WSR 24-11-013

PROPOSED RULES

DEPARTMENT OF

FINANCIAL INSTITUTIONS

[Filed May 6, 2024, 9:51 a.m.]

Original Notice.

Preproposal statement of inquiry was filed as WSR 23-08-058.

Title of Rule and Other Identifying Information: Broker-dealers and salespersons of broker-dealers.

Hearing Location(s): On June 26, 2024, at 10:30 a.m., at the Department of Financial Institutions (DFI), 150 Israel Road S.W., Tumwater, WA 98501.

Date of Intended Adoption: June 27, 2024.

Submit Written Comments to: Jill Vallely, P.O. Box 41200, Olympia, WA 98504-1200, email jill.vallely@dfi.wa.gov, fax 360-902-0524, by June 25, 2024.

Assistance for Persons with Disabilities: Contact Keera Earskine, phone 360-902-8760, fax 360-902-0524, TTY 1-800-833-6384, email keera.earksine@dfi.wa.gov, by June 25, 2024.

Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The proposed rule making creates a new chapter of rules for broker-dealers and salespersons of broker-dealers at chapter 460-20C WAC, and repeals the existing rules in chapters 460-20B, 460-21B, and 460-22B WAC. The proposed rules update the rules consistent with current federal law and the Financial Industry Regulatory Authority (FINRA) rules, incorporate North American Securities Administrators Association (NASAA) model rules, and describe the application filing procedures and registration requirements for broker-dealers and salespersons. As compared to the current rules, the proposed rules:

Reasons Supporting Proposal: The securities division has not updated its rules for broker-dealers and salespersons of broker-dealers in many years, and several of the rules need revision to make them consistent with federal law, FINRA rules, NASAA model rules, or the securities division's current licensing procedures. The consolidation of the three current rule chapters into a single chapter will make the rules easier to use. The proposed rules clarify the filing procedures and requirements applicable to broker-dealers who are not members of FINRA, which the current rules do not address. These updates will improve the functionality of the rules, promote uniformity with federal law and other states, and increase investor protection.

Statutory Authority for Adoption: RCW 21.20.070, 21.20.450.

Statute Being Implemented: Chapter 21.20 RCW.

Rule is necessary because of federal law, [NISBA].

Name of Proponent: DFI, governmental.

Name of Agency Personnel Responsible for Drafting: Jill Vallely, 150 Israel Road S.W., Tumwater, WA 98501, 360-902-8760; Implementation: Mark Kissler, 150 Israel Road S.W., Tumwater, WA 98501, 360-902-8760; and Enforcement: Bill 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. DFI is not one of the agencies listed in RCW 34.05.328.

Scope of exemption for rule proposal from Regulatory Fairness Act (RFA) requirements:

Is not exempt.

The proposed rule does impose more-than-minor costs on businesses.

Chapter 460-20C WAC

Broker-Dealers and Salespersons of Broker-Dealers

April 16, 2024

SECTION 1: Description of the Proposed Rule Chapter: DFI, securities division has prepared this SBEIS in support of the proposal of new chapter 460-20C WAC pertaining to broker-dealers and salespersons of broker-dealers. The proposed rule making will repeal the existing rules for broker-dealers and salespersons in chapters 460-20B, 460-21B, and 460-22B WAC. The securities division's broker-dealer rules have not been significantly updated in over 20 years, and several rules are outdated with respect to current federal law and the securities division's current licensing practices.

Prior to preparing this SBEIS in support of the proposed rules, the securities division prepared a preliminary draft of potential rule revisions. In December 2023, the securities division posted the draft rules on its website, and conducted an electronic mailing to all broker-dealers registered in Washington. In the mailing, the securities division distributed a link to the draft rules and a link to a small business economic impact survey. The results of the survey are discussed in Sections 3 through 6 of this SBEIS.

