looking back and looking forward top compliance challenges
TRANSCRIPT
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December 20, 2019
CEFLI Educational Webinar
Series
Looking Back and
Looking Forward
Top Compliance Challenges
2019 and 2020
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2019 Premier Partners
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2019 Premier Partners
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• CEFLI’s Antitrust Policy.
• Presentation.
• Q & A.
• Post-meeting Survey.
Agenda
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• Mary Jo Hudson
Partner
Squire Patton Boggs
• Sue Stead
Of Counsel
Squire Patton Boggs
Webinar Faculty
• Susan Voss
General Counsel
American Enterprise
• Don Walters
President & CEO
CEFLI
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• Key Compliance Challenges 2019.
– NYDFS Regulation 187 (Annuities) / SEC Regulation
Best Interest /Revised DOL Fiduciary Rule.
– Suitability.
– Privacy / Data Governance.
– Cybersecurity.
– New Product and Innovation Initiatives.
– Unclaimed Property.
Key Compliance Challenges 2019
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• Key Compliance Challenges 2020.
– NYDFS Regulation 187 (Life) / SEC Regulation
Best Interest / NAIC Suitability in Annuity
Transactions Model Regulation.
– Privacy/Data Governance.
– DOL Fiduciary Rule.
– Unclaimed Property.
– Antifraud.
Key Compliance Challenges 2020.
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• Industry media suggests that we can
anticipate a revised DOL Fiduciary Rule in
early 2020.
• DOL has reportedly been working closely with
the SEC to follow Regulation Best Interest.
• New DOL Secretary Scalia has received
clearance to participate in the rulemaking
process.
Revised DOL Fiduciary Rule.
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• On June 5, 2019, the SEC adopted
Regulation Best Interest and Form CRS
Summary.
• The proposed regulation received some of
the highest volume of comments ever
received by the SEC.
• Regulation Best Interest impacts the
standards associated with retail sales through
broker-dealers and investment advisers.
SEC Regulation Best Interest.
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• Four Obligations:
– Best Interest.
– Disclosure.
– Care.
– Compliance.
• Requires identification of conflicts of interest
and efforts to mitigate material conflicts of
interest.
SEC Regulation Best Interest.
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• Regulation becomes effective June 30, 2020.
• FINRA will be the regulatory authority
conducting examinations for compliance with
Regulation Best Interest.
– FINRA will be examining before June 30, 2020 to
determine the degree of readiness to comply with
Regulation Best Interest.
• Impacted the development of revisions to the
NAIC Suitability in Annuity Transactions
Model Regulation.
SEC Regulation Best Interest.
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• Amendments to NYDFS Regulation 187
became effective for annuities on August 1,
2019.
• Introduced a best interest standard into the
life insurance product marketplace.
• Companies were challenged to develop new
policies and procedures.
• Significant training and documentation
requirements for producers.
NYDFS Regulation 187 (Annuities).
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• Amendments to NYDFS Regulation 187
become effective for life insurance products
on February 1, 2020.
• Companies are still evaluating their
compliance strategies.
• Examples of key issues:
– Collection of suitability information for life
insurance products.
– Where will the suitability analysis reside?
NYDFS Regulation 187 (Life).
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• Future annuity sales will take place under a best
interest rather than a suitability standard.
• Follows the organizational format of Regulation
Best Interest.
– Best interest obligation.
– Care obligation.
– Disclosure obligation.
– Conflict of interest obligation.
– Documentation obligation.
NAIC Suitability in Annuity Transactions
Model Regulation.
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• Broader “safe harbor” provision.
– Applicable to broker-dealer and investment
adviser transactions.
• Challenge to train producers to operate under
a best interest standard.
• Key compliance questions:
– NAIC might have a final rule by March 2020
– Effective date?
– Adoption by the states?
NAIC Suitability in Annuity Transactions
Model Regulation.
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• Trend: More laws restricting use of consumer
data and giving consumers more rights.
‒ California Consumer Privacy Protection Act
(CCPA) (and regulations).
‒ General Data Protection Regulation (GDPR).
• Trend: Breach laws amended to expand
definitions of breach and personal data (e.g.
biometric info, email address, IP address),
and to increase reporting obligations.
Privacy and Data Governance.
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Privacy and Data Governance.• Trend: Private causes of action provided by statute.
• Trend: Actual not necessarily required for standing to sue
– invasion of legal right may be sufficient.
• Trend: Regulators increasingly focused on security of
company systems as well as security of consumer data.
– Exam standards, enterprise risk reporting.
