Registration of Florida Intrastate Crowdfunding Intermediaries, Custody Requirements for Investment Advisers

 

DEPARTMENT OF FINANCIAL SERVICES

Securities

RULE NOS.:RULE TITLES:

69W-600.0019Registration of Florida Intrastate Crowdfunding Intermediaries

69W-600.0132Custody Requirements for Investment Advisers

NOTICE OF CORRECTION

Notice is hereby given that the following correction has been made to the proposed rule in Vol. 50 No. 11, January 17, 2024 issue of the Florida Administrative Register.

Rule 1-1.013(2)(a), F.A.C., requires an incorporated form to be identified by both a form number and title and Rule 1-1.011(3)(c)2., F.A.C., requires that an amended rule shall be coded by underlining new text and by striking through deleted text. Rule 1-1.011(3)(c)2.c. requires that any subsection, paragraph, subparagraph, or sub-subparagraph not being amended not be included and that it be noted as “No change,” unless inclusion is necessary to make the publication of the amended rule complete and meaningful. Rule 69W-600.0019, F.A.C., is corrected to add the title of Form FL-INT to the rule and to not strike the link to Form FL-INT since Form FL-INT is not being changed. Rule 69W-600.0132, F.A.C., is corrected to clarify that paragraphs (2)(b) through (e) are not changing and to add the title for Form ADV-E.

 

Rule 69W-600.0019(1)(b)1., F.A.C., should read as follows:

 

69W-600.0019 Registration of Florida Intrastate Crowdfunding Intermediaries.

(1) New Applications.

(a) No change.

(b) An application shall include the following:

1. Registration of Crowdfunding Intermediary Application, Form FL-INT (10/15). A sample form (which includes its instructions, which define certain terms in Section 517.12(19), F.S.) is hereby incorporated by reference and available at http://www.flrules.org/Gateway/reference.asp?No=Ref-06074, or https://flofr.gov/sitePages/documents/FormFL-INT.pdf;

2. through 4. No change.

(2) through (6) No change.

(7) Notice of Civil, Criminal or Administrative Action. An intermediary shall:

(a) through (b) No change.

(c) Such notifications shall be filed with the Office through the REAL System in accordance with subsection (3) of this rule. When specifically requested by the Office pursuant to Section 517.021, F.S., one (1) copy of such complaint, answer or reply to any complaint, decision, order, or sanction shall be filed directly with the Office. Responses to requests by the Office for additional information shall be filed directly with the Office.

Rulemaking Authority 517.03(1), 517.12(19), 517.121(1), 517.1611 FS. Law Implemented 517.12(19), 517.1611 FS. History–New 12-29-15, Amended 1-18-21,         .

 

Rule 69W-600.0132(2)(b) –(f), F.A.C. should read as follows: 

 

69W-600.0132 Custody Requirements for Investment Advisers.

(1) Definitions. For purposes of this rule:

(a) “Custody” means holding directly or indirectly, client funds or securities, or having any authority to obtain possession of them or has the ability to appropriate them. The investment adviser has custody if a related person holds, directly or indirectly, client funds or securities, or has any authority to obtain possession of them, in connection with advisory services the investment adviser provides to clients.

1. Custody includes:

a. through b. No change.

c. Any capacity (such as general partner of a limited partnership, managing member of a limited liability company or a comparable position for another type of pooled investment vehicle, or trustee of a trust) that gives the investment adviser or the investment adviser’s supervised person legal ownership of or access to client funds or securities (including, but not limited to, a general partner of a limited partnership, a managing member of a limited liability company or a comparable position for any type of pooled investment vehicle, or a trustee of a trust).

2. Receipt of checks drawn by clients and made payable to third parties will not meet the definition of custody if forwarded to the third party within 24 hours of receipt and the investment adviser maintains the records required under subsection 69W-600.014(8), F.A.C.,

(b) through (e) No change.

(f) “Supervised person” means an investment adviser’s officers, partners, directors (or other persons occupying a similar status or performing similar functions), or employees, or any other person who provides investment advice on behalf of the investment adviser and is subject to the investment adviser’s supervision or control.

(2) Safekeeping required. If the investment adviser is registered or required to be registered, it is unlawful for the investment adviser to have custody of client funds or securities unless the following requirements in paragraphs (2)(a)-(i) are met:

(a) Notice to Office. The investment adviser notifies the Office of Financial Regulation (Office) within thirty (30) days in writing that the investment adviser has or may have custody. Such notification is required to be given on Form ADV, Uniform Application for Investment Adviser Registration (08-22) (09-19), which is hereby incorporated by reference and available at http://www.flrules.org/Gateway/reference.asp?No=Ref-XXXXX http://www.flrules.org/Gateway/reference.asp?No=Ref-12568.

(b) through (e) No change.

