NOTICES
INDEPENDENT REGULATORY REVIEW COMMISSION
Notice of Comments Issued
[30 Pa.B. 3704] Section 5(g) of the Regulatory Review Act (71 P. S. § 745.5(g)) provides that the designated standing committees may issue comments within 20 days of the close of the public comment period, and the Commission may issue comments within 10 days of the close of the committee comment period. The Commission comments are based upon the criteria contained in section 5a(h) and (i) of the act (75 P. S. § 745.5a(h) and (i)).
The Commission has issued comments on the following proposed regulations. The agency must consider these comments in preparing the final-form regulation. The final-form regulations must be submitted by the dates indicated.
Final-Form Reg. Submission No. Agency/Title Issued Deadline 50-114 Pennsylvania Securities
Commission
Registration of Securi-
ties; Investment
Adviser Representa-
tives; and Adminis-
tration7/6/00 6/5/02 15-414 Department of Revenue
Personal Income Tax7/6/00 6/5/02
Pennsylvania Securities Commission
Regulation No. 50-114
Registration of Securities; Investment Adviser Representatives; and Administration July 6, 2000
We submit for consideration the following objections and recommendations regarding this regulation. Each objection or recommendation includes a reference to the criteria in the Regulatory Review Act (71 P. S. § 745.5a(h) and (i)) which has not been met. The Pennsylvania Securities Commission (PSC) must respond to these Comments when it submits the final-form regulation. If the final-form regulation is not delivered by June 5, 2002, the regulation will be deemed withdrawn.
1. Section 303.012. Investment adviser registration procedure.--Clarity.
Subsection (a) Registration depository
This subsection requires forms to be filed with the PSC or with a central repository designated by order of the PSC. There are similar requirements in sections 303.014, 303.015 and 306.061. The comments of the Investment Council Association of America, Inc. (ICAA) indicated the phrase ''central registration depository'' could be confused with the Central Registration Depository. The PSC should explain what repository will be designated by order of the PSC, and how notice will be given to the affected parties.
Subsection (b) Audited balance sheet
The Investment Company Institute (ICI) and the Financial Planning Association (FPA) commented the $500 threshold to file an audited balance sheet in paragraph (1) should be $1,200 to be consistent with changes made by the Securities and Exchange Commission (SEC). The PSC should increase the threshold to $1,200 or explain why the $500 threshold is appropriate.
Paragraph (1) requires an applicant to include an audited balance sheet under certain conditions. The ICI and FPA suggest allowing out-of-State investment advisers to file copies of their home state audited balance sheet. Where out-of-State filing requirements are the same as Pennsylvania's requirements, the PSC should consider allowing copies.
Paragraph (2) appears to have a typographical error. It should state ''. . . as of a date. . . .''
2. Section 303.014. Investment adviser representative registration procedures.--Need; Clarity.
Subsections (a) and (b) Federally covered advisers
The ICI commented these subsections should also apply to Federally covered advisers. The PSC should amend the regulation to clarify the scope of these subsections.
Subsection (b) Filing of forms
In this subsection, the ICI doesn't believe both the investment adviser and the investment adviser representative should have to file amendments to Form U-4. The ICI believes ''or'' should be used to eliminate duplicative filings. The PSC should explain why both filings are needed.
3. Section 303.015. Notice filing for Federally covered advisers.--Economic Impact; Need; Clarity.
Subsection (b) Annual filings
The ICI commented the Investment Adviser Registration Depository (IARD) does not require a full filing each year. Only Items 2(A) and 5(F) of Part 1A of Form ADV are required. The PSC should amend the regulation to be consistent with IARD or explain the need for a full filing each year.
4. Section 303.021. Registration and notice filing procedures for successors to a broker-dealer, investment adviser or Federally covered adviser.--Reasonableness.
Subsection (c) Registered investment advisers
The ICI commented that registered investment advisers should be added to this subsection. The PSC should add them or explain why registered investment advisers were not included.
5. Section 303.032. Examination requirements for investment advisers and investment adviser representatives.--Economic Impact; Need; Reasonableness; Clarity.
