The SEC approved Regulatory Notice 15-34, the adoption of FINRA Rule 2272 (Sales and Offers of Sales of Securities on Military Installations), to govern sales and offers of sales of securities by firms on the premises of any military installation to members of the U.S. Armed Forces or their dependents. The rule becomes effective March 30, 2016.
The Military Personnel Financial Services Protection Act (“Military Act”) was enacted to protect members of the U.S. Armed Forces from unscrupulous practices regarding sales of insurance, financial and investment products.
The rules requires:
- The broker-dealer performing brokerage services to clearly and conspicuously disclose to potential investors (a) that the securities offered are not being offered or provided by the broker-dealer on behalf of the federal government, and that its offer is not sanctioned, recommended, or encouraged by the federal government and (b) the identity of the registered broker-dealer offering the securities;
- The broker-dealer to perform an appropriate suitability determination, including consideration of costs and knowledge about securities, prior to making a recommendation of a security to a member of the U.S. Armed Forces or a dependent thereof;
- No person to receive any referral fee or incentive compensation in connection with a sale or offer of sale of securities, unless the person is an associated person of a registered broker-dealer and is qualified pursuant to the rules of a self-regulatory organization. Rule 2272 is intended to comply with the statutory requirements.
Rule 2272(b) requires that any firm engaging in sales or offers of sales of securities on the premises of a military installation to any member of the U.S. Armed Forces or a dependent thereof clearly and conspicuously disclose in writing, which may be electronic, to a potential investor prior to engaging in sales or offers of sales of securities to the investor:
- the identity of the member offering the securities;
- that the securities offered are not being offered or provided by the member on behalf of the federal government, and that the offer of such securities is not sanctioned, recommended or encouraged by the federal government.
Notwithstanding the above, member firms should be mindful that the electronic delivery of the disclosures required by proposed Rule 2272 must be consistent with SEC guidance on the use of electronic media to satisfy delivery obligations which, among other things, requires affirmative consent of the customer for delivery of certain documents.