The preliminary rules draft combined the three current rule chapters into a single chapter for ease of use. The draft revised the existing rules to reflect the securities division's current licensing procedures and practices, and added filing procedures and requirements specific to broker-dealers who are not members of FINRA. The draft also updated existing rules to bring Washington's broker-dealer rules up to date with federal rules and FINRA rules, and to incorporate NASAA model rules, among other updates. As compared to the current rules for broker-dealers, the preliminary rules draft included the following substantive changes:

SECTION 2: Identify which businesses must comply with the proposed rule using the North American Industry Classification System (NAICS) codes and the minor cost thresholds: All broker-dealers registered or required to be registered in Washington under RCW 21.20.040(1) will be required to comply with the proposed rules. In addition, all salespersons of broker-dealers who are registered or required to be registered in Washington under RCW 21.20.040(1) will be required to comply with the proposed rules.

The NAICS code for securities brokerages is 523150. The minor cost threshold that applies to this rule making under RFA, chapter 19.85 RCW, is a cost per business of less than three-tenths of one percent of annual revenue or income, or $100, whichever is greater, or one percent of annual payroll.

SECTION 3: Analyze the probable cost of compliance: In drafting the proposed rules, the securities division attempted to balance the business concerns of registered broker-dealers with the securities division's mission to protect the investing public and to promote confidence in the capital markets. In general, the rule proposals create uniformity with federal law, FINRA rules, and NASAA Model Rules, and are consistent with broker-dealer rules in other states. Washington's rule-making authority with respect to broker-dealers is limited by the National Securities Markets Improvement Act of 1996 (NSMIA), which restricts states from establishing capital, custody, margin, financial responsibility, recordkeeping, bonding, or financial or operational reporting requirements for broker-dealers that differ from, or are in addition to, the requirements in those areas established under federal law. The securities division drafted its proposed rules in consideration of the restrictions under NSMIA. In addition, much of the chapter restates existing rules, or describes current registration procedures followed by the securities division. Regardless, we anticipate that compliance with certain proposed rules may increase compliance costs for some broker-dealers. While the proposed rules may increase costs to licensees, the securities division believes the proposed rules will increase investor protection. Further, as described in Section 6, the securities division made certain revisions to the initial rules draft to reduce costs.

Survey of Broker-Dealers: RCW 19.85.040 provides that an agency may survey a representative sample of affected businesses to assist in the accurate assessment of the costs of proposed rules for the preparation of an SBEIS. To that end, the securities division conducted a survey to gather information from its registered broker-dealers regarding any anticipated cost increases associated with the initial rules draft.

The securities division prepared an online survey designed to determine the economic impact of the proposed amendments on small businesses. On December 19, 2023, the securities division sent an email containing a link to the online survey to the Central Registration Depository (CRD) contact person for all Washington-registered broker-dealers. At the time of the survey, the securities division had 1746 Washington-registered broker-dealers. The email explained the reasons for conducting the survey and requested that each broker-dealer's chief compliance officer or other appropriate representative complete the online survey by clicking on the provided link. The email also provided links to the draft rules, a copy of the survey questions, and a section-by-section analysis that detailed the changes in the draft rules as compared to the current rules in chapters 460-20B, 460-21B, and 460-22B WAC. The email noted that respondents could submit a hard copy of the survey in lieu of completing the electronic version.

The survey consisted of 35 questions. Each question in the survey focused on a section of the draft rules and provided a background statement briefly explaining any changes as compared to the current rules. The survey asked whether the proposed changes to each rule section would increase costs. If a respondent answered "yes," the survey requested information on the additional costs of compliance with that rule in the categories of professional services, equipment, supplies, labor, and administrative costs. Each question also provided a free-form response section for survey takers to make comments or provide additional information. The survey requested that responding broker-dealers provide their number of employees. The survey also queried whether the rule making in its entirety would cause a loss of revenue or the loss or addition of any jobs.

The survey period lasted from December 20, 2023, until February 1, 2024. The securities division received 63 unique responses that provided the respective broker-dealer's number of employees, although some respondents did not complete all the questions in the survey. These 63 respondents included 45 small businesses as defined by RCW 19.85.020(3) of RFA (business with 50 or fewer employees). The securities division also received four responses that did not provide their number of employees, therefore preventing us from determining whether the businesses were small businesses or calculating their costs per employee.

