The SEC Staff would not recommend enforcement action if insurance agencies enter into insurance networking arrangements with registered broker-dealers for the offer and sale of variable products and make transaction-based payments based on the sale of these products without registering as broker-dealers.
Historically, state insurance laws prohibited brokers from receiving insurance commissions without being licensed as insurance agencies, and the insurance laws of several states precluded the issuance of insurance licenses to broker-dealers. As a result, several brokers sought to expand their business to include variable products sought and obtained relief from the SEC staff for insurance networking arrangements. The parties represented that all securities services provided in connection with variable products will be provided only through dual representatives, who are both registered representatives of a broker-dealer and licensed by appropriate state regulators as insurance agents. The registered broker-dealers will also supervise the representatives’ activities and conduct periodic reviews to ensure that the insurance agencies and their unregistered employees are complying with written policies and procedures; the unregistered employees will only have clerical involvement in variable products transactions. Further, the parties stated that the registered broker-dealers will handle customer funds and securities in accordance with all applicable statutory and regulatory requirements, and only dual representatives will be permitted to receive or handle customer funds, and maintain all required books and records.
In sum, the Staff granted the request relief, not surprisingly, given the registration protections contained in the parties’ letter.