The Office proposes to amend Rules 69W-600.012, .013, .0131, and .014, F.A.C., to update references to repealed rules. Additionally, the Office proposes to amend Rule 69W-600.014, F.A.C., in order to amend recordkeeping requirements for investment ...

 

DEPARTMENT OF FINANCIAL SERVICES

Securities

RULE NOS.: RULE TITLES:

69W-600.0012: Application for Registration as a Dealer (Non-FINRA)

69W-600.0013: Application for Registration as an Issuer/Dealer

69W-600.0131: Prohibited Business Practices for Investment Advisers and Their Associated Persons

69W-600.014: Books and Records Requirements

PURPOSE AND EFFECT: The Office proposes to amend Rules 69W-600.012, .013, .0131, and .014, F.A.C., to update references to repealed rules. Additionally, the Office proposes to amend Rule 69W-600.014, F.A.C., in order to amend recordkeeping requirements for investment advisers and their associated persons, to add a requirement for investment advisers to maintain a copy of each invoice the investment adviser sends to its clients each time an advisory fee is deducted from clients’ accounts; remove superfluous rule language; and add a requirement for investment advisers and associated persons to preserve for the life of the client’s account, and not less than 5 years after the closing of the client’s account, a copy of investment advisory agreements and the written information about each investment advisory client that is the basis for making any recommendation or providing any investment advice to such client. Lastly, the Office proposes to amend Rule 69W-600.0131, F.A.C., in order to add “charging a customer an advisory fee greater than the amount authorized in the written investment advisory contract between the customer and the investment advisor” as a prohibited business practice for investment advisers and their associated persons. This amendment will give the Office enforcement authority over advisers who are over-charging customers.

SUMMARY: The Office proposes to amend Rules 69W-600.012, .013, .0131, and .014, F.A.C., to update references to repealed rules. Additionally, the Office proposes to amend Rule 69W-600.014, F.A.C., to remove unnecessary rule language and to add recordkeeping retention requirements for investment advisers and associated persons; and Rule 69W-600.0131, F.A.C., to add charging a customer an advisory fee greater than the amount authorized in a written investment advisory contract as a prohibited business practice for investment advisers and their associated persons.

SUMMARY OF STATEMENT OF ESTIMATED REGULATORY COSTS AND LEGISLATIVE RATIFICATION:

The Agency has determined that this will not have an adverse impact on small business or likely increase directly or indirectly regulatory costs in excess of $200,000 in the aggregate within one year after the implementation of the rule. A SERC has not been prepared by the Agency.

The Agency has determined that the proposed rule is not expected to require legislative ratification based on the statement of estimated regulatory costs or if no SERC is required, the information expressly relied upon and described herein: The Agency expressly relies on an analysis of potential economic impact conducted by persons with subject matter knowledge of these rules.

Any person who wishes to provide information regarding a statement of estimated regulatory costs, or provide a proposal for a lower cost regulatory alternative must do so in writing within 21 days of this notice.

RULEMAKING AUTHORITY: 517.03(1), 517.121(1), 517.1215, 517.1217 FS.

LAW IMPLEMENTED: 517.121, 517.301(1), 517.081, 517.1217, 517.161(1), 517.12(4), 517.1215 FS.

IF REQUESTED WITHIN 21 DAYS OF THE DATE OF THIS NOTICE, A HEARING WILL BE SCHEDULED AND ANNOUNCED IN THE FAR.

THE PERSON TO BE CONTACTED REGARDING THE PROPOSED RULE IS: Jodi-Ann Livingstone, [phone], [e-mail]

 

THE FULL TEXT OF THE PROPOSED RULE IS:

69W-600.012 Rules of Conduct.

(1) through (2) No change.

(3) No dealer or investment adviser shall permit or effect a withdrawal of any part of its net worth, including subordinated indebtedness, whether by redemption, retirement, repurchase, repayment or otherwise, that would cause its net capital or its aggregate indebtedness to violate any provisions of Office of Financial Regulation Rules 69W-600.0151 and 69W-600.0161 Rule 69W-600.016, F.A.C., without prior written approval of the Office of Financial Regulation.

(4) through (5) No change.

Rulemaking Authority 517.03(1) FS. Law Implemented 517.121, 517.301(1) FS. History–New 12-5-79, Amended 9-20-82, Formerly 3E-600.12, Amended 12-25-89, 10-14-90, 8-1-91, 6-16-92, 1-11-93, 4-11-94, 1-3-99, 8-19-99, 10-30-03, Formerly 3E-600.012, Amended 11-22-10, 9-22-14,       .

 

69W-600.013 Prohibited Business Practices for Dealers and Their Associated Persons.

(1) The following are deemed demonstrations of unworthiness by a dealer under Section 517.161(1)(h), F.S., without limiting that term to the practices specified herein:

(a) through (k) No change.

(l) Recommending to a customer that the customer engage the services of an investment adviser in connection with which the dealer receives a fee or remuneration (other than directed business) from the investment adviser, unless the dealer is registered with the Office as an investment adviser pursuant to Rule 69W-600.0016, F.A.C. or notice-filed pursuant to Rule 69W-600.0017, F.A.C., except as permitted in Rule 69W-600.003, F.A.C.

(m) through (o) No change.

(2) No change.