The following table provides the responses from the survey question regarding whether compliance with the proposed changes to each rule section would create any additional costs:

The securities division used the survey data to calculate the increased costs per employee for the broker-dealers responding to the survey in the categories of professional services, equipment, supplies, labor, and administrative costs for each section of the draft rules. The following table provides the average cost increase per employee for each rule for all survey respondents.

The following table provides the average cost increase per employee only for those broker-dealers who indicated that a particular rule change would create additional costs:

The following table presents the survey results for the lost revenue anticipated to be caused by the draft rules as a whole:

Discussion of Survey Results: The survey results indicated that respondents anticipated that certain draft rule sections would be likely to increase costs. These included the draft rules regarding registration procedure (39 percent indicating increased costs), submission of business email address (17 percent indicating increased costs), application of chapter (16 percent indicating increased costs), cross-reference to other sections (10 percent indicating increased costs), expiration and renewal of registration (nine percent indicating increased costs), supervision of salespersons and employees (eight percent indicating increased costs), filings made through CRD (seven percent indicating increased costs), and mass transfer of salespersons (six percent indicating increased costs). We discuss the survey results in further detail below.

WAC 460-20C-030 Registration procedure: The draft rule WAC 460-20C-030 specified the registration procedure for broker-dealers and salespersons. The rule will replace the existing registration procedures currently in WAC 460-20B-030 (broker-dealers) and 460-22B-030 (salespersons). As compared to the current rules, the draft rule added a requirement for all principals of a broker-dealer in Washington to register as salespersons in Washington. It also added a requirement that persons who supervise salespersons in Washington register as salespersons in Washington. In addition, it added a requirement of notification of branch office by submitting Form BR on CRD.

The requirement added to the draft rules that all principals and supervisors of salespersons operating in Washington register as salespersons in Washington would increase costs for broker-dealers whose principals and supervisors are not currently registered in Washington. The cost of an initial salesperson registration in Washington is $50 per salesperson, and annual renewals are $30 per salesperson. To register, salespersons must demonstrate passage of the Series 63 exam. Persons who do not have current exam scores may incur costs to purchase study materials and pay the current examination fee of $147. Firms may incur professional services, labor, or administrative expenses in preparing and filing Form BR in Washington.

The survey results indicated that approximately 39 percent of survey respondents believed that the draft rule at WAC 460-20C-030 would increase costs. For all survey respondents, these costs included an average of $170.13 per employee for professional services, $0.53 for supplies, $114.89 for labor, and $52.34 for administrative costs. Of the 39 percent of survey respondents who indicated that the rule amendments would increase costs, those costs included an average cost increase per employee of $935.70 for professional services, $29.41 for supplies, $902.71 for labor, and $319.88 for increased administrative costs. After reviewing the survey results, the securities division revised the draft rule to reduce costs, as described in Section 6.

WAC 460-20C-070 Submission of business email address: The initial draft created a new rule, WAC 460-20C-070, that would require broker-dealers to file an email address for each salesperson registered in Washington, and periodically update the addresses to reflect any changes. Our current rules do not contain this provision, and therefore it would represent a new filing requirement. This would require broker-dealers to develop new internal procedures to ensure compliance with the requirement in Washington, and might increase professional services, labor, or administrative costs.

The survey results indicated that approximately 17 percent of survey respondents believed that the proposed rule at WAC 460-20C-070 would increase costs. For all survey respondents, these costs included an average of $11.71 per employee for professional services, $8.32 for labor, and $0.79 for administrative costs. Of the 17 percent of survey respondents who indicated that the rule amendments would increase costs, those costs include an average cost increase per employee of $99.54 for professional services, $106.14 for labor, and $33.30 for increased administrative costs. After reviewing the survey results, the securities division revised the draft rule to reduce costs, as described in Section 6.

