Legislation Passes to Prevent Brokers’ License Ploy

Senator Kelly applauds passage of bill to protect consumers from former securities brokers’ scheme

Hartford – Connecticut State Senator Kevin Kelly (R-21) applauds the passage of legislation he proposed, which is aimed at protecting consumers from unlicensed former securities brokers. A bill passed this legislative session seeks to stop former securities brokers who have lost their licenses from continuing to sell financial products using an insurance license instead. This improper behavior has been witnessed in many states.

“Currently, there is no formal process to share information between state agencies that monitor each type of license. When a securities broker loses his or her license, state insurance departments are not necessarily notified. The legislation passed this session seeks to formalize the sharing of information in Connecticut and attempts to prevent future unscrupulous behavior under the guise of another license,” said Senator Kelly.

In January, the Wall Street Journal reported on this national brokers’ license ploy in which securities brokers who lose their licenses to sell investments continue to sell securities using insurance licenses. Because insurance licenses allow holders to sell a variety of financial products, disgraced securities brokers can continue to sell some financial products if they have an insurance license, even if they are not supposed to.

The legislation passed in Connecticut in Senate Bill 480 requires the banking commissioner to provide information on securities license holders monthly to the insurance commissioner. This includes a list of names and Social Security numbers of registered professionals who have had their registrations denied, suspended or revoked within the past 10 years. The list must also indicate the reason why a broker lost his or her license.

The insurance commissioner can use this list to identify insurance producer license holders or applicants that have lost a securities license. The insurance commissioner can also weigh this information to determine if an individual should also have their insurance license suspended, revoked or not renewed.

According to the Wall Street Journal report, it is estimated that there are at least 1,000 instances nationwide of former securities brokers with insurance licenses. While it is acceptable for banned securities brokers to sell simple insurance products including auto or homeowners coverage, it is improper for them to sell insurance products that act like securities. The Wall Street Journal also reported that other states, including Utah, Maine and Florida, have already taken steps to address this problem and open communication between their insurance and securities regulators.

“This new legislation formally opens communication between the Connecticut Banks Department and Insurance Department and seeks to better protect consumers. The goal of sharing information is to make sure professionals who harm consumers in one industry do not continue their risky behavior while using another license. More open and mandated communication means we can prevent the kind of crooked sales schemes that have been witnessed across the country,” said Senator Kelly.

To read the original Wall Street Journal report on the brokers’ license ploy visit http://online.wsj.com/news/articles/SB10001424052702304027204579335370523074780.