FINRA Adds On to Its Annual Oversight Report - Building in RILA Sales Guidance for First Time

In a section titled “Annuities Securities Products,” FINRA’s 2025 Annual Regulatory Oversight Report, issued on January 28, 2025, addresses regulatory obligations related to the sales of variable annuities (VAs) and registered index-linked annuities (RILAs).

FINRA’s report includes RILAs as a topic for the first time, presumably due to the significant growth of the product in recent years. RILA sales in 2024 reached $65.2 billion, a 37% increase from 2023 sales of $47.4 billion. The report describes RILAs as “complex financial products” and summarizes their key features. For a discussion of other key areas of the report, see “FINRA Issues 2025 Annual Regulatory Oversight Report.”

The report identifies SEC Regulation Best Interest (Reg BI) obligations as a key part of the applicable regulatory framework when a broker-dealer or registered representative recommends a RILA or VA to a retail customer. Reg BI’s overarching principle, of course, is that a broker-dealer and its registered representatives must not put their financial or other interests ahead of the customer’s interests.

Additionally, the report emphasizes obligations under FINRA Rule 2330 (“Members’ Responsibilities Regarding Deferred Variable Annuities"). Although Rule 2330 does not apply to RILAs, FINRA notes that it would be “an effective practice” for firms to incorporate elements of Rule 2330 into their RILA compliance procedures.

Rule 2330 requires firms to establish and maintain specific written supervisory procedures reasonably designed to achieve compliance with the rule’s various requirements relating to VA sales. This includes surveillance procedures to determine whether any registered representative is effecting VA exchanges at a rate high enough to suggest “switching” conduct inconsistent with applicable FINRA rules or federal securities laws.

Nevertheless, regardless of how much it might like to do so, FINRA cannot allege that conduct in a RILA context violates Rule 2330, as the rule does not currently apply to RILAs. Moreover, FINRA might be unable to identify another rule or statutory provision that would prohibit such conduct and serve as the basis for an enforcement action. As it stands, Rule 2330 is merely a suggested blueprint, rather than a mandatory building code, for constructing firms’ RILA compliance policies and procedures.

In any event, FINRA’s report contains a large number of other findings from its recent reviews, market examinations, surveillance, investigations, and enforcement activities — findings that firms should carefully consider, particularly in relation to their involvement with RILAs.

Finally, almost before the concrete on FINRA’s report had completely hardened, FINRA announced (on March 12, 2025) that it has begun a rule modernization review, calling for public comments by May 12, 2025. FINRA’s report may well provide insight into some rule revisions that FINRA ultimately will put on the table. In particular, it would not be surprising if FINRA proposed amendments to Rule 2330 or introduced a similar new rule specifically covering RILA sales.