SEC Articulates Standards for Relief Under Section 26(c) for Variable Insurance Product Substitution Orders
February 3, 2021 by Vedder Price PC
On December 4, 2020, the SEC granted a substitution order under Section 26(c) of the Investment Company Act of 1940 to Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, together with their respective separate accounts (collectively, Allianz). Section 26(c) of the 1940 Act prohibits the substitution of shares of mutual funds offered as an investment option to variable annuity and variable life insurance contracts with shares of a different mutual fund (a Substitution) unless the SEC determines that the evidence establishes that the Substitution is consistent with the protection of investors and the purposes of the 1940 Act. Following Allianz’s application for a Substitution, a fund company raised several issues relating to Allianz’s proposed Substitution, and requested that the SEC consider such issues in a hearing. The objecting party made the following assertions in challenging the application for a Substitution order:
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