Subsection (a) Out-of-State registrants
The ICI and the FPA commented paragraphs (1) and (2) will require out-of-State registrants to re-take examinations after 2 years, which is inconsistent with the North American Securities Administrators Association, Inc. (NASAA) Model Rule. They suggest rewording the regulation to clarify how the 2-year limit applies to out-of-State registrants. The PSC should explain the intent of paragraphs (1) and (2).
Subsection (c) Waivers of examination requirements
The FPA commented that Certified Public Accountants (CPA) and attorneys should not qualify for waiver from examination requirements under subsection (c). The FPA believes the CPA and the bar examinations do not test the same information as the Series 65 examination. The PSC should explain why CPAs and attorneys qualify for waivers.
The Certified Financial Planners Board of Standards commented the NASAA model rule has been updated, and the appropriate board in section (c)(1)(ii)(A) is the Certified Financial Planner Board of Standards, Inc. The PSC should review section (c)(1)(ii)(A) for consistency with the NASAA model rule.
6. Section 303.042. Investment adviser capital requirements.--Reasonableness.
Subsection (a)(5) Net worth requirements
This subsection requires an investment adviser who meets certain conditions to maintain a positive net worth at all times. This provision applies when:
* The adviser's principal place of business is in Pennsylvania; and
* The adviser accepts prepayment of advisory fees more than 6 months in advance and in an amount of more the $500 per client.
This provision is consistent with the NASAA Model Rule on Capital and Bonding Requirements of Investment Advisers. However, the ICI and the FPA commented that the Federal SEC is proposing to increase the $500 threshold to $1200 for Federally registered advisers. The PSC should increase the threshold to $1,200 or explain why the $500 threshold is appropriate.
Subsection (d) Appraisal of assets
Under this subsection, the PSC ''may'' require an appraisal to determine the net worth of an asset under the net worth formulation. The conditions which would trigger the appraisal requirement are not included in the regulation. We request the PSC explain when an appraisal would be required.
7. Section 303.051. Surety bonds.--Reasonableness; Clarity.
Subsection (a)(1) Bonding requirement
This subsection provides that an investment adviser who does not meet the minimum net worth requirements ''may'' be required to maintain a surety bond to cover the net worth deficiency. Section 202(e)-1(a)(2) of the NASAA model rule on ''Bonding Requirements for Certain Investment Advisers'' states that the investment advisers who do not meet the minimum net worth requirements ''shall'' be bonded. We request the PSC explain why the requirements in the proposed regulation and the model rule are different and under what circumstances a bond would not be necessary.
Subsection (c) Evidence
Under this subsection, a broker-dealer or investment adviser ''shall provide evidence of the existence of a surety bond'' at the PSC's request. Under what circumstances would the PSC make this request?
8. Section 304.012. Investment adviser required records.--Consistency with the statute; Clarity.
Subsection (a) Recordkeeping
Subsection (a) contains an extensive list of recordkeeping requirements. In its comments, the ICI pointed out that subsection (j) lists the instances in which the recordkeeping requirements do not apply. The ICI suggested that the exemptions in subsection (j) be referenced in subsection (a). For improved clarity, the PSC should add this reference to subsection (a).
Subsections (a)(12)(iv) and (a)(13)(v) both contain definitions of ''investment adviser representative.'' Although these definitions are consistent with the NASSA Model Rule, they are inconsistent with the definition of ''investment adviser representative'' in the Pennsylvania Securities Act (70 P. S. § 1-102(j.1)). We object to a definition that is inconsistent with the statutory definition. If the PSC does not reference the statutory definition of this term in the final regulation, it should justify any changes made to the definition.
9. Section 304.052. Investment adviser compensation.--Clarity.
Disclosure of charges
This section requires investment advisers to ''adequately'' disclose their charges for providing investment advice in writing to each client. For improved clarity, the PSC should specify what constitutes ''adequate'' disclosure.
10. Section 305.011. Supervision of agents, investment adviser representatives and employes.--Clarity.
Subsection (a) Supervision requirements
In paragraph (1) the term ''timely'' is used to require broker-dealers and investment advisers to ''timely detect and prevent any violations of statutes, rules regulations or orders. . . .'' The term ''timely'' is vague. The PSC should consider establishing a specific period of time.
