On September 29th, the SEC announced that it is proposing rule and form amendments that would update the offering process and create customized disclosure requirements for registered index-linked annuities (RILAs). A RILA is one of a number of types of annuity contracts that provides investors a return based on the performance of a market index over a set period of time. These annuities also have a “bounded return” structure that usually limits an investor’s losses when the index goes down, but may also limit that investor’s gains when the index goes up.
The proposed amendments are designed to:
make the RILA offering process comparable to other insurance investment products
enhance the data insurance companies disclose about RILAs
extend certain anti-fraud guidance to RILA advertisements
While the market for RILAs has grown in recent years, the SEC’s transparency mandates are not presently tailored specifically to RILAs and their features. In 2022, Congress directed the SEC to adopt a registration form for RILAs with the requirement that it be designed to ensure that a purchaser using the form receives the information needed to make informed decisions. The SEC was also directed to conduct investor testing and use the findings to develop the framework for the registration form. For more information on the investor testing results, see the Office of the Investor Advocate’s Investor Testing Report on Registered Index-Linked Annuities on sec.gov.
Should the amendments to rules and forms be adopted, they would:
implement the requirements related to RILAs contained in Division AA, Title 1 of the Consolidated Appropriations Act, 2023, and incorporate the results of investor testing conducted by the SEC
amend Form N-4 (the form currently used by most variable annuity separate accounts) to require issuers of RILAs also to register offerings on that form
amend Form N-4 to specifically address the features and risks of RILAs
apply a current SEC rule to RILA advertisements and sales literature that provides guidance concerning when sales literature is materially misleading under the Federal securities laws
amend technical features in Form N-6 to correct an error from a prior SEC rulemaking
require RILA filers, including Form N-4 filers, to tag disclosures in Inline XBRL
Interested parties may submit comments pertaining to the Registration for Index-Linked Annuities; Amendments to Form N-4 for Index-Linked and Variable Annuities rule proposal during the comment period, which will be open for 60 days following its publication on sec.gov or 30 days following its publication in the Federal Register, whichever period is longer. Retail investors also may provide feedback on annuities and RILAs by submitting a short Feedback Flyer on the SEC’s website.