UnionBanc Investment Services LLC a securities broker dealer headquartered in Glendale California has been censured and fined $100,000.00 by Financial Industry Regulatory Authority (FINRA) founded on findings that UnionBanc failed to supervise its variable annuity transactions. Letter of Acceptance Waiver and Consent No. 2019062972401 (May 5, 2021).

According to the AWC, between January of 2016 and December of 2018, there were insufficient supervision systems and supervisory procedures at UBIS relating to variable annuity transactions. UBIS did not realize that it lacked information relating to variable annuity exchanges involving living benefit riders and buffer annuities. FINRA determined that the securities broker dealer did not have an adequate basis to authorize these transactions for this reason.

The AWC stated that 61 percent of the annuity transactions from 2016 to 2018 involved an annuity having a living benefit rider that was to be replaced. The living benefit riders during that period were worth about $51,000,000.00.

Customers were provided with disclosure forms before annuity transactions were effected. This alerted customers that they would potentially lose their death or living benefits if they moved forward with the exchanges. Supervisory personnel at UBIS were responsible for reviewing completion of those forms.

FINRA found that stockbrokers at UBIS were not required to insert information about the value of the customer’s living benefit. This caused UBIS supervisors to be unaware of the loss of value in those riders and how that could make transactions inappropriate.

The AWC also referred to buffer annuities (also called variable indexed annuity or registered index-linked annuity) which were offered to investors as a replacement of 43 percent of the annuities between 2016 and 2018. The barrier annuities were marketed as having market-linked performance and protection against downsides. Another feature called a buffer enabled the insurance company to assume some of the loss before reducing an annuity’s value.

FINRA noted that there was no mechanism used by UBIS to ensure that customers knew about the features of the buffer. This resulted in supervisors having no adequate basis to conclude that transactions were appropriate.

The AWC also reports that between January of 2016 and September of 2019, there was no supervision system that had been created or maintained by UBIS which would detect how frequent variable annuity exchanges took place. The AWC stated that monthly reports contained individual exchanges but were not helpful for determining the rates of exchanges. FINRA found that the company’s conduct was violative of FINRA Rules 2010, 2330(d) and 3110(a).

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