Subsection (c) Out-of-State investment advisers
This subsection establishes the requirements for written procedures. In its comments, the ICI expressed concern regarding imposing recordkeeping requirements on out-of-State investment advisers when the investment advisers are registered in the state where they maintain a place of business. For improved clarity, the PSC should add language that clarifies what requirements apply to out-of-State investment advisers.
Subsection (c) Recordkeeping
Subsections (c)(9) and (c)(10)(iii) require written records to be maintained. However, the requirements do not specify the amount of time that the records should be kept. The PSC should clarify in these two subsections how long the written records must be maintained.
11. Section 305.061. Withdrawal of registration or notice filing.--Clarity.
Form filing
Subsection (c) provides that a Federally covered adviser is to file Form ADV-W to withdraw a notice filing. In its comments, the ICAA suggests that the PSC amend the language to allow for the electronic version of the form to be filed. To avoid confusion, the regulation should list the acceptable methods by which the forms may be submitted.
12. Section 404.011. Investment adviser brochure disclosure. and Section 404.012. Wrap fee brochure disclosure.--Clarity.
Disclosure
These sections establish the disclosure that investment advisers must provide to their clients. In its comments, the ICI recommends that the PSC incorporate the proposed changes to the Federal rules which govern an adviser's disclosure obligations. To avoid potential confusion and to avoid the final regulation being inconsistent with Federal rules, we suggest the PSC monitor the SEC action on this issue, and if the SEC rules are finalized, amend the final regulation to be consistent with Federal rule changes.
Department of Revenue
Regulation No. 15-414
Personal Income Tax July 6, 2000
We submit for consideration the following objections and recommendations regarding this regulation. Each objection or recommendation includes a reference to the criteria in the Regulatory Review Act (71 P. S. § 745.5a(h) and (i)) which has not been met. The Department of Revenue (Department) must respond to these Comments when it submits the final-form regulation. If the final-form regulation is not delivered by June 5, 2002, the regulation will be deemed withdrawn.
1. Section 101.1 Definitions.--Consistency with statute; Clarity.
Supplemental unemployment benefit plan
The definition includes the phrase ''established or maintained by an employer or by an employe organization, or by both.'' Section 7301(d)(vi) of the act (72 P. S. § 7301(d)(vi)) uses the phrase ''payments made by employers or labor unions.'' The Department should explain how the phrase in the definition is consistent with 72 P. S. § 7301(d)(vi).
Subparagraphs (i) and (ii)
In subparagraphs (i) and (ii), why is the phrase ''Under the plan'' needed, since the definition states these are attributes of the plan? In subparagraphs (i) and (ii) what is meant by the phrase, ''or subject in any manner to anticipation, assignment or pledge by''? Finally, why is the phrase ''(whether or not the separation is temporary)'' needed in subparagraph (i)? The Department should delete these phrases or explain why they are necessary.
Subparagraph (i)(A)
Clause (A) references a ''permanent'' reduction in work force. The Department should explain how ''permanent'' is determined, and how ''permanent'' relates to the phrase ''(whether or not the separation is temporary)'' in subparagraph (i).
Subparagraphs (i)(E) and (ii)(B)
Subparagraphs (i)(E) and (ii)(B)(III) use the phrases ''similar circumstances'' and ''similar acts.'' What criteria will the Department use to determine similarity?
2. Section 101.6 Compensation.--Duplication; Clarity.
In subsection (c) ''supplemental unemployment benefits'' is referenced and included in existing paragraph (6). Under the proposed amendments, supplemental unemployment benefits would also be listed in paragraph (9). For clarity, the Department should incorporate the provisions for supplemental unemployment benefits under one paragraph.
Given the definition of ''supplemental unemployment benefit plan'' in section 101.1, the Department should explain why the qualifying phrase ''whether payable on a periodic basis or in the form of cash, services or property'' is needed in section 101.6(c).
JOHN R. MCGINLEY, Jr.,
Chairperson
[Pa.B. Doc. No. 00-1258. Filed for public inspection July 21, 2000, 9:00 a.m.]
No part of the information on this site may be reproduced for profit or sold for profit.This material has been drawn directly from the official Pennsylvania Bulletin full text database. Due to the limitations of HTML or differences in display capabilities of different browsers, this version may differ slightly from the official printed version.
