Connecticut Passes Bill Requiring Information Sharing on Ex-Brokers [Wall Street Journal]

May 20, 2014

Bill Aimed at Protecting Consumers From Ex-Brokers Who Continue to Sell Products Under Insurance Licenses

The Connecticut state legislature has passed a bill aimed at protecting consumers from former securities brokers who have lost their licenses but still continue to sell financial products under the banner of their insurance licenses.

The legislation, which still has to be signed into law by the state’s governor, would require the state’s banking commissioner to provide monthly to the state’s insurance commissioner the names of people with current securities licenses. It would also require the banking commissioner to provide the names of those who have had their registrations denied, suspended or revoked within the past 10 years.

Under the bill approved in the legislature earlier this month, the insurance commissioner would be able to suspend, revoke or not renew the existing insurance license of a former securities broker who appears on the list. The insurance commissioner would also be permitted to deny a former securities broker applying for an insurance license.

The legislation was proposed by Connecticut State Senator Kevin Kelly and three others in the wake of an article published in January in The Wall Street Journal that pointed to states trying to improve coordination between their securities and insurance regulators. The Journal story noted cases of former securities brokers continuing to sell financial investments to clients who had been reassured by the brokers’ insurance licenses.

“I saw this as an area we needed to close the loop on,” said Mr. Kelly in an interview, because “someone who had a demonstrated past of untrustworthiness could still obtain a license to sell a financial instrument.”

The bill will soon be sent to Connecticut Gov. Dannel Malloy. A spokesman for the Democratic governor declined to comment on whether the governor would sign the bill into law, though Mr. Kelly said he expects the governor to approve it. If approved the law would take effect on Oct. 1.

Connecticut joins a handful of other states that have either instituted policies on this issue or are working toward it, including Alabama, Florida, Utah and Maine.