– NAIC Insurance Data Security Model Law (#668).
– N.Y. Cybersecurity Regulation (20 NYCRR 500).
• Trend: Insurance regulators are increasingly focused on
the nature of consumer data used in insurance and
potential for bias.
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• Effective 1/1/20.
• Broad definition of PI: information that identifies,
relates to, describes, is capable being
associated with or could reasonably be linked to
a particular consumer or household.
• Includes, among other data: biometric data, online
identifier, email address, street address, IP address,
browsing history, and interactions with websites, geo
location data, and “inferences” drawn from data to
create a profile.
• Applies to employee data (2021).
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• Notice at or before collection of PI from consumers.
• Use of PI limited to purposes disclosed in notice.
• Consumer rights: know what PI is held; request deletion
of PI; opt-out of sales of PI.
• Training and record retention for consumer inquiries,
opt-outs, opt-ins.
• Online privacy policy required.
• Notices for both online and offline interactions.
• Partial exemption for entities subject to GLBA.
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• Challenges for insurance industry.
‒ Scope of GLBA exemption.
‒ Moving target.
‒ Identifying impacts – data and operations.
‒ Data mapping and gap assessments.
‒ Developing compliant operational changes.
‒ Coordination with state insurance privacy laws,
California Financial Information Privacy Act, and
California Online Privacy Protection Act, among
others.
‒ Limit operational changes to California?
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Cybersecurity.
• Recent laws:
‒ New York regulation (23 NYCRR 500).
‒ NAIC Insurance Data Security Model Law (adopted
in AL, CT, DE, MI, MS, NH, OH, SC).
• Requirements are very similar except:
‒ New York is prescriptive while the model allows
more flexibility and discretion in determining
necessary elements of cybersecurity program.
‒ Incident reporting obligations are significantly
greater under the NAIC Insurance Data Security
Model Law.
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Cybersecurity.
• Compliance Challenges
‒ Uniformity.
‒ Finding the expertise.
‒ Oversight of third-party vendors.
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• Anti-inducements/anti-rebating.
• Accelerated underwriting/predictive modeling
‒ NY Circular 1.
‒ NAIC Task Forces (Big Data, Accelerated UW, AI).
• Direct to consumer distribution.
• Illustrations and narratives.
New Product and Innovation Initiatives.
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• Regulators have encouraged companies to
bring innovation initiatives to them.
• Need to be careful to identify those states that
may be receptive to innovation initiatives.
New Product and Innovation Initiatives.
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• Anti-inducement/rebating.
‒ States are updating statutes/regulations.
‒ Alabama (482-1-163-.03 ), Arizona (Bul. 2019-01),
Maryland (Bul. 19-21), North Dakota (26.1-04-06),
Ohio (Bul. 2019-04, 05), Washington (48.30.140),
West Virginia (Info. Ltr. 205).
‒ Value Add clarifications.
‒ Premium inducement limitations.
New Product and Innovation Initiatives
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• Accelerated Underwriting.
– Significant debate & discussion at NAIC.
• NY Circular 1 – First written guidance.
– Data not related to the medical condition of
applicant; data serving as a “lifestyle indicator.”
– OK - MIB, criminal and MVR data.
– Concern for unlawful discrimination (i.e., disparate
impact) – burden on insurer.
New Product and Innovation Initiatives
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• NY Circular 1.
– Concern for unfair discrimination.
o Actuarially sound.
o Meets insurance code requirements.
o Is there a valid rationale for differential treatment.
– Compliance with FCRA/state equivalents.
o Adverse underwriting decision includes inability of
applicant to use expedited or accelerated process.
– Circular 1 – Next steps?
New Product and Innovation Initiatives
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• Direct to consumer distribution.
– Producer licensing.
– Disclosure delivery / signatures.
– Advertising on unlicensed partner sites.
• Illustrations and Disclosures.
– NAIC debate regarding IUL Illustrations & Life
Disclosure Models.
o No resolution.
o Discussion to continue in 2020.
New Product and Innovation Initiatives.
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• Unclaimed property challenges continue.
• New RUUPA.
– “Date of death” dormancy trigger.
– Open-ended authority for auditors to conduct DMF
Searches of Life Insurers.
– Enacted: CO, IL, KY, ME, TN.
– Proposed: DC, WA, VT, SC, UT (amend).
• NCOIL Model – 35 states enacted.
– “Knowledge of death” dormancy trigger.
Unclaimed Property
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Final Thoughts?
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Questions and Answers.
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Compliance & Ethics Forum for Life Insurers
www.cefli.org