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Independent Broker Dealer Consortium

State News to Watch in 2018

A flurry of year-end announcements reveals a determination by state advocates toward more aggressive state protection of investors and consumers. NASAA published results from a recent survey of state regulators concerning the top investor complaints and investigations in 2017. Governor Andrew Cuomo announced a proposed new rule to amend New York’s current suitability regulation “to provide a best interest standard of care for all sales of life insurance and annuity products.” Democratic senators introduced a bill to give state Attorneys General expanded authority to ensure national bank compliance with state law. Here’s a brief look.


Announcing the results of a 2017 survey of state securities regulators, NASAA listed the top five investment practices, products or schemes to receive the highest number of complaints or investigations. They are: high-interest bearing promissory notes (74%), real estate investments and Ponzi/pyramid schemes (54%), oil and gas-related investments or interests (50%), affinity fraud (28%) and variable annuity sales practices (26%). (See here for more specific NASAA findings.)

Most of the fraudulent activity regarding promissory notes relates to short-term high-interest-bearing notes that may be exempt from securities registration. Based on 2016 data, state securities regulators reported 138 formal enforcement actions involving promissory notes and 21 formal enforcement actions involving variable annuities.

NASAA President Joseph P. Borg stated: “in today’s ongoing environment of low interest rates, the lure of high-interest-bearing promissory notes continues to tempt investors, especially seniors and others living on a fixed income.” (See Bates blog on NASAA Guidelines for Senior Investors.) He warned average investors to be cautious about offers of promissory notes with a duration of nine months or less.

NASAA Enforcement Section Chair Keith Woodwell also weighed in, cautioning investors about initial coin offerings (ICOs), cryptocurrency contracts for difference (CFD) and identity theft for purposes of depleting investment accounts. (See Bates blog on findings contained in NASAA’s enforcement report for 2017.) Mr. Woodwell stated: “technology, and in some instances the criminal misuse of technology, is at the heart of each of the emerging threats investors are likely to face in the coming year.”


The New York Department of Financial Services (DFS) proposed new regulations that would adopt a “best interest” standard for licensed sellers of life insurance and annuity products. The proposed regulation would expand New York’s current suitability regulation “beyond the types of advice covered by the DOL Rule.” (See Bates continuing coverage of the DOL Fiduciary Rule here and here.) Specifically, the New York proposal addressed the entire context of retirement planning as well as “when recommendations are made prior to the sale of an insurance product or after the sale but during the servicing of the product for the consumer.” Under the proposal, insurers would be required to “develop and maintain procedures to prevent financial exploitation of consumers.”

DFS Superintendent Maria Vullo stated: “Given the key role insurance products play in providing financial security to middle class New Yorkers, it is essential that a provider adhere to a higher standard of care and only recommend insurance and annuity products that are in the consumer’s best interests.” The window for public comment runs for 60 days.


Several Senate Democrats have proposed new legislation to expand the authority of state Attorneys General and law enforcement officials to “issue subpoenas during investigations to ensure compliance with state law by national banks.” Called the Accountability for Wall Street Executives Act, the legislation would provide state law enforcement “the authority to conduct visitorial oversight of federally-chartered national banks … It would also give the Attorneys General the power to issue subpoenas for suspected violations of real estate lending laws.”

These year-end announcements reflect both the emergent concerns of regulators as well as the willingness of state actors to fill the gaps created in a federal deregulatory environment. Bates will keep monitoring these trends.

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