standards regarding purchases and exchanges of deferred variable annuities.  The rule addresses four main areas of concern.

•    The rule has requirements governing broker recommendations, including suitability and disclosure obligations.
•    It includes various principal review and approval obligations.
•    The rule requires member firms to establish and maintain supervisory procedures reasonably designed to achieve compliance with the standards set forth in the rule.
•    The rule has a training component.

The recommendation and training sections currently are effective. The effective dates of the principal review and supervisory procedures sections were extended to give the SEC time to consider amendments that FINRA filed after careful consideration of public comments.

On April 15, 2009, the SEC approved those amendments, which become effective on February 8, 2010.  The amendments, among other things, limit the rule’s application to recommended transactions, change the triggering event that begins the principal review period, and clarify various other issues through new supplementary material to the rule.

Prior to the amendments, paragraph (c) of NASD Rule 2821 would have required principals to treat “all transactions as if they have been recommended for purposes of this principal review.” After considering the public comments, FINRA proposed, and the SEC approved, limiting the rule’s application to recommended transactions.

Under the earlier version of paragraph (c) of NASD Rule 2821, principals were required to review and determine whether to reject or approve a deferred variable annuity transaction no later than seven business days after the customer signed the application.

Based on the public comments, FINRA proposed, and the SEC approved, modifying the beginning of the period within which the principal must review and determine whether to approve or reject the application. Pursuant to the amendments, the period will begin to run not from the date of the customer’s signature but from the date when a firm’s office of supervisory jurisdiction (OSJ) receives a complete and correct copy of an application.

The supplementary material makes clear, that firms generally allowed to handle and carry customer funds under SEA Rules 15c3-1 and 15c3-3 are not prohibited by NASD Rule 2821 from depositing funds for a deferred variable annuity prior to principal approval.

FINRA also reconsidered the question of whether firms could forward funds to insurance companies for deposit in the companies’ “suspense accounts” prior to principal approval. FINRA has modified its earlier position rejecting such a process, discussed in Regulatory Notice 07-53 (Nov. 2007), and now will allow such action under certain conditions, including, that the insurance company segregate the funds in a manner equivalent to that required of a member firm under SEA Rule 15c3-3.