Washington State
House of Representatives
Office of Program Research
BILL
ANALYSIS

Financial Institutions & Insurance Committee

HB 2916

Brief Description: Adopting the uniform securities act of Washington.

Sponsors: Representative Kirby; by request of Uniform Legislation Commission.

Brief Summary of Bill
  • Repeals the existing state securities act, Chapter 21.20 RCW.
    • Creates a new state securities act, to be codified as Chapter 21.20A RCW.
      • Adds new definitions and alters existing definitions.
        • Exempts additional securities and transactions from registration.

Hearing Date: 1/26/06

Staff: Jon Hedegard (786-7127).

Background:

The Department of Financial Institutions (DFI), through its Securities Division, is responsible for the regulation of the securities market in this state. The mission of the Securities Division is to protect Washington residents from dishonest or fraudulent practices by people selling investments. The Securities Division utilizes through a variety of regulatory and enforcement tools, including:

The Securities Act of Washington is Chapter 21.20 RCW.
The chapter is a comprehensive regulatory structure that includes:


The DFI participates in the National Conference of Commissioners on Uniform State Laws (NCCUSL), which is involved in the development of model regulations. The first uniform act to address securities was the Uniform Sales of Securities Act of 1930. A second Uniform Securities Act was promulgated by the Uniform Law Commissioners in 1956 to replace the 1930 Act. It was enacted in 37 jurisdictions. The third act was adopted in 1985 but the revised act was enacted in only six states. In 2002, the NCCUSL completed a draft Uniform Securities Act. The Uniform Law Commissioners intend the 2002 Act to replace both the 1956 and 1985 Acts.

Washington adopted the Uniform Securities Act of 1956 as Chapter 21.20 RCW. Chapter 21.20 RCW has been amended on numerous occasions but the state did not adopt the 1985 Act.

Summary of Bill:

The bill repeals the existing State Securities Act, Chapter 21.20 RCW, and creates a new State Securities Sct, to be codified as Chapter 21.20A RCW.

The bill creates structures, processes, and fees that are fairly consistent or the same as the existing chapter. Selected differences from the existing structure will be noted below.

Definitions.
The bill modifies existing definitions, including the definition of "security." The definition of "security" is expanded to encompass additional interests, including an interest in limited partnerships, limited liability corporations, viatical settlements, and life settlements. the definitions of "broker-dealer", "salesperson", and "investment adviser", "issuer", "nonissuer", "person", and "sale" are altered.

The bill adds numerous new definitions, including "bank", "depository institution", "filing", "fraud", "institutional investor", "insurance company", "insured", "international banking institution", "investment adviser representative", "non-issuer transaction", "offer to purchase", "place of business", "predecessor act", "Price amendment", "principal place of business", "record", "self-regulatory organization", and "sign".

Registration of broker-dealers, sales agents, investment advisers, investment adviser representative's.
Existing registration exemptions are modified. Exemptions are created persons who otherwise would have to be registered if they do not have a place of business within Washington and meet other specific conditions.

Securities registration.
The existing registration and fee structure is maintained in large part. Federally covered securities are exempt from registration.

Exempt Transactions.
Additional exemptions for registration of transactions are created including:

Civil penalties.
The bill builds on the existing concepts of civil liability with regard to securities, including statute of limitations, unenforceability of contracts that violate the law.

A seller is not liable to a purchase if a seller did not know and in the exercise of reasonable care could not have known of an untruth, omission, or violation.

Unregistered investment advisers and investment adviser representatives are liable for violations of registration or fraud provisions of the Chapter.

Appropriation: None.

Fiscal Note: Available.

Effective Date: The bill takes effect on January 1, 2007.