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NASAA Seeks Comments on Amendments to Model Rules Governing Adviser Custody and Brochure Requirements

By Jim Hamilton

The North American Securities Administrators Association (NASAA) has requested public comments regarding proposed changes to the NASAA model rules pertaining to investment adviser custody, financial requirements, recordkeeping and brochure delivery. As stated in the Notice of Request for Public Comment (Notice) released today, NASAA's Investment Adviser Regulatory Policy and Review Project Group (Project Group) has been charged with amending these rules to address changes by the SEC to its custody and brochure rules for investment advisers. These changes to the SEC's rules and corresponding changes to the uniform registration forms may require the states to change their own rules, NASAA stated.

According to the Notice, NASAA's Investment Adviser Section requested that the Project Group give expedited attention to the impact of the custody and brochure rule changes as well as changes to Form ADV Part 1A. The Proposed Rules keep intact the increased investor protection standards presently required by the states, while bringing them into closer harmony with the corresponding rules of the SEC and revisions to Form ADV. The Proposed Rules also contain additional optional safeguards retained from the existing NASAA custody rule which may be adopted as desired by state administrators. The Proposed Rules are being provided under the Uniform Securities Act of 1956 and under the Uniform Securities Act of 2002.

The Project Group has especially asked for comments on the advantages and disadvantages of requiring advisers to private funds to provide quarterly statements to investors. Under the SEC custody rule pertaining to SEC-registered advisers to limited partnerships and private funds, the requirements to provide notice to clients of the identity of the custodian and to send quarterly statements to the investors in the fund are waived, if certain conditions are met. NASAA?s Proposed Rule, however, provides a waiver only from the notice to clients, reflecting the Project Group's concerns that waiving the quarterly statement requirement may reduce investor protection. The Proposed Rule allows the adviser to send either a copy of the custodian?s quarterly statement for the fund or to send its own version with all transaction and balance data included.

The comment period begins on Thursday, February 17, 2011, and will remain open for 14 days. Accordingly, all comments should be submitted on or before Wednesday, March 2, 2011. Comments should be submitted by email or in writing and addressed to Kenneth L. Hojnacki, Director of Professional Registration and Compliance, Wisconsin Division of Securities, at the address provided. Copies should also be sent to the other individuals listed in the "Contact Information" section of the Notice.

Full post as published by Jim Hamilton's World of Securities Regulation on February 17, 2011 (boomark / email).