OVERVIEW
In an effort to modernize its registration function, to better conform to the federal securities registration regime, to cure industry confusion as to certain registration requirements and to better track exam requirement compliance of thousands of investment adviser representatives (“IARs”) providing investment advice to New Yorkers, the New York Investor Protection Bureau of the Department of Law (“Department”) has proposed revisions to its current regulations.
By adopting these revisions, the Attorney General is notifying investment advisers that natural persons representing investment advisers, including principals, supervisors and representatives thereof, solicitors and representatives thereof and certain IARs of federally covered investment advisers will, upon implementation of these regulations, be explicitly required to meet exam requirements and register with the State.
The revisions to 13 N.Y.C.R.R. § 11 (the “Revised Regulations”) will implement General Business Law (“GBL”) § 359-eee by registering IARs through the Central Registration Depository/Investment Adviser Registration Depository (collectively “CRD/IARD”). The Revised Regulations include (i) an implementation period allowing persons who permissibly operated under the rules in existence prior to these revisions to do so until December 2, 2021, so long as they submit an application for registration by August 31, 2021, (ii) a new exam special waiver category, and new Form NY-IASW, for persons currently serving as IARs and having two (2) years of experience in that capacity prior to the Revised Regulations effective date, excluding those previously acting solely as solicitors or those with disciplinary history, and (iii) an extended period to comply with the examination requirement for those persons permissibly operating under the rules in existence prior to the Revised Regulations, but who do not qualify for an exam waiver.
Further, the Revised Regulations include a new bookkeeping requirement for investment advisers. The revision requires that State-registered investment advisers take reasonable steps to verify the “accredited investor” and “qualified client” status of any client so designated, including making and maintaining documents used in the course of verification.
REVISED REGULATIONS
General Provisions and Registration Information
The Revised Regulations shall become effective on February 1, 2021. All investment adviser and IAR applications, amendments, reports, notices, related filings and fees required to be filed with the Attorney General shall be filed electronically through the CRD/IARD. The application for initial registration as an IAR shall be made by completing Form U4 and filing it through the CRD/IARD, which must be approved by the State prior to engaging in investment advisory activities in the State of New York.
All principals, IARs and supervisors must apply for registration in connection with their representation of any investment adviser or solicitor. In addition, all IARs for a federally covered investment adviser must apply for registration in connection with their representation. Registration is for a calendar year or for the remaining part of the calendar year in which it is submitted. All IARs, and all principals and supervisors for any investment adviser, must file Form U4 or U5, as appropriate on CRD/IARD and must amend such forms in accordance with the respective form’s instructions.
Any person who, prior to February 1, 2021, was serving continuously and permissibly in any capacity covered under 13 NYCRR 11, and who, through continued service is subject to the registration requirements on or after February 1, 2021, may continue such services without an approved registration until December 2, 2021 without violating the registration provisions of GBL § 359-eee or 13 NYCRR 11, so long as Form U4 requesting investment adviser representative registration in New York for that person is submitted on or before August 31, 2021.
Examination Requirements
Every principal of an investment adviser or solicitor, who is required to register, and every IAR, including persons representing solicitors, and every supervisor who is required to register and who does not qualify for a waiver must take and receive a passing grade within two (2) years prior to the date of filing registration: (i) the Uniform Investment Adviser Law Examination (Series 65 examination); or (ii) the Securities Industry Essentials Examination, the General Securities Representative Examination (Series 7 examination) and the Uniform Combined State Law Examination (Series 66 examination). Every natural person who, prior to February 1, 2021, was serving continuously and permissibly in any capacity covered under 13 NYCRR 11, and who, through continued service, is subject to the examination requirements on or after February 1, 2021, and who does not qualify for a waiver must take and receive a passing grade by December 2, 2021 on the examination(s) required.
Waivers
Prior Registration
A natural person who otherwise is required to meet the examination requirements shall be exempt from such requirements upon application to, and approval by, the Department, provided that such person has been continuously registered to provide investment advice in any jurisdiction for a period of at least two (2) years prior to the date of filing registration information, has not had any lapse in registration exceeding two (2) years, and is not, and has not been, subject to any regulatory or civil action, proceeding or arbitration, either pending or in the preceding then (10) years from the date of such application, that would require disclosure on Form U4.
Special Waiver
Every natural person otherwise required to meet the examination requirements who, in the regular course of business, acted as an investment adviser representative from a place of business in the State continuously and permissibly for at least two (2) years prior to February 1, 2021 and who is not eligible for any other waiver, may be exempt from the examination requirements upon application to, and approval by, the Department. No person shall qualify for this waiver if:
- that person submits an application for registration after August 31, 2021; or
- that person’s investment advisory activities during the two (2) years preceding December 2, 2020 were limited to serving or acting as a solicitor; or
- that person, for two (2) or more continuous years in the four (4) years preceding the filing of registration information, had ceased performing acts in the regular course of business from a place of business in the State; or
- that person currently is or has been subject to any regulatory or civil action, proceeding or arbitration, either pending or in the preceding ten (10) years from the date of such application, that would require disclosure on Form U4, or that person has been notified or has reason to believe that they currently are or remain the subject of a regulatory or law enforcement investigation related to investment related activities.
Certification
The examination requirements shall not apply to any natural person who currently holds one of the following professional designations in good standing:
- Certified Financial Planner awarded by the Certified Financial Planner Board of Standards, Inc.;
- Chartered Financial Consultant awarded by the American College, Bryn Mawr, Pennsylvania;
- Personal Financial Specialist awarded by the American Institute of Certified Public Accountants;
- Chartered Financial Analyst awarded by the Association for Investment Management Research;
- Chartered Investment Counselor awarded by the Investment Adviser Association; or
- Such other professional designation as the administrator may by rule or order recognize.
Application for Waiver
Applicant waiver eligibility for prior registration and certification shall automatically be directed to the Department for evaluation and approval through the Form U4 submission. All requests for special waivers must be submitted directly to the Department on Form NY-IASW at the time of submission of the Form U4.
Record Keeping Requirements
Under the Revised Regulations, an investment adviser is required to keep documentation of each client’s financial assets and income that support any designation made or acknowledged by the investment adviser of such client as an “accredited investor” or “qualified client” as those terms are defined under federal law. The investment adviser shall make and maintain documents evidencing reasonable steps to verify any designation as “accredited investor” or “qualified client” and maintain all documents reviewed in the course of such verification.
ADDITIONAL INFORMATION
If you have any questions regarding the information contained herein or need advice navigating these new regulations, please contact Devin Heck at dheck@srf.law.
