FINANCIAL INSTITUTIONS

(Securities Division)

[Filed February 20, 2019, 9:26 a.m.]

Preproposal statement of inquiry was filed as WSR 18-06-075.

Title of Rule and Other Identifying Information: The securities division is proposing to amend chapter 460-80 WAC to require the filing of applications for registration of franchise offerings and franchise brokers, as well as for franchise exemption notice filings, to be made through the securities division's electronic franchise filing system. The proposed amendments [rules] amend WAC 460-80-100, 460-80-110, 460-80-125 and 460-80-135, and create new WAC 460-80-138, which provides instructions on how franchise broker license applications must be filed.

Hearing Location(s): On March 26, 2019, at 1:00 p.m., at 150 Israel Road S.W., Room 320, Tumwater, WA 98501.

Date of Intended Adoption: March 27, 2019.

Submit Written Comments to: Michelle Webster, 150 Israel Road S.W., Tumwater, WA 98501, email michelle.webster@dfi.wa.gov, fax 360-704-6491, by March 25, 2019.

Assistance for Persons with Disabilities: Contact Carolyn Hawkey, phone 360-902-8760, fax 360-704-6491, TTY 360-664-8126, email Carolyn.Hawkey@dfi.wa.gov, by March 25, 2019.

Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The proposed amendments would require franchisors to file all applications for franchise registration, renewal applications and post-effective amendments to franchise disclosure documents, as well as all notices of claims for exemption to be filed through the electronic franchise filing system administered by the division. In addition, the proposed amendments would require all applications for a franchise broker license to be filed through the electronic franchise filing system.

Reasons Supporting Proposal: In 2013, the securities division announced the availability of its online electronic franchise filing system (efiling system). The efiling system was intended to facilitate electronic submission of franchise registration and renewal applications, and post-effective amendments online, eliminating the need to make any paper or other physical submissions to the securities division. Since then, the securities division has expanded its efiling system capabilities to accept franchise broker and franchise exemption filings.

A significant number of applicants have utilized the efiling system since its inception. In 2017 alone, the securities division received approximately one thousand franchise registration filings through the efiling system, which represents approximately eighty-one percent of all franchise registration filings received. Although the securities division currently accepts filings through the efiling system and paper submissions, paper submissions require the securities division to manually receive, process and scan the filings, which may result in delays to the applicant receiving any follow-up correspondence or notice of effective registration. Requiring franchisors and franchise brokers to use the efiling system will eliminate inefficiencies and result in a streamlined process for both applicants and the securities division.

Statutory Authority for Adoption: RCW 19.100.250.

Statute Being Implemented: RCW 19.100.030, 19.100.070, 19.100.140.

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: Michelle Webster, Esq., 150 Israel Road S.W., Tumwater, WA 98501, 360-902-8736; Implementation: Faith Anderson, Program Manager, 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 school district fiscal impact statement is not required under RCW 28A.305.135.

A cost-benefit analysis is not required under RCW 34.05.328. The department of financial institutions is not one of the agencies identified in RCW 34.05.328.

This rule proposal, or portions of the proposal, is exempt from requirements of the Regulatory Fairness Act because the proposal:

Is exempt under RCW 19.85.025(3) as the rules adopt, amend, or repeal a procedure, practice, or requirement relating to agency hearings; or a filing or related process requirement for applying to an agency for a license or permit.

Explanation of exemptions: The proposed amendments seek to require the process that licensees must follow in submitting registration and renewal applications, exemption notice filings, and franchise broker license applications.

AMENDATORY SECTION(Amending WSR 09-22-050, filed 10/29/09, effective 11/29/09)

WAC 460-80-100Notice of claim for exemption.

Any franchisor or subfranchisor who claims an exemption under RCW 19.100.030 (4)(a) and (b)(i) shall file with the director a completed Annual Notice of Claim of Exemption form along with the fee prescribed in RCW 19.100.240 made payable to the treasurer of the state of Washington. The annual notice of claim of exemption shall be filed through the online franchise filing system administered by the director.

