At the end of March 2020, the New York State Attorney General announced temporary relief to meet certain filing deadlines for investment advisers, brokers, dealers, salespersons, commodity broker-dealers, commodity salespersons, commodity investment advisers. In general, any registration renewal, amendment or other required filing that would have been due between March 1, 2020, and April 30, 2020, is extended by 90 days.
In a non-COVID-19 related action, the New York State Attorney General, on April 6, 2020, announced that the Investor Protection Bureau (IPB) proposed revisions to its current regulations 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 providing investment advice to New Yorkers."
Below are highlights of the proposed changes.
New York law has required securities dealers, including issuers, file certain enumerated information with the IPB. Federal law preempted much of state securities laws relating to such filing obligations. Since the enactment in 1996 of the National Securities Markets Improvement Act (NSMIA), such preemption applied to "covered securities," such as securities listed on a national securities exchange or securities issued in a Rule 506 private placement, crowdfunding offering or Regulation A offering.
The IPB's proposed rules move toward consistency with NSMIA and other states to require certain notice filings for covered securities being sold in New York. For example, the IPB will require filing the Securities and Exchange Commission (SEC) Form D plus a filing fee of $1,200 (or $300 if the amount of the offering is less than $500,000) within 15 days of a sale of securities in New York through the North American Securities Administrators Association electronic filing depository system.
New under New York law, the proposed rules include registration of "finders." A finder is proposed to be defined as "a person, firm, association, or corporation who as part of a regular business, engages in the business of effecting transactions in securities for the account of others within or from this state, to the limited extent that such person, firm, association, or corporation receives compensation for introducing a prospective investor or investors to any broker, dealer or salesperson." The proposed rules provide that "finders shall be subject to all of the filing and exam requirements of brokers, broker-dealers, and salespersons" under these proposed rules and General Business Law (GBL) Section 359-e.
The proposed rules will now require registering investment adviser representatives through the Central Registration Depository/Investment Adviser Registration Depository. Investment adviser representatives will be required to meet registration and exam requirements. An investment adviser representative is defined in the proposed rules as "a natural person representing an investment adviser, solicitor or federally covered investment adviser in doing any of the acts that define an investment adviser" under GBL Section 359-eee(1)(a). Although only states register investment adviser representatives and not the SEC, those who must be registered include individuals working for state or SEC-registered investment adviser firms.
The proposed rules 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.
The proposed rules include regulation of "solicitors." A solicitor is defined as "a person who as part of a regular business, engages in the business of providing investment advice to the limited extent that such person receives compensation for introducing a prospective investor or investors" to an investment adviser. Certain persons, enumerated in GBL Section 359-eee(1)(a), are excluded as solicitors, including banks, lawyers and accountants.
The proposed rules provide that "solicitors are subject to the same registration and examination requirements as investment advisers, and principals and representatives of solicitors are subject to the same registration and examination requirements as investment adviser representatives" under these rules.
Status of Proposed Rules
These are currently only proposed rules. The New York State Attorney General expects to publish its proposal on April 15, 2020, which will commence the 60-day period for the public to comment on these proposed rules.