(f) Independent Verification. The client funds and securities of which the investment adviser has custody are verified by actual examination at least once during each calendar year, by an independent certified public accountant, pursuant to a written agreement between the investment adviser and the independent certified public accountant, at a time that is chosen by the independent certified public accountant without prior notice or announcement to the investment adviser and that is irregular from year to year. The written agreement must provide for the first examination to occur within six months of becoming subject to this paragraph, except that, if the investment adviser maintains client funds or securities pursuant to this rule as a qualified custodian, the agreement must provide for the first examination to occur no later than six months after obtaining the internal control report. The written agreement must require the independent certified public accountant to:

1. File a certificate on Form ADV-E, electronically through the Investment Adviser Registration Depository (IARD) of the Financial Industry Regulatory Authority (FINRA) with the Office within 120 days of the time chosen by the independent certified public accountant in paragraph (2)(f) of this rule, stating that it has examined the funds and securities and describing the nature and extent of the examination. Form ADV-E, Certificate of Accounting of Client Securities and Funds in Possession or Custody of an Investment Advisor Pursuant to Rule 206(4)-2 [17 CFR 275.206(4)-2] (01-13) is hereby incorporated by reference and a sample form is accessible at http://www.flrules.org/Gateway/reference.asp?No=Ref-XXXXX http://www.flrules.org/Gateway/reference.asp?No=Ref-05357.

2. through 3. No change.

(g) through (h) No change.

(i) Direct Fee Deduction. An investment adviser who has custody as defined in sub-subparagraph (1)(a)1.b. of this rule, as a consequence of its authority to make withdrawals from client accounts to pay its advisory fee must also provide the following safeguards:

1. through 2. No change.

3. The investment adviser must notify the Office in writing that the investment adviser intends to use the safeguards provided above. Such notification is required to be given on Form ADV, Uniform Application for Investment Adviser Registration (08-22) (09-19), which is hereby incorporated by reference and available at http://www.flrules.org/Gateway/reference.asp?No=Ref-XXXXX http://www.flrules.org/Gateway/reference.asp?No=Ref-12568.

(3) Exceptions to certain safekeeping requirements.

(a) No change.

(b) Certain privately offered securities.

1. No change.

2. Notwithstanding subparagraph (3)(b)1. of this rule, the provisions of paragraph (3)(b) of this rule are available with respect to securities held for the account of a limited partnership (or limited liability company, or other type of pooled investment vehicle) only if the limited partnership is audited, the audited financial statements are distributed, as described in paragraph (3)(d) of this rule, and the investment adviser notifies the Office in writing that the investment adviser intends to provide audited financial statements, as described above. Such notification is required to be given on Form ADV, Uniform Application for Investment Adviser Registration (08-22) (09-19), which is hereby incorporated by reference and available at http://www.flrules.org/Gateway/reference.asp?No=Ref-XXXXX http://www.flrules.org/Gateway/reference.asp?No=Ref-12568.

(c) No change.

(d) Limited partnerships subject to annual audit. An investment adviser is not required to comply with paragraphs (2)(c) and (2)(d), and shall be deemed to have complied with paragraph (2)(f) of this rule, with respect to the account of a limited partnership (or limited liability company, or any other type of pooled investment vehicle) if each of the following conditions in subparagraphs 1. through 6. are met:

1. through 3. No change.

4. Upon liquidation, the investment adviser distributes the fund’s final audited financial statements prepared in accordance with generally accepted accounting principles to all limited partners (or members or other beneficial owners) and the Office promptly after the completion of such audit;

5. The written agreement with the independent certified public accountant must require the independent certified public accountant to, upon resignation or dismissal from, or other termination of, the engagement, or upon removing itself or being removed from consideration for being reappointed, notify the Office in writing via U.S. mail to 200 E. Gaines Street, Tallahassee, FL 32399 within four business days accompanied by a statement that includes:

a. through b. No change.

6. The investment adviser must also notify the Office in writing that the investment adviser intends to employ the use of the statement delivery and audit safeguards described above. Such notification is required to be given on Form ADV, Uniform Application for Investment Adviser Registration (08-22) (09-19), which is hereby incorporated by reference and available at http://www.flrules.org/Gateway/reference.asp?No=Ref-XXXXX http://www.flrules.org/Gateway/reference.asp?No=Ref-12568.

7. No change.

(e) Investment Adviser as Trustee. When a trust retains an investment adviser, associated person of an investment adviser or employee, director or owner of an investment adviser as trustee and the investment adviser acts as the investment adviser to that trust, an investment adviser is not required to obtain an independent verification of client funds and securities maintained by a qualified custodian under paragraph (2)(f) of this rule, if the investment adviser instructs the qualified custodian of the trust as follows in subparagraphs 1. through 3.:

1. No change.

2. Distribution of Assets. Except as otherwise set forth in sub-subparagraph a. below, the qualified custodian may transfer funds or securities, or both, of the trust only upon the direction of the trustee. The grantor of the trust or attorneys for the trust, if it is a testamentary trust, the co-trustee (other than the investment adviser, associated person of the investment adviser or employee, director or owner of the investment adviser), or a defined beneficiary of the trust, must designate the authorized signatory for management of the trust. The direction to transfer funds or securities, or both, can only be made to the following:

a. through b. No change.

c. To a third person independent of the investment adviser in payment of the fees or charges of the third person including, but not limited to: attorney’s Attorney’s, accountant’s, or custodian’s fees for the trust; and taxes, interest, maintenance or other expenses, if there is property other than securities or cash owned by the trust;

d. through e. No change.

3. through 4. No change.

(f) through (g) No change.

(4) No change.

Rulemaking Authority 517.03(1), 517.1215 FS. Law Implemented 517.1215 FS. History–New 10-23-06, Amended 11-22-10, 9-22-14, 5-6-15, 11-26-19, 1-18-21,                .