AMENDATORY SECTION(Amending WSR 09-22-050, filed 10/29/09, effective 11/29/09)

WAC 460-80-110Franchise registration application.

All applications for registration, renewal or amendment of a franchise shall be in the form as provided by the director and contain the information specified therein. The application for registration, renewal or amendment must be accompanied by the fee prescribed in RCW 19.100.240 made payable to the treasurer of the state of Washington. All applications for registration, renewal, or amendment of a franchise shall be filed through the online franchise filing system administered by the director.

AMENDATORY SECTION(Amending WSR 09-22-050, filed 10/29/09, effective 11/29/09)

WAC 460-80-125Franchise registration application instructions.

The following must be adhered to with respect to all applications for registration, registration renewal or registration amendment:

(1) Completion of application. An application for registration of the offer or sale of franchises shall include the following, all of which shall be verified by means of the prescribed signature page:

(a) Application;

(b) Supplemental information page(s);

(d) A copy of the Franchise Disclosure Document.

(2) The following shall be attached to the application:

(a) A consent to service of process; and

(b) One copy of any advertising to be used in connection with the offer or sale in this state of franchises.

(3) Submission of application. All applications for registration, renewal, or amendment of a franchise shall be filed through the online franchise filing system administered by the director.

(4) Disclosure: The offering circular shall be prepared in accordance with the Instructions for Preparation of the Franchise Disclosure Document contained in section IV. of the 2008 Franchise Registration and Disclosure Guidelines promulgated by the North American Securities Administrators Association, Inc. (NASAA).

(((4)))(5) Subfranchisors: When the person filing the application for registration is a subfranchisor, the application shall also include the same information concerning the subfranchisor as is required from the franchisor; the franchisor, as well as the subfranchisor, shall execute a signature page.

(((5)))(6) Signing of application: The application shall be signed by an officer or general partner of the applicant; however, it may be signed by another person holding a power of attorney for such purposes from the applicant. If signed on behalf of the applicant pursuant to such power of attorney, the application shall include as an additional exhibit a copy of said power of attorney or a copy of the corporate resolution authorizing the attorney to act.

(((6)))(7) Manually or digitally signed consent of accountant: All applications shall be accompanied by a manually or digitally signed consent of the independent public accountants for the use of their audited financial statements as such statements appear in the offering circular.

AMENDATORY SECTION(Amending WSR 09-22-050, filed 10/29/09, effective 11/29/09)

WAC 460-80-135Franchise registration amendment and renewal instructions.

An application to renew or amend a franchise registration must comply with the following requirements:

(1) An application for renewal of a franchise registration must be filed with the director no later than fifteen business days prior to the expiration of registration in order to avoid a lapse in registration and the need to file an initial application for registration. If the registration has already expired, the applicant must mark the application as an initial registration and pay the fee required for filing an initial application for registration in RCW 19.100.240.

(2) An amendment to a franchise application is required to be filed as soon as reasonably possible and in any case, before the further sale of any franchise, if a material adverse change in the condition of the franchisor or any of its subfranchisors or any material change in the information contained in its Franchise Disclosure Document should occur.

(3) The following documents must be filed for each amendment or application for renewal of a franchise registration:

(a) A completed application marked amendment or renewal, as applicable. If the application is for renewal, do not mark the amendment boxes on the application even if the documents have been revised since the last filing.

(b) All documents set forth in WAC 460-80-125 required for an initial application with all additions, deletions and other changes to the previously filed documents black-lined. Changes must be clearly marked so that each change is noticed easily. Do not use margin balloons or color highlights to show changes. Do not use less than 11 point type for changed text. Use a black-lining system that underlines changes and shows deletions by a strike through.

(4) If the director requires changes to any documents submitted, the franchisor must file a complete clean copy of the revised Franchise Disclosure Document and any other revised documents, and a black-lined copy of all the revised pages, unless directed otherwise.

(5) All applications for renewal or amendment of a franchise shall be filed through the online franchise filing system administered by the director.

WAC 460-80-138Franchise broker license application instructions.

All applications for initial registration or renewal of a franchise broker license shall be filed through the online franchise filing system administered by the director.