PREPROPOSAL STATEMENT OF INQUIRY
Subject of Possible Rule Making: The securities division is considering amending and updating its rules regarding safeguard requirements for investment advisers that maintain custody or possession of client funds or securities, including WAC 460-24A-105.
Statutes Authorizing the Agency to Adopt Rules on this Subject: RCW 21.20.450, 21.20.100, 21.20.050 - [21.20.]060.
Reasons Why Rules on this Subject may be Needed and What They Might Accomplish: The securities division regulates investment advisers and requires registration of those that do business in our state. The Securities and Exchange Commission (SEC) also regulates investments advisers. Both the SEC custody safeguards, set forth in 17 C.F.R. 275.206 (4)(2), and the North American Securities Administrators, Inc. (NASAA) model custody rule have been amended since the division's investment adviser custody rules were last updated. The securities division is considering amending and updating its custody rules in light of the amendments by the SEC and NASAA with the goal of modernizing the rules to reflect current industry practices while ensuring adequate protection for investment advisory clients.
Other Federal and State Agencies that Regulate this Subject and the Process Coordinating the Rule with These Agencies: The federal SEC regulates investment advisers and requires registration of investment advisers that have $30 million or more under management. An investment adviser with at least $25 million but no more the $30 million of assets under management may choose to register federally with the SEC or the state in which it maintains its principal office and place of business. The SEC amended its investment adviser custody rules in 2003. See Custody of Funds or Securities of Clients by Investment Advisers, Release No. IA-2176 (Oct. 1, 2003). The division regulates investment advisers and requires registration of those that do business in our state with less than $25 million under management or that have more than $25 million, but less that $30 million under management and choose to be registered at the state level as an alternative to federal registration. The division will consider the SEC's amended custody rules in studying the possible amendment and updating of its own custody rules including WAC 460-24A-105.
Process for Developing New Rule: The division is soliciting comments from interested persons. The division will also study the custody rules adopted by the Securities and Exchange Commission and the North American Securities Administrators Association, Inc., which were subjected to extensive public comment prior to their adoption.
Interested parties can participate in the decision to adopt the new rule and formulation of the proposed rule before publication by contacting Faith L. Anderson, Department of Financial Institutions, Securities Division, P.O. Box 9033, Olympia, WA 98507-9033, phone (360) 725-7825, fax (360) 704-6480, e-mail firstname.lastname@example.org.
March 14, 2008
Michael E. Stevenson
Director of Securities