Utah Department of Administrative Services Division of Administrative Rules

File No. 34125

This rule was published in the October 15, 2010, issue (Vol. 2010, No. 20) of the Utah State Bulletin.


Commerce, Securities

Rule R164-5

Broker-Dealer and Investment Adviser Books and Records

Notice of Proposed Rule

(Amendment)

DAR File No.: 34125
Filed: 09/30/2010 02:39:46 PM

RULE ANALYSIS

Purpose of the rule or reason for the change:

This proposal updates references to United States Securities and Exchange Commission (SEC) rules setting forth recordkeeping requirements for broker-dealers and investment advisers and raises the threshold amount of prepaid investment advisory services requiring submission of audited financial statements by investment advisers, consistent with the threshold amount under federal rules. The proposal also gives advisers additional time following the end of their fiscal years in which to submit financial statements when such statements are required.

Summary of the rule or change:

This proposal updates references to SEC recordkeeping requirements for broker-dealers and investment advisers, and increases the amount of prepaid investment advisory services triggering submission of an audited financial statement from $500 to $1,200 per client. The proposal also adds 30 additional days to the period within which financial statements must be submitted.

State statutory or constitutional authorization for this rule:

  • Section 61-1-5
  • Section 61-1-24

This rule or change incorporates by reference the following material:

  • Updates 17 CFR 275.204-2, published by Government Printing Office, 08/12/2010

Anticipated cost or savings to:

the state budget:

There will be no additional costs or savings to the state budget because the proposal does not affect any state entities.

local governments:

There will be no additional costs or savings to the state budget because the proposal does not affect any local governmental entities.

small businesses:

Raising the threshold amount of fees paid in advance which trigger the submission of an audited financial statement may result in savings for investment advisers who do not meet the threshold and therefore are not required to submit an audited financial statement. Advisers required to submit such statements may experience savings from the additional 30 days added to the period in which such statements must be submitted.

persons other than small businesses, businesses, or local governmental entities:

Raising the threshold amount of fees paid in advance which trigger the submission of an audited financial statement may result in savings for investment advisers who do not meet the threshold and therefore are not required to submit an audited financial statement. Advisers required to submit such statements may experience savings from the additional 30 days added to the period in which such statements must be submitted.

Compliance costs for affected persons:

There are no compliance costs for affected persons.

Comments by the department head on the fiscal impact the rule may have on businesses:

This proposed rule will not increase costs and may result in savings to investment advisers who do not meet the threshold to require the submission of an audited financial statement, and those who must submit financial statements may experience savings from the additional 30 days in which to submit them.

Francine A. Giani, Executive Director

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Commerce
Securities
160 E 300 S
SALT LAKE CITY, UT 84111-2316

Direct questions regarding this rule to:

  • Charles Lyons at the above address, by phone at 801-530-6940, by FAX at 801-530-6980, or by Internet E-mail at clyons@utah.gov
  • Keith Woodwell at the above address, by phone at 801-530-6606, by FAX at 801-530-6980, or by Internet E-mail at kwoodwell@utah.gov

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

11/15/2010

This rule may become effective on:

11/22/2010

Authorized by:

Keith Woodwell, Director

RULE TEXT

R164. Commerce, Securities.

R164-5. Broker-Dealer and Investment Adviser Books and Records.

R164-5-1. Recordkeeping Requirements of Broker-Dealers and Investment Advisers.

(A) Authority and Purpose

(1) The Division enacts this rule under authority granted by Sections 61-1-5 and 61-1-24.

(2) This rule specifies the books and records a broker-dealer and an investment adviser must maintain.

(B) Definitions

(1) "Act" means Title 61, Chapter 1, Utah Uniform Securities Act.

(2) "Division" means the Division of Securities, Utah Department of Commerce.

(3) "SEC" means the United States Securities and Exchange Commission.

(C) Broker-dealer requirements

(1) Unless otherwise provided by order of the SEC, each broker-dealer licensed or required to be licensed under this Act shall make, maintain and preserve books and records in compliance with SEC Rules 17a-3 (17 CFR 240.17a-3(1996)), 17a-4 (17 CFR 240.17a-4(1996)), 15c2-6 (17 CFR 240.15c2-6(1991)) and 15c2-11 (17 CFR 240.15c2-11(1996)), which are adopted and incorporated by reference.

(2) To the extent that the SEC promulgates changes to the above referenced rules, broker-dealers in compliance with such rules as amended shall not be subject to enforcement action by the Division for violation of this rule to the extent that the violation results solely from the broker-dealer's compliance with the amended rule.

