Can The DBO Incorporate By Reference A Federal Form?

Almost a year ago, the Commissioner of Corporations (now the Commissioner of Business Oversight) proposed to amend the custody rule, 10 CCR Section 260.237, for investment advisers under the Corporate Securities Law of 1968.  The Department received several comments and recently proposed to amend its proposed custody rule by expressly incorporating by reference Form ADV-E and the Financial Accounting Standards Board Accounting Standards Codification 946-210-50-4 through 946-210-50-6.

Incorporation by reference has a number of benefits for both state agencies and those subject to rules.  For example, adopting federal or other national standards promotes uniformity and reduces the costs of compliance. Incorporation by reference eliminates the necessity of reproducing the incorporated material in the state regulation.  Incorporation, however, should not be used as an end run around the California’s Administrative Procedure Act.

The Office of Administrative Law generally reviews material proposed for “incorporation by reference” in accordance with procedures and standards for a regulation published in the California Code of Regulations.  1 CCR § 20(b).  Further an agency is permitted to incorporate by reference only if the following conditions are met:

  • The agency demonstrates in the final statement of reasons that it would be cumbersome, unduly expensive, or otherwise impractical to publish the document in the California Code of Regulations.
  • The agency demonstrates in the final statement of reasons that the document was made available upon request directly from the agency, or was reasonably available to the affected public from a commonly known or specified source. In cases where the document was not available from a commonly known source and could not be obtained from the agency, the regulation shall specify how a copy of the document may be obtained.
  • The informative digest in the notice of proposed action clearly identifies the document to be incorporated by title and date of publication or issuance. If, in accordance with Government Code section 11346.8(c), the agency changes the originally proposed regulatory action or informative digest to include the incorporation of a document by reference, the document shall be clearly identified by title and date of publication or issuance in the notice required by section 44 of these regulations.
  • The regulation text states that the document is incorporated by reference and identifies the document by title and date of publication or issuance. Where an authorizing California statute or other applicable law requires the adoption or enforcement of the incorporated provisions of the document as well as any subsequent amendments thereto, no specific date is required.
  • The regulation text specifies which portions of the document are being incorporated by reference.

1 CCR § 20(c).  When a regulation that incorporates a document by reference is approved by OAL and filed with the Secretary of State, the document so incorporated is deemed to be a regulation subject to all provisions of the APA. 1 CCR § 20(e).

The comment period on the proposed change ends on September 28, 2013.

 

Topics:  Corporate Securities Act, Department of Business Oversight, Incorporation

Published In: Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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