PURPOSE: This rule aids in the interpretation of section 375.141.1(8), RSMo, with respect to the demonstration of incompetence, untrustworthiness, or financial irresponsibility by producers in the offer, sale, or exchange of indexed or fixed annuity products.

1. (1) The standards of conduct codified in this rule reflect the professionalism of a licensed insurance producer. Grounds for the discipline or disqualification of producers shall include, in addition to other grounds specified in section 375.141, RSMo, failure to comply with or violation of the following professional standards of conduct:

   1. (A) Individual Producers. Each individual producer, prior to recommending or selling any indexed or fixed annuity contract to any person, shall be under a supervisory system meeting the standards pursuant to this rule by either an authorized insurer in this state or a qualified third party under contract with the insurer;

   2. (B) Supervisory System.

      1. 1. An insurer issuing indexed annuity

contracts in this state shall assure that a system to supervise producers, which is reasonably designed to achieve compliance with rule 20 CSR 700-1.146(1)(B), is established and maintained under this rule. An insurer issuing fixed annuity contracts in this state shall assure that a system to supervise producers, which is reasonably designed to achieve compliance with rule 20 CSR 700- 1.146(1)(C), is established and maintained under this rule. A supervisory system shall provide, at a minimum, for the following:

1. A. The establishment and mainte-

nance of written procedures reasonably designed to detect and prevent violations of rule 20 CSR 700-1.146 and this rule; and

1. B. Conducting periodic reviews of

records that are reasonably designed to detect and prevent violations of rule 20 CSR 700- 1.146 and this rule;

1. 2. An insurer may establish and main-

tain such a system directly, or may contract with a third party, including a general agent or independent agency (supervising entity), to establish and maintain a system of supervision as required by this rule;

1. 3. An insurer, which elects to contract

with a supervising entity, shall make reasonable inquiry to assure that the supervising entity is performing the supervisory functions under this rule, and shall immediately report to the director any failure to perform the functions as required by this rule;

1. 4. An insurer may comply with its oblig-

ation to make reasonable inquiry by doing all of the following:

1. A. Annually obtain a certification

from the supervising entity senior manager who has the responsibility for the delegated functions that the manager has a reasonable basis to represent, and does represent that the supervising entity is performing the functions as required by section (1) of this rule; and

1. B. Based on reasonable selection cri-

teria, periodically select supervising entities contracting under this rule for a review to determine whether the supervising entity is performing the required functions. The insurer shall perform those procedures to conduct the review that are reasonable under the circumstances.

1. (C) Supervising Entity as Producer. The failure of any supervising entity contracted to establish and maintain the supervisory system required by this rule, to establish and maintain written procedures and policies reasonably designed to detect and prevent violations of rule 20 CSR 700-1.146 or this rule, shall be subject to discipline or disqualification under section 375.141, RSMo for failure to comply with this conduct rule and for materially aiding individual producers in failing to comply with rule 20 CSR 700-1.146;
2. (D) Supervising Entity that is Not a Producer. The failure of any supervising entity that is not also a producer contracted to establish and maintain the supervisory system required by this rule, to establish and maintain written procedures and policies reasonably designed to detect and prevent violations of rule 20 CSR 700-1.146 or this rule, shall subject such supervising entity to an order of the director pursuant to section 374.046, RSMo, for materially aiding individual producers in failing to comply with rule 20 CSR 700-1.146 and this rule; and

3. (E) Record Keeping. Records required to be maintained by this rule may be maintained in paper, photographic, microprocess, magnetic, mechanical, or electronic media or by any process that accurately reproduces the document.

   1. 1. Suitability Records. An insurance

producer shall maintain records of the information collected from the customer and other information used in making any recommendation of an indexed or fixed annuity for five (5) years after the insurance transaction is completed by the insurer. Pursuant to its duty to supervise, a supervising entity or insurer may perform this obligation to maintain records.

1. 2. Supervision Records. An insurer or

a supervising entity shall maintain records related to actions performed pursuant to the supervisory system as implemented under this rule for three (3) years from the date of each action performed pursuant to its system.

1. (2) The standards of conduct and supervision in this rule shall not apply to the following:

   1. (A) Unless a producer is making a recommendation to an individual plan participant, any annuity used to fund—

      1. 1. An employee pension or welfare ben-

efit plan that is covered by Employee Retirement Income Security Act (ERISA);

1. 2. Any tax-qualified, employer-spon-

sored retirement or benefit plan that meets the requirements of Internal Revenue Code Sections 401(a), 401(k), 403(b), 408(k), or 408(p); 20 CSR 700-1

1. 3. Any government or church plan that

meets the requirements of Internal Revenue Code Section 414;

1. 4. Any government or church welfare

benefit plan, or any deferred compensation plan of a state or local government or taxexempt organization, that meets the requirements of Internal Revenue Code Section 457;

1. 5. Any nonqualified deferred compensa-

tion arrangement established or maintained by an employer or plan sponsor; or

1. (B) Any annuity transaction used to fund settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process.

1. (3) No person shall materially aid any other person in any violation or failure to comply with any standard set forth in this rule.

AUTHORITY: section 374.045, RSMo 2000 and sections 375.141 and 375.143, RSMo Supp. 2007.* Original rule filed April 30, 2008, effective Dec. 30, 2008.

*Original authority: 374.045, RSMo 1967, amended 1993, 1995; 375.141, RSMo 1961, amended 1965, 1967, 1981, 1984, 1989, 1993, 2001; and 375.143, RSMo 2007.