WAC 460-20C-010 Application of chapter and WAC 460-20C-015 Cross-reference to other sections: The draft rule WAC 460-20C-010 stated that the chapter applies to broker-dealers and salespersons of broker-dealers. The draft rule was substantially similar to the current rules at WAC 460-20B-010 and 460-22B-010, except that the securities division removed a reference to chapter 460-33A WAC because that chapter was repealed in 2022. In addition, the securities division added a statement that the chapter applies to broker-dealers to the extent permitted by the National Securities Markets Improvement Act of 1996. This language merely acknowledges the federal preemption that has applied to the state regulation of broker-dealers since 1996. For these reasons, we do not believe the draft rule represents any substantive changes that would increase costs.

However, the survey results indicated that approximately 16 percent of survey respondents believed that the proposed rule at WAC 460-20C-010 would increase costs. For all survey respondents, these costs included an average of $105.70 per employee for professional services, $32.24 for labor, and $10.93 for administrative costs. Of the 16 percent of survey respondents who indicated that the rule amendments would increase costs, those costs include an average cost increase per employee of $906.01 for professional services, $483.82 for labor, and $327.96 for increased administrative costs.

The draft rule WAC 460-20C-015 provided a cross-reference to other chapters that pertain to broker-dealers and salespersons. The draft rule was substantially similar to the current rule at WAC 460-22B-020. As compared to the current rule, the draft rule added a reference to chapter 460-21C WAC, which concerns to the provision of broker-dealer services on the premises of financial institutions. This rule chapter currently applies to broker-dealers regardless of whether it is mentioned in the cross-reference rule. The securities division also removed a reference to chapter 460-33A WAC because that chapter was repealed in 2022. Accordingly, we do not believe the draft rule represents any substantive changes that would increase costs.

The survey results indicated that approximately 10 percent of survey respondents believed that the proposed rule at WAC 460-20C-015 would increase costs. For all survey respondents, these costs included an average of $10.55 per employee for professional services, $7.02 for labor, and $3.54 for administrative costs. Of the 10 percent of survey respondents who indicated that the rule amendments would increase costs, those costs include an average cost increase per employee of $300.81 for professional services, $400.00 for labor, and $201.61 for increased administrative costs.

The securities division reasonably believes that WAC 460-20C-010 and 460-20C-015 will not increase expenses for broker-dealers because these rules do not represent any substantive change as compared to our current rules. The survey questions regarding the anticipated expenses related to draft rules WAC 460-20C-010 and 460-20C-015 were the first two substantive questions in the survey. Based on our assessment that these draft rules should not increase expenses, we conclude that some survey respondents may have responded to these questions by providing information regarding the economic impact of the rule making in its entirety. However, the securities division invites interested persons who may disagree with this assessment to submit comments, as specified in the CR-102, to explain why the individual proposed rules WAC 460-20C-010 and 460-20C-015 would increase costs.

WAC 460-20C-050 Expiration and renewal of registration: The draft rule WAC 460-20C-050 addressed the expiration and renewal of broker-dealer registration for broker-dealers and salespersons, and would replace the existing provision currently in WAC 460-20B-050 (broker-dealers) and WAC 460-22B-050 (salespersons). The rule clarified the current procedures for the renewal or expiration of registration. The draft rule also raised the delinquency fee for late broker-dealer renewal applications from $100 to $200. This would increase costs by $100 in the event a broker-dealer submitted a delinquent renewal application.

The survey results indicated that approximately nine percent of survey respondents believed that the proposed rule at WAC 460-20C-015 would increase costs. For all survey respondents, these costs included an average of $0.16 per employee for professional services and $0.16 for administrative costs. Of the nine percent of survey respondents who indicated that the rule amendments would increase costs, those costs include an average cost increase per employee of $8.06 for professional services and $8.06 for increased administrative costs. After reviewing the survey results, the securities division revised the draft rule to reduce costs, as described in Section 6.

WAC 460-20C-025 Filings made through CRD: The draft rules included a new rule at WAC 460-20C-025 that designated CRD to receive and store filings and collect fees with respect to initial and renewal applications of FINRA-member broker-dealers. Currently, all broker-dealers who are members of FINRA must submit initial and renewal registration applications through CRD. The draft rule simply reflected this fact. Regardless, the survey results indicated that approximately seven percent of survey respondents believed that the proposed rule at WAC 460-20C-025 would increase costs. For all survey respondents, these costs included an average of $18.67 per employee for professional services and $18.67 for labor. Of the seven percent of survey respondents who indicated that the rule amendments would increase costs, those costs include an average cost increase per employee of $522.73 for professional services and $522.73 for labor.

