December 7, 1993
TO: INVESTMENT ADVISERS COMMITTEE NO. 37-93
RE: INSTITUTE COMMENTS ON PROPOSED CONNECTICUT REGULATIONS
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As we previously informed you, the Connecticut Department of Banking
recently issued proposed amendments to the regulations under the Connecticut
Uniform Securities Act dealing with investment advisers. (See Memorandum to
Investment Advisers Committee No. 34-93.) Attached is a copy of the Institute's
comment letter on these proposed regulations.
In its letter, the Institute expressed concern with several of the
regulations that are not uniform with the provisions of federal law or the
Uniform Securities Act or the NASAA Model Amendments thereto. These regulations
govern supervision, record keeping requirements for investment advisers,
examinations (i.e., inspections) by the Connecticut Commissioner of Securities
and examination requirements for securities personnel.
The proposed regulation governing supervision provides very detailed,
minimum supervisory standards. The Institute expressed concern that this detail
may be misconstrued as the maximum supervisory requirements and may preclude
flexibility in tailoring a supervisory system to a particular registrant's needs.
Also, some of the standards within the supervisory requirements are either vague
or ambiguous. The Institute recommended that the regulation be amended to delete
specific components of the supervisory system and require instead a supervisory
system designed to ensure compliance with state and federal securities law.
The proposed regulation governing record keeping requirements would mandate
that specified records be kept at the adviser's principal place of business as
well as at each of its Connecticut branch offices. The Institute's letter
recommended that this regulation be amended to accommodate current technologies
whereby the hard copy of the records could be maintained at the adviser's
principal place of business and accessible to its branch offices via computer or
otherwise.
The proposed regulation governing inspections would grant the Commissioner
broad authority to inspect the "records" of an adviser and to require the
production of such records at any location determined by the Commissioner. The
term "records" is defined to include virtually any document or communication
present in an office of an adviser. The Institute's letter recommended that: the
definition of "record" be limited to those records which are required by law to
be maintained; the Commissioner's inspection authority be limited to those areas
that are used to transact business pursuant to the Connecticut Uniform Securities
Act; and the regulation be amended to require production of records at the
location where the records are required to be maintained.
Finally, the proposed regulations would mandate that investment adviser
agents pass the Series 65 examination. Exempted from the examination requirement
are persons who have not been the subject of any disciplinary proceeding and who
are associated with an adviser as of October 1, 1994. The Institute recommended
that this regulation be amended to: consider evidence of an agent's competence
or proficiency in lieu of the Series 65 examination; exclude solicitors from the
examination requirement; and limit the scope of disciplinary proceedings that
would necessitate an agent having to take the examination.
Tamara K. Cain
Assistant Counsel
Attachment