Attorney General James Moves to Modernize and Streamline Securities Filings In NYS

New Rules Will Move Filers to National Electronic Systems,
Create Greater Protections for Investors

NEW YORK – New York Attorney General Letitia James today took steps to streamline and enhance the oversight of the securities industry in New York by proposing new rules to modernize registrations with the Investor Protection Bureau (IPB) in the Office of the Attorney General. The new rules — which follow on the heels of procedural changes announced in response to the coronavirus disease 2019 (COVID-19) public health crisis on March 27, 2020 — will move filings and payments to standardized federal and multi-state systems. With these changes, New York’s registration procedures will better conform to the federal securities registration regime, cure industry confusion when it comes to certain registration requirements, and better track exam requirement compliance and disciplinary disclosures for thousands of investment advisers who provide investment advice to New Yorkers.

“While these new rules are part of a long-term review of our internal practices, the spread of the coronavirus over the past several weeks further magnify why these changes are so critical,” said Attorney General James. “The proliferation of scams and frauds related to COVID-19 make it more important than ever for New Yorkers to know who they are dealing with, and these rules will do exactly that by expanding the registration and tracking of individual investment advisers. Further, by moving to standardized electronic filings and payments, our systems will be more resilient to disruption in the future. Ultimately, these rule changes will increase our use of technology, clean up decades of industry confusion, and enhance our ability to prevent exploitation of New Yorkers in the investment industry.”

The proposed revisions to 13 NYCRR 10 amend regulations to require certain notice filings for federal “covered securities” being sold in New York and to effectuate such filings through the North American Association of Securities Administrators’ (NASAA) electronic filing depository system. Under the revised regulations, the IPB will require that such dealers file Form NF, Form D, and the Uniform Notice Filing for Tier 2 Securities directly with the state of New York.

The proposed revisions to 13 NYCRR 11 will fully implement GBL § 359-eee by registering investment adviser representatives through the Central Registration Depository/Investment Adviser Registration Depository (collectively CRD/IARD). This new registration will close gaps in nationwide regulation efforts, which may — in certain cases — fail to connect investment adviser representatives with their past records in the securities industry. A full and complete accounting of these individuals’ records is necessary to protect the public and is already maintained in every other state in the nation. Through these revisions, Attorney General James will now be able to provide notice that investment adviser representatives — including principals and supervisors, as well as solicitors — will, upon adoption and implementation of these regulations, be explicitly required to meet exam requirements and register with the state. The proposed revisions also delineate IPB’s authority to deny, suspend, condition, or revoke any registration statement or application of any investment adviser or investment adviser representative in the public interest for good cause.

Finally, the proposed revisions also include a new bookkeeping requirement for investment advisers. The revision requires that investment advisers registered with the state 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. Such revisions codify the requirement that investment advisers take due care in making such designations, which — if used to recommend investments in certain securities — can expose New Yorkers to increased investment risk. The proposed revisions also seek to clarify the registration and exam requirements for certain, currently undefined subclassifications of broker-dealers and investment advisers that are paid to match up investors with securities industry participants. The proposals define and classify “Finders” and “Solicitors,” and explicitly require registration and exam requirements for each.

The Office of the Attorney General expects publication of its proposal in the State Register to occur on April 15. Publication will commence a 60-day comment period under the New York State Administrative Procedure Act.

More information and a summary of the rule changes can be found on the IPB’s webpage, in addition to full text of the rule changes to 13 NYCRR 10 and full text of the rule changes to 13 NYCRR 11.