(D) Investment adviser requirements

(1) Except as provided in subparagraph (D)(3), unless otherwise provided by order of the SEC, each investment adviser licensed or required to be licensed under the Act shall make, maintain and preserve books and records in compliance with SEC Rule 204-2 (17 CFR 275.204-2( August 12, 2010[1996])), which is adopted and incorporated by reference, notwithstanding the fact that such investment adviser is not registered or required to be registered under section 203 of the Investment Advisers Act of 1940.

(2) To the extent that the SEC promulgates changes to the above-referenced rules, investment advisers in compliance with such rules as amended shall not be subject to enforcement action by the Division for violation of this rule to the extent that the violation results solely from the investment adviser's compliance with the amended rule.

(3) Every investment adviser that has its principal place of business in a state other than this state shall be exempt from the requirements of subparagraph (D), provided the investment adviser is licensed or registered in such state and is in compliance with such state's record keeping requirements.

 

R164-5-3. Financial Reporting of Broker-Dealers and Investment Advisers.

(A) Authority and Purpose

(1) The Division enacts this rule under authority granted by Sections 61-1-5 and 61-1-24.

(2) This rule specifies the annual financial reports required of a broker-dealer and an investment adviser.

(B) Definitions

(1) "Division" means the Division of Securities, Utah Department of Commerce.

(C) Broker-Dealer required financial statements

(1) Upon request, each broker-dealer must file with the Division audited financial statements as of the end of its fiscal year. The statements must meet the requirements of Paragraph (E).

(D) Investment Adviser required financial statements

(1) Except as provided in subparagraph (D)(2), each investment adviser who has custody or possession of client['s] funds or securities or requires payment of advisory fees six months or more in advance and in excess of $ 1,2[5]00 per client shall file with the Division audited financial statements as of the end of the investment adviser's fiscal year. The statements must meet the requirements of Paragraph (E).

(2) Every investment adviser that has its principal place of business in a state other than this state shall be exempt from the requirements of subparagraph (D), provided the investment adviser is licensed or registered in such state, is in compliance with such state's financial reporting requirements, and annually files with the Division a copy of any financial reports filed with such state.

(E) Financial statement requirements

The financial statements filed pursuant to this rule must:

(1) include a balance sheet, a statement of income or operations, a statement of shareholder equity, and a statement of cash flows, accompanied by appropriate notes stating the accounting principles and practices followed in their preparation, the basis at which securities are included and other notes as may be necessary for an understanding of the statements.

(2) be prepared in accordance with generally accepted accounting principles.

(3) be audited by an independent certified public accountant. The audit must:

(a) be made in accordance with generally accepted auditing standards;

(b) include a review of the accounting system, the internal accounting controls and procedures for the safeguarding of securities and funds including appropriate tests thereof since the prior examination.

(4) be accompanied by an unqualified opinion of the auditor as to the report of financial condition. In addition, the auditor shall submit as a supplementary opinion any comments, based upon the audit, as to any material inadequacies found to exist in the accounting system, the internal accounting controls and procedures for safeguarding securities and funds, and shall indicate any corrective action taken or proposed.

(5) The financial statements shall be filed with the Division within 12[9]0 days following the end of the investment adviser's fiscal year.

 

KEY: securities, securities regulation, recordkeeping, financial requirements

Date of Enactment or Last Substantive Amendment: [March 4, 1998]2010

Notice of Continuation: July 30, 2007

Authorizing, and Implemented or Interpreted Law: 61-1-5; 61-1-24

 


Additional Information

The Portable Document Format (PDF) version of the Bulletin is the official version. The PDF version of this issue is available at http://www.rules.utah.gov/publicat/bull-pdf/2010/b20101015.pdf. The HTML edition of the Bulletin is a convenience copy. Any discrepancy between the PDF version and HTML version is resolved in favor of the PDF version.

Text to be deleted is struck through and surrounded by brackets (e.g., [example]). Text to be added is underlined (e.g., example).  Older browsers may not depict some or any of these attributes on the screen or when the document is printed.

For questions regarding the content or application of this rule, please contact Charles Lyons at the above address, by phone at 801-530-6940, by FAX at 801-530-6980, or by Internet E-mail at clyons@utah.gov; Keith Woodwell at the above address, by phone at 801-530-6606, by FAX at 801-530-6980, or by Internet E-mail at kwoodwell@utah.gov.