Florida Regulator to Overhaul Securities and Investment Adviser Regulations


Pamela P. Epting, Director of the Division of Securities in the Florida Office of Financial Regulation, has announced a major reorganization and revision of the Division’s administrative rules and invited suggestions for their improvement.

Ms. Epting made the announcement at the Annual Industry Summit of the Florida Securities Dealers Association on February 11, 2014, and again at the Annual Educational Conference of the Association of Registration Management on March 4, 2014.

Florida’s strong “anti-delegation” doctrine prevents state statutes and rules from “incorporating by reference” the laws of other jurisdictions as those laws might be amended in the future. Federal laws or rules of self-regulatory organizations, therefore, can only be incorporated into Florida law in the form such regulations are in at the time the Florida regulations incorporating them are enacted. As consequence, Florida administrative agencies must periodically re-adopt their regulations in order to pick up later changes in the incorporated regulations. Ms. Epting points to many significant recent changes in federal law that require this exercise.

While reviewing the rules of the Florida Division of Securities to update any incorporated provisions as necessary, Ms. Epting hopes to revise and clarify certain troublesome regulations. Special attention, she said, will be given to Florida’s rules on when a registered investment adviser will be deemed to have “custody” of the adviser’s customer’s managed assets. An adviser will be deemed to have such custody, triggering stringent regulatory requirements, even when it does not actually possess the managed assets, if the adviser has the right to deduct its fees from the customer’s assets. In accordance with the Division’s definition of “custody” an adviser can also be deemed to have custody in some circumstances if it requires customers to pay the adviser’s fees in advance. An unrelated provision in the Division’s rules, however, effectively nullifies the definition of custody and applies the stringent regulations intended for advisers with possession or access to its customers’ assets to advisers who receive advance payment of certain advisory fees, whether or not the adviser requires this advance payment.

Ms. Epting has promised to attempt to remove from the Division’s regulations the scattering of related provisions that have become a trap for the unwary. In addition to fixing the Division’s jumbled rules on when investment advisers are deemed to have custody of their customers’ assets, Ms. Epting has promised to consolidate the Division’s similarly scattered regulations governing the registration of securities, broker-dealers, investment advisers, branch offices and associated individuals.

The Division’s rules, as currently written, can be found here.

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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