Continuance of WSR 04-19-158.
Preproposal statement of inquiry was filed as WSR 03-23-120.
Title of Rule and Other Identifying Information: Escrow agents, chapter 18.44 RCW. New rule WAC 208-680E-025, regarding periodic reports; and amends WAC 208-680F-020, concerning permissible securities for purposes of RCW 18.44.201 and WAC 208-680A-040 Definitions.
Hearing Location(s): Department of Financial Institutions, 150 Israel Road S.W., Room 319, Olympia, WA 98501, on December 8, 2004, at 9:30 a.m.
Date of Intended Adoption: December 9, 2004.
Submit Written Comments to: Andrew Ledbetter, Securities Division, P.O. Box 9033, Olympia, WA 98507-9033, e-mail email@example.com, fax (360) 704-6970, by December 2, 2004.
Assistance for Persons with Disabilities: Contact Darlene Christianson by October 21, 2004, TTY (360) 664-8126 or (360) 902-8760.
Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: A new rule concerning periodic reporting will help the division monitor compliance with chapter 18.44 RCW and the regulations adopted thereunder. Amendments to WAC 208-680F-020 and 208-680A-040 are needed to clarify the types of securities that may be substituted for the errors and omissions policy required by RCW 18.44.201.
The legislature intended that chapter 18.44 RCW be interpreted and administered to protect escrow agent clients. "When read in its entirety, the Act reflects a legislative intent to protect clients of escrow agents." Estate of Jordan v. Hartford Accident & Indem. Co., 120 Wn.2d 490, 497 (1993). To that end, under RCW 18.44.410 the director "has the power and broad administrative discretion to administer and interpret this chapter to facilitate the delivery of services to citizens of this state by escrow agents." The director believes adoption of these rules is consistent with that intent and within the power and discretion granted to her.
WAC 208-680E-025 Quarterly reports, this new rule would mandate that escrow agents prepare and file quarterly reports. The reports would be due within thirty days following the end of each fiscal quarter. Failure to comply would be grounds for taking action to deny, suspend, decline to renew, or revoke an escrow agent's license.
• Quarterly reports will allow Department of Financial Institutions (DFI) to monitor escrow agents more effectively and efficiently.
• Under RCW 18.44.121, the director is required to efficiently administer the statute such that the fees collected from licensees pay for the costs of administration. There are approximately two hundred escrow agents, most of which are small businesses. Mandatory reports, while not a substitute for on-site inspections, will allow the director to better monitor the industry at a minor cost to the industry and DFI.
• Many escrow agents have been voluntarily submitting quarterly reports for several years. The old reports are cumbersome to complete and review and they require a great deal of supporting documentation. This rule would make reporting mandatory, but the new required report will be simple and much easier to complete.
• A draft copy of the new report form was shared with the attendees of the February 10, 2004, and April 6, 2004, Escrow Commission meetings, who commented that it appeared to be a much easier form to complete. Several agents have commented on the draft form. Those comments have been considered and incorporated as appropriate in the new form.
• The new report includes sections concerning trust account administration and reconciliation, operations (including changes in financial condition, legal proceedings, changes in ownership, locations of offices and records, and insurance coverage), and certain results of operations. In response to privacy concerns, the response to certain questions is optional.
• The new report does not require escrow agents to keep any records beyond those already required by statute and existing regulations.
• The new form has been implemented on a voluntary basis for the quarter ending March 31, 2004. Several escrow agents have commented to the division that the revised form is much easier to use.
WAC 208-680F-020 Errors and omissions policy -- Securities alternative and 208-680A-040 Definitions, the proposed amendments to these sections would clarify the types of securities that may used in lieu of the errors and omission ("E&O") policy required by RCW 18.44.201. Under that section, an escrow agent must maintain a $50,000 E&O policy or deposit $50,000 in cash or securities in an approved depository. The current definition of "securities" in WAC 208-680A-040 allows "any stock, treasury bill, bond, debenture or collateral trust certificate tendered in lieu of an errors or omissions policy." In addition to being overly broad, neither this definition nor WAC 208-680F-020 explicitly prohibits depositing securities issued by affiliates of the escrow agent.
The current rules virtually allow any security, regardless of quality, volatility, or liquidity, to be substituted for an E&O policy. This compromises the protection of escrow agent clients. Under the proposal, the definition of "securities" in WAC 208-680A-040 would [be] stricken and WAC 208-680F-020 would be amended to require that any securities deposited in lieu of an E&O policy meet the definition of "investment securities" under chapter 208-512 WAC. Those regulations, which pertain to the type of securities in which banks and trust companies may invest, define "investment securities" to generally include certain government obligations and certain investment grade corporate securities. By similarly limiting the securities that may be used by an escrow agent to satisfy RCW 18.44.201 to such high-quality obligations, escrow agent clients will be better protected.
To the division's knowledge, only one currently licensed escrow agent relies on WAC 208-680F-020. That agent, which maintains a $50,000 cash deposit in an approved depository, would not be impacted by the proposed changes to the rule.
Reasons Supporting Proposal: See Purpose above.
Statutory Authority for Adoption: RCW 18.44.410.
Statute Being Implemented: Chapter 18.44 RCW.
Rule is not necessitated by federal law, federal or state court decision.
Name of Proponent: Department of Financial Institutions, Securities Division, governmental.
Name of Agency Personnel Responsible for Drafting: Andrew Ledbetter, 150 Israel Road S.W., Olympia, WA 98501, (360) 902-8760; Implementation: Helen P. Howell, 150 Israel Road S.W., Olympia, WA 98501, (360) 902-8760; and Enforcement: Martin Cordell, 150 Israel Road S.W., Olympia, WA 98501, (360) 902-8760.
No small business economic impact statement has been prepared under chapter 19.85 RCW. The proposal does not impose more than minor costs on business.
A cost-benefit analysis is not required under RCW 34.05.328. DFI is not one of the agencies listed in RCW 34.05.328.
November 1, 2004
Helen P. Howell