WAC 460-20C-150 Supervision of salespersons and employees: The draft rules included a supervision rule at WAC 460-20C-150 that would replace the rule currently at WAC 460-21B-070. As compared to the current rule, the draft rule added that the broker-dealer must reasonably supervise employees (in addition to the current requirement to supervise salespersons), added that the broker-dealer must comply with supervision requirements set forth in FINRA conduct rules, and stated that the director may require heightened supervision as a condition of registration for salespersons with a history of past misconduct or industry or regulatory-related incidents that may pose a risk to customers. The rule also adds that broker-dealers must provide training regarding detecting the financial exploitation of vulnerable adults. The training must be provided to employees who have contact with customers and access to account information on a regular basis and as part of their jobs. This training is currently required in Washington under RCW 74.34.220(3), and therefore does not represent a new requirement. However, compliance with the draft rule may potentially increase professional services, labor, or administrative expenses related to reviewing supervision procedures to ensure compliance with the rule.

The survey results indicated that approximately eight percent of survey respondents believed that the proposed rule at WAC 460-20C-015 would increase costs. For all survey respondents, these costs included an average of $1.09 per employee for professional services and $4.34 for administrative costs. Of the eight percent of survey respondents who indicated that the rule amendments would increase costs, those costs included an average cost increase per employee of $27.37 for professional services and $108.62 for increased administrative costs.

WAC 460-20C-080 Mass transfer of salespersons: The draft rules included a new rule, WAC 460-20C-080, to describe the procedure for completing a mass transfer of salespersons from one FINRA-member broker-dealer to another. The rule would require the submission of a roster of all the salespersons the broker-dealer intends to transfer, together with an indication of whether any of the salespersons had disclosable items in Section 14 of Form U4 or were subject to heightened supervision. The draft rule would facilitate the transfer of large numbers of salespersons, with the goal of speeding up the process. The draft rule might increase costs for broker-dealers by requiring the preparation of a roster and a review of which salespersons have disclosable items. However, the rule would only apply in the infrequent event that a broker-dealer merges with or otherwise acquires a large number of salespersons from another broker-dealer.

The survey results indicated that approximately six percent of survey respondents believed that the draft rule at WAC 460-20C-015 would increase costs. For all survey respondents, these costs included an average of $2.54 per employee for professional services, $1.21 for labor, and $1.33 for administrative costs. Of the six percent of survey respondents who indicated that the rule amendments would increase costs, those costs included an average cost increase per employee of $63.60 for professional services, $60.61 for labor, and $33.30 for increased administrative costs.

Lost Sales or Revenue: The securities division's survey revealed that four percent of respondents believed that compliance with the draft rule changes would result in lost sales or revenue. In contrast, 96 percent of respondents did not believe the rule changes would cause lost sales or revenue. For all survey respondents, the estimated lost revenue per employee was $132.02. The four percent who believed the changes would lead to lost sale or revenue estimated they would lose $3,367.65 in revenue per employee.

The survey requested a free-form answer regarding which specific provisions in the proposed rules would cause lost sales or revenue. The comments received suggested that spending additional money on legal and compliance matters would mean fewer funds available for advertising. This in turn could decrease revenue. We note that any change in rules will typically result in chief compliance officers or similar employees at a broker-dealer spending time to review and implement any rule changes, including changing processes and educating employees. While these expenses may reasonably represent the activities for which a chief compliance officer is currently compensated, certain broker-dealers may hire outside consultants or incur additional costs to assist with these tasks. Funds spent on compliance would not be available to spend on other activities that might potentially increase revenue.

