Not transferring the registration to his own name is not only illegal but it can cause problems. If, say, he commits a speeding offence the paperwork will go to the person named on the registration document. They will have to name your husband as the driver. That will cause delay and he may not get the details in time to be offered a speed awareness course or fixed penalty (if appropriate).
The dealer ought to know better than to suggest he does this. It may be worth a chat with the Trading Standards people to let them know what they are doing.