WSR 14-08-097
PROPOSED RULES
DEPARTMENT OF
FINANCIAL INSTITUTIONS
(Securities Division)
[Filed April 2, 2014, 10:32 a.m.]
Original Notice.
Preproposal statement of inquiry was filed as WSR 10-07-089.
Title of Rule and Other Identifying Information: The securities division proposes to amend the investment adviser rules in chapter 460-24A WAC. The amendments would update various provisions of the investment adviser rules, including the rules regarding examination and registration requirements, financial reporting requirements, custody, performance compensation arrangements, books and records requirements, and unethical business practices. The amendments would add new rule sections addressing compliance policies and procedures, proxy voting, and advisory contracts. In addition, the amendments would create exemptions from registration for certain private fund and venture capital fund advisers. The amendments would repeal WAC 460-24A-058, which defines when an application is considered filed; and make additional updates, clarifications, and changes to the rules.
Hearing Location(s): Department of Financial Institutions (DFI), 150 Israel Road S.W., Tumwater, WA 98501, on June 5, 2014, at 10:00 a.m.
Date of Intended Adoption: June 6, 2014.
Submit Written Comments to: Jill Vallely, Securities Division, P.O. Box 9033, Olympia, WA 98507-9033, e-mail jill.vallely@dfi.wa.gov, fax (360) 704-7035, by June 4, 2014.
Assistance for Persons with Disabilities: Contact Carolyn Hawkey, P.O. Box 9033, Olympia, WA 98507, TTY (360) 664-8126 or (360) 902-8760.
Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The securities division proposes to amend the rules in chapter 460-24A WAC in order to address changes in federal law and updates to NASAA model rules, and to implement necessary protections for the investing public who may use the services of investment advisers. The proposed rules would make the following changes:
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Amend the definitions section at WAC 460-24A-005;
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Create a new section at WAC 460-24A-035 which clarifies who is a client and specifies how to count clients for the purposes of determining who needs to register as an investment adviser under RCW 21.20.040(3);
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Update the examination and registration requirements at WAC 460-24A-050 to make them consistent with NASAA model rules;
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Amend the financial reporting requirements at WAC 460-24A-060 to require advisers who have custody to file an audited balance sheet with the securities division. In addition, advisers who have custody as defined by WAC 460-24A-005 (1)(a)(iii) and who comply with the safekeeping requirements in WAC 460-24A-107 (1)(b) by providing audited financial statements of the pooled investment vehicle must file those financial statements with the securities division;
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Create a new section at WAC 460-24A-071 which adds an exemption from investment adviser registration for advisers to qualified private funds (which does not apply to advisers of funds exempt from the definition of "investment company" under Section 3 (c)(1) of the Investment Company Act of 1940);
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Create a new section at WAC 460-24A-072 which adds an exemption from investment adviser registration for venture capital fund advisers;
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Create a new section at WAC 460-24A-080 which provides for the termination of pending applications where the applicants have taken no action for nine months;
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Amend the custody rules at WAC 460-24A-105, 460-24A-106, and 460-24A-107 to require certain written agreements and to clarify the requirements for account statements to pooled investment vehicles;
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Create a new section at WAC 460-24A-120 which requires investment advisers with more than one employee to adopt compliance policies and procedures reasonably designed to prevent violations of the Securities Act by the adviser and its supervised persons;
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Create a new section at WAC 460-24A-125 which requires investment advisers who vote client securities to adopt policies and procedures reasonably designed to ensure that the adviser votes in the best interest of the clients;
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Create a new section at WAC 460-24A-130 which clarifies the requirements for investment advisory contracts;
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Update the brochure rule at WAC 460-24A-145 to make it consistent with the NASAA model rule;
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Amend the performance compensation rule at WAC 460-24A-150 consistent with the NASAA model rule and the Securities and Exchange Commission's amended rule;
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Amend the books and records requirement at WAC 460-24A-200 to clarify additional recordkeeping requirements;
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Amend the unethical business practices rule at WAC 460-24A-220 to specify additional unethical practices;
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Repeal WAC 460-24A-058, which defined when an application was considered filed; and
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Make additional updates, amendments, and clarifications.
Reasons Supporting Proposal: The proposed amendments should be adopted in order to reflect changes in federal law which impact the state regulation of investment advisers. The amendments will incorporate provisions from updated NASAA model rules which will help create uniformity among the states. In addition, the securities division believes the amendments should be adopted because they will provide necessary protections for the investing public who use the services of investment advisers or invest in pooled investment vehicles managed by investment advisers.
Statutory Authority for Adoption: RCW 21.20.005, [21.20].020, [21.20].030, [21.20.]040, [21.20].050, [21.20].060, [21.20].070, [21.20].080, [21.20].090, [21.20].100, [21.20].330, [21.20].340, [21.20].450, and [21.20].702.
Statute Being Implemented: Chapter 21.20 RCW.
Rule is necessary because of federal law, Dodd-Frank Act enacted July 21, 2010, Public Law No. 111-203.
Name of Proponent: DFI, securities division, governmental.
Name of Agency Personnel Responsible for Drafting: Jill Vallely, 150 Israel Road S.W., Tumwater, WA 98501, (360) 902-8760; Implementation: Scott Jarvis, Director, DFI, 150 Israel Road S.W., Tumwater, WA 98501, (360) 902-8760; and Enforcement: William Beatty, Director, Securities, 150 Israel Road S.W., Tumwater, WA 98501, (360) 902-8760.
A small business economic impact statement has been prepared under chapter 19.85 RCW. See Reviser's note below.
A copy of the statement may be obtained by contacting Jill Vallely, DFI, Securities Division, P.O. Box 9033, Olympia, WA, 98507-9033, phone (360) 902-8760, fax (360) 704-7035, e-mail jill.vallely@dfi.wa.gov.
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.
April 2, 2014
Scott Jarvis
Director
Reviser's note: The material contained in this filing exceeded the page-count limitations of WAC 1-21-040 for appearance in this issue of the Register. It will appear in the 14-09 issue of the Register.