SECTION 4: Analyze whether the proposed rule may impose more-than-minor costs on businesses in the industry: RCW 19.85.030 provides that an agency must prepare an SBEIS if the agency proposes rules that would impose more-than-minor costs on businesses in an industry. RCW 19.85.020 defines a "minor cost" as a cost per business that is less than three-tenths of one percent of annual revenue or income, or $100, whatever is greater; or one percent of annual payroll.

The securities division has determined, based on the results of the survey as described in Section 3, that at least some of the rules may impose more-than-minor costs on broker-dealers because such costs may exceed $100.

SECTION 5: Determine whether the proposed rule may have a disproportionate impact on small businesses as compared to the 10 percent of businesses that are the largest businesses required to comply with the proposed rule. Also consider, based on input received, whether compliance with the rule will cause businesses to lose sales or revenue: RCW 19.85.040 requires that the securities division determine whether compliance with the proposed rules would have a disproportionate impact on small businesses by comparing the cost of compliance for small business with the costs of compliance for the 10 percent of businesses that are the largest businesses required to comply with the proposed rules.

The securities division categorized each survey response based on whether it came from a small business or whether it represented the 10 percent of businesses that were the largest businesses that responded. Small businesses are defined by RCW 19.85.020(3) as 50 or fewer employees. We likewise determined the largest 10 percent of businesses by the number of employees. We then compared the two categories to each other.

The survey results demonstrated that the increased costs per employee of small businesses were generally greater than the increased costs per employee of the largest 10 percent of businesses.

The following table compares the average cost increase associated with the draft rules for small businesses and the largest 10 percent of businesses required to comply:

Comparison of lost sales or revenue: The largest 10 percent of businesses indicated in their survey responses that they would not lose any revenue. The small businesses estimated that they would lose an average of $182.03 in revenue per employee, with two small businesses reporting that they expected to lose revenue because of the rule changes.

Comparison of addition or elimination of jobs: Approximately two percent of survey respondents indicated that the rule changes would cause them to add jobs. This represented one business that was one of the 10 percent of the largest businesses. No respondents indicated that the rule changes would cause them to eliminate jobs. Therefore, with respect to adding or eliminating jobs, there does not appear to be a disproportionate impact on small businesses as compared to the largest 10 percent of businesses that are required to comply.

SECTION 6: If the proposed rule is likely to impose a disproportionate impact on small businesses, identify the steps taken to reduce the costs of the rule on small businesses: In drafting the rule amendments, the securities division attempted to balance the business concerns of registered broker-dealers with the securities division's mission to protect the investing public and to promote confidence in the capital markets.

As a result of feedback received from affected businesses, the securities division made certain revisions to the initial rules draft to reduce the cost of compliance for small businesses. We detail these revisions below. The securities division also outlines additional mitigation steps we intend to take to reduce the burden of compliance. The securities division does not believe that it can reduce costs further and still accomplish the investor protection purpose of the rule making.

Reducing, modifying, or eliminating substantive regulatory requirements: The securities division reconsidered the provision in its draft rule at WAC 460-20C-030 that would require all principals of the broker-dealer to register as salespersons in Washington. We removed this requirement. This will reduce registration and administrative expenses for broker-dealers whose principals are not currently registered as salespersons here.

Simplifying, reducing, or eliminating recordkeeping and reporting requirements: The securities division revised the draft rules to remove the requirement for the submission of a business email address for each salesperson registered in Washington. This will reduce reporting requirements and any associated administrative expenses.

Reducing the frequency of inspections: The securities division does not believe that reducing the frequency of inspections or examinations would be in the interest of the investing public. Therefore, we have not made any changes to the draft rules that would reduce the frequency of inspections or examinations.

Delaying compliance timetables: The securities division understands that broker-dealers may require input from outside attorneys or compliance consultants to assist them in understanding and implementing the new rules. The securities division will allow broker-dealers adequate time to adjust to the rule changes through existing processes. Through the exam and deficiency letter process, the securities division will provide reasonable time for broker-dealers to fix any deficiencies related to the new rules that the staff identifies during its routine examinations of broker-dealers.