Rulemaking Authority 517.03(1), 517.1217 FS. Law Implemented 517.081, 517.1217, 517.161(1) FS. History–New 12-5-79, Amended 9-20-82, Formerly 3E-600.13, Amended 8-1-91, 6-16-92, 1-11-93, 11-7-93, 5-5-94, 9-9-96, 10-20-97, 1-25-00, 10-30-03, Formerly 3E-600.013, Amended 10-23-06, 1-18-09, 11-22-10, 9-22-14,       .

 

69W-600.0131 Prohibited Business Practices for Investment Advisers and Their Associated Persons.

(1) The following are prohibited business practices for investment advisers and associated persons pursuant to Section 517.1215(2), F.S., and are deemed demonstrations of unworthiness by an investment adviser or an associated person of an investment adviser under Section 517.161(1)(h), F.S., without limiting that term to the practices specified herein:

(a) through (m) No change.

(n) Recommending to a customer that the customer engage the services of a dealer in connection with which the investment adviser receives a fee or remuneration from the dealer, except as permitted in Rule 69W-600.0024(4), F.A.C. 69W-600.003, F.A.C.

(o) through (w) No change.

(x) Charging a customer an advisory fee greater than the amount authorized in the written investment advisory contract between the customer and the investment adviser.

(2) No change.

Rulemaking Authority 517.03(1), 517.1215 FS. Law Implemented 517.12(4), 517.1215, 517.161(1) FS. History–New 1-25-00, Amended 10-30-03, Formerly 3E-600.0131, Amended 10-23-06, 1-18-09, 11-22-10, 9-22-14, 5-6-15,        .

 

69W-600.014 Books and Records Requirements.

Except as otherwise provided herein, every dealer, investment adviser, branch office, and associated person conducting business in this state shall prepare and maintain on a current basis, and preserve for the periods of time specified, such records, prescribed herein, as are appropriate for said dealer’s, investment adviser’s, branch office’s, or associated person’s course of business, and are sufficient to provide an audit trail of all business transactions by said dealer, investment adviser, associated person, or branch office. Associated persons who conduct business from a branch office notice-filed in this state shall be exempt from the provisions of this rule.

(1) through (2) No change.

(3) All investment advisers, notwithstanding the fact that the investment adviser is not registered or required to be registered under the Investment Advisers Act of 1940, shall prepare and maintain true, accurate and current records relating to their business as described in SEC Rule 204-2, (17 C.F.R. § 275.204-2), which is incorporated by reference in Rule 69W-200.002, F.A.C.; and have available for the Office of Financial Regulation at least the following records:

(a) All trial balances, financial statements prepared in accordance with United States generally accepted accounting principles, and internal audit working papers relating to the investment adviser’s business as an investment adviser. For purposes of this paragraph, “financial statements” means balance sheets, income statements, cash flow statements and net worth computations as required by Rule 69W-600.0161, F.A.C. 69W-300.002, F.A.C.

(b) through (k) No change.

(l) A copy of each invoice the investment adviser sends to its clients each time an advisory fee is deducted from clients’ accounts.

(4) through (6) No change.

(7) All books and records described in this rule shall be preserved in accordance with the following:

(a) Those records required under subsection (1) of this rule shall be preserved for such periods of time as specified in either SEC Rule 17a-4, (17 C.F.R. § 240.17a), or MSRB Rule G-9.

(b) Those records required under subsection (2) of this rule shall be preserved for a period of not less than five (5) years while effectively registered with the Office of Financial Regulation, nor for less than five (5) years after withdrawal or expiration of registration in this State.

(c) Books and records required to be prepared under the provisions of subsection (3) shall be maintained and preserved in an easily accessible place for a period of not less than five years from the end of the fiscal year during which the last entry was made on such record, the first two years in the principal office of the investment adviser.

(d) Every investment adviser and associated person conducting business in this state shall preserve for the life of the client’s account, and not less than 5 years after the closing of the client’s account, documents required to be prepared and maintained in accordance with paragraphs (3)(c) and (3)(i).

(d) Books and records required to be made under the provisions of subsection (3), shall be maintained and preserved for a period of not less than five years from the end of the fiscal year during which the last entry was made on such record or for the time period during which the investment adviser was registered or required to be registered in the state, if registered less than five years.

(e) Each investment adviser registered or required to be registered in this state and which has a business location in this state shall maintain at such business location:

1. through 3. No change.

(8) No change.

Rulemaking Authority 517.03(1), 517.121(1), 517.1215 FS. Law Implemented 517.121(1), 517.1215 FS. History–New 12-5-79, Amended 9-20-82, Formerly 3E-600.14, Amended 10-14-90, 8-1-91, 6-16-92, 1-11-93, 9-9-96, 6-22-98, 1-25-00, 10-30-03, Formerly 3E-600.014, Amended 10-23-06, 5-15-07, 11-22-10, 11-11-13, 9-22-14, 5-6-15,         .

 

NAME OF PERSON ORIGINATING PROPOSED RULE: Gregory C. Luers, Director, Division of Securities

NAME OF AGENCY HEAD WHO APPROVED THE PROPOSED RULE: Financial Services Commission

DATE PROPOSED RULE APPROVED BY AGENCY HEAD: August 2, 2016

DATE NOTICE OF PROPOSED RULE DEVELOPMENT PUBLISHED IN FAR: June 24, 2016