Reducing or modifying fine schedules for noncompliance: To reduce potential costs for broker-dealers, the securities division revised the draft rule at WAC 460-20C-050 to remove the increase in the delinquency fee to $200. The delinquency fee that applies to late renewal applications will therefore remain at the current amount of $100. This will reduce the anticipated expenses associated with the draft rules.

Any other mitigation techniques, including those suggested by small businesses or small business advocates: The securities division will consider any comments received on the CR-102 that address how to reduce costs or suggest any additional mitigation techniques. To facilitate compliance with the new rules, the securities division will consider developing a Frequently Asked Questions (FAQ) publication or other interpretive guidance for distribution to registered broker-dealers. In addition, upon adoption of the rules, the securities division will fulfill reasonable requests received from broker-dealers headquartered in Washington to provide training or technical assistance visits regarding compliance with the new rules.

SECTION 7: Describe how small businesses were involved in the development of the proposed rule: Throughout the rule-making process, the securities division has involved its registered broker-dealers and interested persons. Many of these broker-dealers are small businesses with fewer than 50 employees.

The securities division filed a CR-101 preproposal statement of inquiry with the code reviser's office on April 3, 2023 stating that the securities division was considering amending the rules currently in chapters 460-20B, 460-21B, and 460-22B WAC. On April 18, 2023, the securities division electronically mailed the CR-101 to all broker-dealers registered in Washington to solicit comments. At the same time, the securities division electronically mailed the CR-101 to its securities rule making interested persons list. The securities division did not receive any comments on the CR-101 form.

The securities division subsequently prepared a draft of possible amendments to the rules that would combine the existing chapters into new chapter 460-20C WAC. On December 19, 2023, the securities division posted the draft rules on our website, along with a section-by-section analysis detailing the differences between the draft chapter 460-20C WAC and the current rules in chapters 460-20B, 460-21B, and 460-22B WAC. In addition, the securities division conducted a survey of all broker-dealers registered in Washington to determine the costs associated with the rule amendments. On December 20, 2023, the securities division emailed a link to the draft and a link to the electronic survey to all broker-dealers registered in Washington. The survey period remained open until February 1, 2024.

Following the distribution of the initial draft and the completion of the survey, the securities division revised the draft rules in response to feedback received from broker-dealers in the survey. The securities division now intends to proceed with the rule making by formally proposing chapter 460-20C WAC in a CR-102 filing with the code reviser. The securities division will distribute the CR-102 to our registered broker-dealers and our securities rule-making interested persons list. Broker-dealers and all interested members of the public will have an opportunity to submit comments on the proposed rule and participate in the rule-making hearing.

SECTION 8: Identify the estimated number of jobs that will be created or lost as the result of compliance with the proposed rule: The results of the survey indicated that no jobs would be eliminated as a result of the proposed rules. One survey respondent indicated that one job would be added as a result of the proposed rules.

SECTION 9: Summarize the results of the analysis, including the determination if costs are disproportionate: As discussed in Section 5 above, the survey indicated that several of the rules may impose disproportionate costs on small businesses as compared to the largest 10 percent of businesses required to comply with the rules. To mitigate this, the securities division revised its draft rules to lower costs as detailed in Section 6.

While the potential rule changes may increase costs to licensees, the securities division believes the increased investor protection outweighs the concerns regarding cost increases. Further, we note that the rules were drafted consistent with requirements under federal law and subject to the restrictions of NSMIA. To the extent that there will be remaining disproportionate costs on small businesses, we note that as demonstrated in Section 3, the survey respondents, including small businesses, indicated that most rules would not cause additional expense.

A copy of the statement may be obtained by contacting Jill Vallely, P.O. Box 41200, Olympia, WA 98504-1200, phone 360-902-8801, fax 360-902-0524, TTY 1-800-833-6384, email jill.vallely@dfi.wa.gov.

May 3, 2024

Charlie Clark

Director

OTS-4968.3

Chapter 460-20C WAC

OTS-4965.1

The following chapter of the Washington Administrative Code is repealed:

OTS-4966.1

The following chapter of the Washington Administrative Code is repealed:

OTS-4967.1

The following chapter of the Washington Administrative Code is repealed: