56 N.J.R. 987(a)

VOLUME 56, ISSUE 11, JUNE 3, 2024
RULE PROPOSALS

Reporter
56 N.J.R. 987(a)
NJ - New Jersey Register  >  2024  >  JUNE  >  JUNE 3, 2024  >  RULE PROPOSALS  >  LAW AND PUBLIC SAFETY -- DIVISION OF CONSUMER AFFAIRS

Interested Persons Statement 

INTERESTED PERSONS 
Interested persons may submit comments, information or arguments concerning any of the rule proposals in this issue until the date indicated in the proposal. Submissions and any inquiries about submissions should be addressed to the agency officer specified for a particular proposal. 
The required minimum period for comment concerning a proposal is 30 days. A proposing agency may extend the 30-day comment period to accommodate public hearings or to elicit greater public response to a proposed new rule or amendment. Most notices of proposal include a 60-day comment period, in order to qualify the notice for an exception to the rulemaking calendar requirements of  N.J.S.A. 52:14B-3. An extended comment deadline will be noted in the heading of a proposal or appear in a subsequent notice in the Register. 
At the close of the period for comments, the proposing agency may thereafter adopt a proposal, without change, or with changes not in violation of the rulemaking procedures at      N.J.A.C. 1:30-6.3. The adoption becomes effective upon publication in the Register of a notice of adoption, unless otherwise indicated in the adoption notice. Promulgation in the New Jersey Register establishes a new or amended rule as an official part of the New Jersey Administrative Code. 
Agency


LAW AND PUBLIC SAFETY > DIVISION OF CONSUMER AFFAIRS > BUREAU OF SECURITIES

Administrative Code Citation


Proposed Amendments: N.J.A.C. 13:47A-1.9, 2.12, 3.1, 3A.1, 4.2, 4.3, 6.3, and 12.4       
Proposed New Rules: N.J.A.C. 13:47A-1.14 and 4.4      

Text

 Designated Supervisors; Continuing Education
Authorized By: Bureau of Securities, Amy Kopleton, Acting Chief.
Authority: N.J.S.A. 49:3-47 et seq., specifically 49:3-67.a.
Calendar Reference: See Summary below for explanation of exception to calendar requirement.
Proposal Number: PRN 2024-066.
Submit written comments by August 2, 2024, to:
Amy Kopleton, Acting Chief
Bureau of Securities
153 Halsey Street, 6th Floor
PO Box 47029
Newark, New Jersey 07101
or electronically at:
www.njconsumeraffairs.gov/Proposals/Pages/default.aspx
The agency proposal follows:
Summary
In line with recent changes in the Financial Industry Regulatory Authority's (FINRA) rules regarding broker-dealer agent (agent) registration after termination from a broker-dealer, and the recent adoption of new model regulations by the North American Securities Administrators Association (NASAA) addressing continuing education (CE) for investment adviser representatives and unpaid arbitration awards, fines, or penalties, the Bureau of Securities (Bureau) is proposing to adopt two new rules and amend related provisions at N.J.A.C. 13:47A. Additionally, to strengthen investor protection, the Bureau is proposing to require chief compliance officers (CCOs) of investment adviser firms (IAs) to pass the Uniform Investment Adviser Law Examination (Series 65 Examination) and to require every registered broker-dealer in New Jersey to employ at least one designated supervisor in each office who is registered as an agent in this State and has satisfied FINRA's supervisory requirements. The Bureau also proposes to update some existing provisions at N.J.A.C. 13:47A to delete unnecessary, unreasonable, or outdated rules, and to clarify existing provisions. The Bureau believes that the proposed amendments and new rules are necessary to protect New Jersey investors.
The Bureau is proposing new N.J.A.C. 13:47A-1.14, which requires registered broker-dealers to have at each office a designated supervisor who is registered with the Bureau as an agent and has satisfied FINRA's supervisory requirements. Specifically, N.J.A.C. 13:47A-1.14(a) requires every registered broker-dealer to employ at its principal office and at each office of supervisory jurisdiction (OSJ) within the State at least one person to act in a supervisory capacity who is located in this State and registered as an agent with the Bureau, and who has satisfied FINRA's supervisory examination requirements. N.J.A.C. 13:47A-1.14(b) requires a designated supervisor for any other office that is not an OSJ. This designated supervisor is required to be registered as an agent with the Bureau and to satisfy FINRA's supervisory examination requirements but is not required to be located in New Jersey. N.J.A.C. 13:47A-1.14(c) deems failure to [page=988] comply with this rule for more than 30 days to be a failure to reasonably supervise and provides that noncompliance may result in revocation or suspension of the broker-dealer's registration.
Moreover, at N.J.A.C. 13:47A-1.9(e), 3.1(b) and (b)1ix, and 3A.1(b)9, the Bureau is proposing to replace all references to "fingerprint card" with "fingerprint data" to encompass the collection of fingerprints digitally, which is now a more prevalent practice than the collection of fingerprints using traditional fingerprint cards.
The Bureau is proposing to amend N.J.A.C. 13:47A-2.12(d), which currently requires all New Jersey registered IAs to designate a CCO, to require the designated CCO to successfully pass the Series 65 Examination. The Series 65 Examination covers various topics vital to the role of an investment adviser representative (IAR), including state and Federal securities laws; rules and regulations for IAs and IARs; ethical practices; fiduciary obligations; communication with clients; compensation; client funds; and conflicts of interest. Although many CCOs in New Jersey are also registered IARs, the Bureau is concerned that there are some CCOs who have not taken any IAR exams. The Bureau believes that it is critical to ensure that a CCO has a minimum threshold of knowledge and competency in the investment advisory business. Requiring all CCOs to take the Series 65 Examination will address this concern.
The Bureau is also proposing to amend N.J.A.C. 13:47A-3.1(a) to account for the possibility of any future replacement of or change to the Uniform Application for Securities Industries Registration (Form U4) referred to therein, by adding "or its successor agent application form prescribed by the CRD" consistent with the existing language at N.J.A.C. 13:47A-3.1(b).
For clarification, the Bureau is proposing to amend N.J.A.C. 13:47A-4.2(a), which addresses examinations required for registration as an agent. Currently, the regulation states that, in order to be registered, the applicant would have to successfully pass the General Securities Representative Examination (Series 7) and, "a securities examination or securities examination approved by the Bureau Chief." The Bureau is proposing to remove the specific reference to the General Securities Representative Examination (Series 7) and replace it with "the appropriate agent registration exam," as specified at FINRA Rule 1220, to encompass all the agent registration exams (including Series 7). Further, the Bureau is proposing to remove the general reference to a "securities exam" with the more specific requirement that an applicant pass the Securities Industry Essentials Exam (SIE).
The Bureau is also proposing new N.J.A.C. 13:47A-4.2(c), to align with newly enacted FINRA Rule 1240(c). Effective on March 15, 2022, FINRA Rule 1240(c) provides qualified individuals who terminate their representative or principal registration with a broker-dealer the option to maintain their exam qualification for a period of up to five years by participating in FINRA's Maintenance of Qualification after Termination of Registration Program (MQP). Prior to the enactment of FINRA Rule 1240(c), FINRA required an individual, whose representative or principal registration had been terminated for two years or more, to re-take the required exams for re-registration. Similar to FINRA's prior requirements, N.J.A.C. 13:47A-4.2(b) currently requires an individual whose representative or principal registration has expired for a period of two years or more to re-take the relevant registration exam in order to qualify for registration again. Only applicants who are granted a waiver by the Bureau Chief pursuant to N.J.A.C. 13:47A-4.4(a) are exempt from this provision. Proposed new N.J.A.C. 13:47A-4.2(c) provides an exception to N.J.A.C. 13:47A-4.2(b) by allowing individuals whose registration has been terminated to maintain their exam qualification for a period of five years provided that the applicant has satisfied the conditions of FINRA Rule 1240(c). Consequently, the Bureau is also proposing to amend N.J.A.C. 13:47A-4.2(b) to include reference to new subsection (c) as an exception to the rule. In addition, N.J.A.C. 13:47A-4.2(b) is proposed to be amended to replace the cross-reference to N.J.A.C. 13:47A-4.4 with 4.5, to reflect the proposed recodification of existing N.J.A.C. 13:47A-4.4 as 4.5, as explained below.
The Bureau's proposed amendments at N.J.A.C. 13:47A-4.3(a) correct the misspelling of "adviser" and add the "Securities Industry Essentials Exam (SIE)" to the list of exams at N.J.A.C. 13:47A-4.3(a)1, consistent with the proposed amendment to N.J.A.C. 13:47A-4.2(a). Similarly, for consistency with the proposed amendment at N.J.A.C. 13:47A-4.2(a), a proposed amendment to recodified N.J.A.C. 13:47A-4.3(d), adds SIE to the list of exams required to apply for registration as an agent to act as an IAR.
Proposed new N.J.A.C. 13:47A-4.3(c) provides an exception to the re-examination requirement at N.J.A.C. 13:47A-4.3(b). Existing N.J.A.C. 13:47A-4.3(b) allows an IAR whose registration has been terminated for two years or more preceding the date of their application for re-registration to re-register if the individual either holds one of the certifications listed at N.J.A.C. 13:47A-4.3(a) or re-takes and passes the relevant registration exam. As an exception to this rule, proposed new N.J.A.C. 13:47A-4.3(c) will allow IARs whose registration has been terminated for two or more years to maintain their examination qualification for registration for a period of five years following termination, provided the individual satisfies the conditions set forth at N.J.A.C. 13:47A-4.3(c). These conditions include the following. The individual must have previously taken and passed an exam listed at N.J.A.C. 13:47A-4.3(a)1 or 2 and have been registered for at least one year immediately preceding the termination of the registration. The individual cannot have been subject to a statutory disqualification, as defined pursuant to the Securities Exchange Act of 1934, while registered as an IAR or at any period after termination of the registration; nor can the individual be subject to an Securities and Exchange Commission (SEC), FINRA, any other self-regulatory organization or any other securities regulator's order to retake the examination. In addition, the individual cannot have a deficiency pursuant to the IAR CE program at the time the registration became ineffective. The individual must also elect to participate in NASAA's Exam Validity Extension Program (IAR EVEP) within two years from the effective date of the termination of the IAR registration and must complete the CE requirements at N.J.A.C. 13:47A-4.4(b) annually, on or before December 31st of each calendar year in which the IAR is participating in the IAR EVEP. Regardless of when the individual elects to participate in the IAR EVEP, the individual must complete the required CE credits for each calendar year that elapses after registration became ineffective. The individual will be considered in compliance with N.J.A.C. 13:47A-4.4(b)2 if the individual complies with FINRA Rule 1240(c).
Accordingly, the Bureau is also proposing to amend N.J.A.C. 13:47A-4.3(b) to include reference to N.J.A.C. 13:47A-4.3(c) as an exception to the rule.
On November 24, 2020, NASAA adopted Model Rule on Investment Adviser Representative Continuing Education (NASAA IAR CE Model Rule). NASAAs IAR CE Model Rule requires IARs to complete CE credits on an annual basis to maintain registration. The stated purpose of the NASAA IAR CE Model Rule is to promote heightened regulatory compliance and ensure that IARs remain knowledgeable about current regulatory requirements and practices. Recognizing that IARs play a significant role in their clients' financial lives similar to agents of broker-dealers, the Bureau is proposing new N.J.A.C. 13:47A-4.4 modeled after the NASAA IAR CE Model Rule. N.J.A.C. 13:47A-4.4 will require IARs to complete CE credits as a condition of registration renewal. Compliance with proposed new N.J.A.C. 13:47A-4.4 is also one of the required conditions to extend the eligibility for IAR registration pursuant to proposed N.J.A.C. 13:47A-4.3(c).
Proposed new N.J.A.C. 13:47A-4.4(a) defines certain words and terms used within N.J.A.C. 13:47A-4.4. Proposed new N.J.A.C. 13:47A-4.4(b) requires IARs to take six credits of IAR Ethics and Professional Responsibility courses, of which at least three must be in Ethics courses. IARs will also need to take six credits of IAR Products and Practice courses.
Pursuant to proposed new N.J.A.C. 13:47A-4.4(c), IARs who are dually registered as an IAR, as well as an agent, will be deemed to have satisfied their IAR Products and Practice content component of the CE requirements if they satisfy FINRA's CE requirement. The CE the IAR completes must focus on compliance, regulatory, ethical, and sales practice standards, and derive from State and Federal investment advisory statutes, rules, and regulations, securities industry rules and regulations, and standards and practices in the financial services industry. It must also require a demonstration of subject matter proficiency. Similarly, proposed new N.J.A.C. 13:47A-4.4(d) will deem CE credits completed by an IAR [page=989] who holds one of the certifications listed at N.J.A.C. 13:47A-4.4(a) as having satisfied the IAR CE requirements at N.J.A.C. 13:47A-4.4(b), if the CE was completed as a condition of maintaining certification and the CE provided by the certifying organization is approved IAR CE content.
Proposed new N.J.A.C. 13:47A-4.4(e) holds each IAR responsible for ensuring that the authorized CE provider reports the IAR's completion of the CE to FINRA as required.
Proposed new N.J.A.C. 13:47A-4.4(f) prohibits carry-over of excess CE credits from one reporting period to any subsequent reporting period.
Pursuant to proposed new N.J.A.C. 13:47A-4.4(g), if an IAR fails to meet the IAR CE requirement by the end of a reporting period, the IAR's registration will be renewed as "Approved-Pending IAR CE" at the close of the calendar year. If an IAR in "Approved-Pending IAR CE" status fails to complete and report the required IAR CE at the close of the next calendar year, the IAR will not be eligible for IAR registration or renewal.
Proposed new N.J.A.C. 13:47A-4.4(h) provides that an IAR who is registered in the IAR's home state (defined as the state in which the IAR has their principal office and place of business) will be deemed to have met the IAR CE requirement if the CE requirements in the home state are, at a minimum, the same as those in this State and the IAR is in compliance with the home state's CE requirements.
Proposed new N.J.A.C. 13:47A-4.4(i) requires IARs who are not currently registered with the Bureau and who apply to re-register to complete CE requirements for all reporting periods from the time the individual's registration terminated to the time the individual re-applies for registration. IARs who take and pass the relevant examination or receive an examination waiver pursuant to N.J.A.C. 13:47A-4.3(b) are exempt from this requirement.
On May 20, 2022, NASAA adopted Model Rule for Unpaid Arbitration Awards (NASAA UAA Model Rule) pursuant to the Uniform Securities Acts of 1956 and 2002. The purpose of the NASAA UAA Model Rule is to provide state regulators with enforcement authority over regulated firms and persons who fail to pay final awards and judgments to customers or who fail to pay fines and other monetary penalties imposed by regulators. Consistent with the NASAA UAA Model Rule, the Bureau is proposing to amend N.J.A.C. 13:47A-6.3(a) by adding three new provisions as additional examples of dishonest or unethical practices. The Bureau believes that a failure to satisfy a monetary obligation such as an arbitration award, court order, administrative order, settlement, fine, penalty, or restitution should be a basis to deny, suspend, or revoke the registration of firms and individuals, as provided at N.J.S.A. 49:3-58.
Specifically, proposed new N.J.A.C. 13:47A-6.3(a)64 makes failing to pay and fully satisfy any final judgment or arbitration award resulting from an investment-related, customer-initiated arbitration or court proceeding, a dishonest or unethical practice, unless the parties agreed to an alternative payment agreement, in writing, and the applicant or registrant complies with the terms of the payment agreement. Proposed new N.J.A.C. 13:47A-6.3(a)65 declares attempting to avoid payment of any final judgment or arbitration award resulting from an investment-related, customer-initiated arbitration or court proceeding a dishonest or unethical practice, unless the parties agreed to an alternative payment agreement, in writing, and the registrant or applicant complies with the terms of the payment agreement. Proposed new N.J.A.C. 13:47A-6.3(a)66 deems it to be dishonest or unethical practice for a registrant or applicant to fail to pay and fully satisfy any fine, civil penalty, order of restitution, order of disgorgement, or similar monetary payment obligation imposed by the SEC, a court of competent jurisdiction, or any other state or province financial services or securities regulator, or any self-regulatory organization.
Finally, the Bureau is proposing to amend N.J.A.C. 13:47A-12.4, which identifies the manuals for the manual exemption pursuant to N.J.S.A. 49:3-50.b(2)(i)(B), by removing the reference to Standard and Poor's manual pursuant to Standard and Poor's notification to the Bureau that it has discontinued its production, effective May 2, 2016.
As the Bureau has provided a 60-day comment period on this notice of proposal, this notice is excepted from the rulemaking calendar requirement, pursuant to N.J.A.C. 1:30-3.3(a)5.
Social Impact
The Bureau believes that the proposed amendments and new rules will have a positive impact upon the welfare of the investing public. In particular, by requiring CCOs at investment advisor firms to pass the Series 65 exam, the proposed amendments and new rules will ensure that these officers have the competence and knowledge necessary to perform their duties effectively. In addition, the proposed amendments and new rules will protect the investing public by ensuring that supervisors who are registered with the Bureau as an agent have satisfied FINRA's supervisory requirements. The proposed amendments and new rules will also protect investors by ensuring that the Bureau is authorized to take enforcement action against any person or entity that has failed to pay any monetary obligation such as arbitration awards, fines, or penalties. Finally, the Bureau also believes that the proposed new rules concerning dishonest or unethical practices will have a positive impact upon the regulated community by providing guidance to members of the industry as to the types of acts and practices that may form the basis for initiation of administrative proceedings by the Bureau. Thus, the proposed amendments and the proposed new rules will help to maintain confidence in, and the integrity of, the securities markets and the securities industry in New Jersey.
Economic Impact
Portions of the proposed amendments and new rules may have an economic or financial impact on registrants. For instance, the proposed amendment at N.J.A.C. 13:47A-2.12(d) will require an examination fee in the amount of $ 187.00 for those CCOs who have not taken the Series 65 Examination. The Bureau strongly believes that it is critical to ensure that CCOs have a minimum threshold of knowledge and competency in the investment advisory business. Requiring all CCOs to take the Series 65 Examination will address this concern.
Proposed new N.J.A.C. 13:47A-1.14 would require registered broker-dealers to designate a supervisor at its principal office, each office of supervisory jurisdiction, and any other office not designated as an OSJ within New Jersey. Further, the designated supervisor is required to be registered with the Bureau and to pass FINRA's supervisory examination. To the extent that new supervisors will have to be so designated at these offices, the broker-dealers or registrants may incur examination fees for these individuals to take FINRA's supervisory exam. The Bureau believes that the need for qualified supervisors at these locations to ensure adequate investor protection outweighs the costs associated with the requisite exams.
Proposed new N.J.A.C. 13:47A-4.2(c) would allow individuals with principal or representative registration with a broker-dealer through FINRA's Maintenance of Qualification after Termination of Registration Program (MQP), to maintain exam qualification for five years after termination of a principal or representative registration with a broker-dealer. Participating in the MQP program would require that these individuals pay the annual enrollment fee for CEs through MQP. However, to the extent the proposed new subsection relieves registered agents of the obligation to pay exam fees, it will partially offset the annual enrollment fee for CEs.
Finally, proposed new N.J.A.C. 13:47A-4.4, which would require IARs to complete CE credits on an annual basis to maintain their IAR registration, would impose the fees and costs related to obtaining the required CE credits. The Bureau believes, however, that these costs are necessary to promote regulatory compliance and professional and ethical conduct by IARs.
Federal Standards Statement
A Federal standards analysis is not required because the proposed new rules and amendments do not exceed Federal standards. The proposed new rules and amendments are consistent with the applicable Federal standards in the National Securities Markets Improvement Act of 1996 (NSMIA) (P.L. 104-290) (1996), the Securities Act of 1933 (15 U.S.C. §§ 77a et seq.), the Securities Exchange Act of 1934 (15 U.S.C. §§ 78a et seq.), the Investment Advisers Act of 1940 (15 U.S.C. §§ 80b-1 et seq.), the Investment Company Act of 1940 (15 U.S.C. §§ 80a-1 et seq.), and with the applicable regulations, the Securities Act of 1933 Rules (17 CFR Part 230), the Securities Exchange Act of 1934 Rules (17 CFR Part 240), the [page=990] Investment Advisers Act of 1940 Rules (17 CFR Part 270), and the Investment Company Act of 1940 Rules (17 CFR Part 275).
Jobs Impact
The Bureau believes that the proposed amendments and new rules will not have an impact on jobs in this State.
Agriculture Impact
The proposed amendments and new rules will not have any impact on the agriculture industry in the State.
Regulatory Flexibility Analysis
Any licensee or registrant who qualifies as a "business which is resident in this State, independently owned and operated and not dominant in its field, and which employs fewer than 100 full-time employees" constitutes a "small business" within the meaning of the Regulatory Flexibility Act, N.J.S.A. 52:14B-16 et seq. (RFA). To the extent a licensee or registrant qualifies as a "small business" pursuant to the RFA, the following analysis applies pursuant to N.J.S.A. 52:14B-19.
The costs imposed by this rulemaking on small businesses are the same as the costs imposed on all businesses as discussed in the Economic Impact statement. The Bureau does not believe that registrants will need to employ any professional services to comply with the rulemaking. The rulemaking does not impose any recordkeeping or reporting requirements. However, it does impose compliance requirements, as discussed in the Summary.
The compliance requirements in this rulemaking will protect consumers by ensuring that CCOs at IAs are capable of performing their duties ethically and professionally; by requiring a designated supervisor who is registered with the Bureau as an agent and has met FINRA's supervisory requirements for each office location of a registered broker-dealer; and by giving the Bureau enforcement authority over regulated persons or entities who fail to pay any monetary obligation such as arbitration awards, fines, or penalties. In light of these benefits to consumers, the Bureau believes that the proposed new rules and amendments must be applied uniformly to all licensees and registrants regardless of the size of a business.
Housing Affordability Impact Analysis
The rulemaking will have an insignificant impact on the affordability of housing in New Jersey and there is an extreme unlikelihood that the rulemaking would evoke a change in the average costs associated with housing because the proposed amendments and new rules concern exam qualification for individuals with terminated registrations with broker-dealers, CE requirements for IARs, and exam qualification for re-registration after termination, exam requirement for CCOs, requiring supervisory agents in broker-dealer offices, and designating the failure to satisfy monetary obligations, such as arbitration awards, fines, or penalties, as a dishonest or unethical business practice.
Smart Growth Impact Analysis
The rulemaking will have an insignificant impact on smart growth and there is an extreme unlikelihood that the proposed amendments and new rules would evoke a change in housing production in Planning Areas 1 or 2, or within designated centers, pursuant to the State Development and Redevelopment Plan in New Jersey because the proposed amendments and new rules concern exam qualification for individuals with terminated registrations with broker-dealers, CE requirements for IARs, and exam qualification for re-registration, exam requirements for CCOs, supervisory agents in broker-dealer offices, and identifying unpaid arbitration awards, fines, or penalties, as a dishonest or unethical business practice.
Racial and Ethnic Community Criminal Justice and Public Safety Impact
The Bureau has evaluated this rulemaking and determined that it will not have an impact on pretrial detention, sentencing, probation, or parole policies concerning adults and juveniles in the State. Accordingly, no further analysis is required.
Full text of the proposal follows (additions indicated in boldface thus; deletions indicated in brackets [thus]):
SUBCHAPTER 1. BROKER-DEALERS
13:47A-1.9 Change of status; submission of form
(a)-(d) (No change.)
(e) A registered broker-dealer, if a corporation or partnership, shall file with the Bureau or the CRD, whichever is applicable, the fingerprints of each officer, director, controlling person, (as defined on the Form BD), or partner who commences any employment or affiliation with said registered broker-dealer no later than five days after the commencement of such employment or affiliation, and written consent from each for a criminal history record background check to be performed pursuant to N.J.S.A. 49:3-[56(p)] 56.p. Those persons exempt from filing [a] fingerprint [card] data with the Securities and Exchange Commission pursuant to Rule 17f-2 promulgated [under] pursuant to the Securities Exchange Act of 1934 (17 CFR 240.17f-2), or its successor rule, shall be exempt from filing fingerprints with the Bureau pursuant to this subsection.
13:47A-1.14 Supervision
(a) Every registered broker-dealer must employ at its principal office and at each office of supervisory jurisdiction (OSJ) in this State at least one person designated to act in a supervisory capacity who is registered as an agent in this State, is located in this State, and has satisfied the supervisory examination requirements of FINRA.
(b) For any other office in this State not designated as an OSJ, a supervisor must be designated to supervise the office. The designated supervisor shall be registered in this State as an agent and satisfy the supervisory examination requirements of FINRA, but shall not be required to be located in this State.
(c) Failure to comply with this section for more than 30 days may be deemed a failure to reasonably supervise and may result in the revocation or suspension of the registered broker-dealer's registration until such time as the broker-dealer comes into compliance with this section.
SUBCHAPTER 2. INVESTMENT ADVISERS
13:47A-2.12 Supervision
(a)-(c) (No change.)
(d) Chief Compliance Officer. Every investment adviser registered by the Bureau shall designate an individual (who is a supervised person) responsible for administering the policies and procedures that are adopted [under] pursuant to (a) above. The designated individual shall have successfully passed the Uniform Investment Adviser Law Examination (Series 65 Examination), or its successor exam.
SUBCHAPTER 3. AGENTS
13:47A-3.1 Agents of broker-dealers
(a) Any person desiring to act in the State of New Jersey as an agent of a non-FINRA member broker-dealer registered in New Jersey directly with the Bureau or as an agent of an issuer, shall file a complete and accurate application with the Bureau on the Uniform Application for Securities Industry Registration or Transfer, Form U4, or its successor agent application form prescribed by the CRD, as set forth [in] at N.J.A.C. 13:47A-11.3. Such application shall be accompanied by:
1.-3. (No change.)
(b) Any person desiring to act in the State of New Jersey as an agent of a broker-dealer registered in New Jersey [via] through the CRD shall file an application for registration as an agent with the CRD on the Form U4, Uniform Application for Securities Industry Registration or Transfer, or its successor agent application form prescribed by the CRD. The agent application shall be accompanied by a consent to service of process executed by the applicant; fingerprint [cards] data as required by the CRD; and payment in the form prescribed by the CRD of $ 125.00 for each year of the registration period. In accordance with N.J.S.A. 49:3-[58(a)(2)(i)] 58.a(2)(i), an application is incomplete unless and until the applicant pays the registration fees as provided above within the billing time limits established by the Bureau or by the CRD.
1. Pursuant to N.J.S.A. 49:3-[57(a)] 57.a, the Bureau Chief may require that any applicant provide any of the following information, upon request:
i.-viii. (No change.)
[page=991] ix. Fingerprint [card processing] data pursuant to N.J.S.A. 49:3-[56(p)] 56.p;
x.-xii. (No change.)
2. (No change.)
(c)-(d) (No change.)
SUBCHAPTER 3A. INVESTMENT ADVISER REPRESENTATIVES
13:47A-3A.1 Registration of investment adviser representatives
(a) (No change.)
(b) Pursuant to N.J.S.A. 49:3-[57(a)] 57.a, the Bureau Chief may require that any applicant provide any of the following information, upon request:
1.-8. (No change.)
9. Fingerprint [card] data processing pursuant to N.J.S.A. 49:3-[56(p)] 56.p;
10.-13. (No change.)
(c)-(f) (No change.)
SUBCHAPTER 4. EXAMINATIONS
13:47A-4.2 Examinations for agents
(a) No person shall be registered as an agent unless he or she has successfully passed [a securities examination or securities examinations approved by the Bureau Chief pursuant to N.J.S.A. 49:3-57(f)(1), the General Securities Representative Examination (Series 7),] the Securities Industry Essentials Exam (SIE), the appropriate agent registration examination as specified in FINRA Rule 1220, and the Uniform Securities Agent State Law Examination (Series 63), or their successor exams, or has been granted a waiver by the Bureau Chief. Individuals acting in the capacity of an agent are required to take and pass the examinations required by FINRA for the type of activity the individual intends to perform prior to performing the corresponding activities. Individuals acting in a supervisory capacity are required to take and pass the appropriate supervisory examinations required by FINRA prior to performing the corresponding activities.
(b) [Any] Except as provided at (c) below, any person whose registration has been terminated for a period of two or more years preceding the date of receipt by the Bureau of a new application for registration shall be required to pass the examinations set forth [in] at (a) above unless granted a waiver by the Bureau Chief pursuant to N.J.A.C. 13:47A-[4.4(a)] 4.5(a).
(c) A person who terminates any of the representative or principal registration categories with FINRA and who satisfies the conditions of FINRA's Continuing Education Program for Persons Maintaining Their Qualification Following the Termination of a Registration Category (FINRA Rule 1240(c)) may maintain the person's examination qualification for any of the terminated registration categories for a period of five years following the termination of the registration category.
13:47A-4.3 Examination requirements for investment adviser representatives
(a) An individual applying to be registered as an investment adviser or investment adviser representative shall provide the Bureau Chief with proof of having obtained a passing score on one of the following examinations, and which has not expired after two years of non-affiliation in a registered capacity, or of holding one of the following certifications:
1. (No change.)
2. The Securities Industry Essentials Exam (SIE), the General Securities Representative Examination (Series 7 examination), and the Uniform Combined State Law Examination (Series 66 examination);
3.-7. (No change.)
(b) [Any] Except as provided at (c) below, any person whose registration has been terminated for a period of two or more years preceding the date of receipt by the Bureau of a new application for registration shall hold one of the certifications set forth [in] at (a) above or pass the required examinations, unless granted a waiver by the Bureau Chief pursuant to N.J.A.C. 13:47A-[4.4(c)] 4.5(c).
(c) Any person whose registration has been terminated for a period of two or more years may maintain the person's examination qualification for registration for a period of five years following termination provided that the person:
1. Previously took and passed the examination(s) set forth at (a)1 or 2 above for which the individual seeks to maintain eligibility pursuant to this section;
2. Was registered as an investment adviser representative for at least one year immediately preceding the termination of the investment adviser representative registration;
3. Was not subject to a statutory disqualification as defined in Section 3(a)(39) of the Securities Exchange Act of 1934 while registered as an investment adviser representative or at any point after termination of the registration;
4. Is not subject to an order of the SEC, FINRA, any other self-regulatory organization, or any other securities regulator requiring the individual to retake the qualifying examination;
5. Does not have a deficiency pursuant to the investment adviser representative continuing education program at the time the investment adviser representative registration becomes ineffective;
6. Elects to participate in NASAA's Exam Validity Extension Program (IAR EVEP) within two years from the effective date of the termination of the investment adviser representative registration; and
7. Completes the continuing education requirements at N.J.A.C. 13:47A-4.4(b) annually on or before December 31 of each calendar year in which the person participates in the IAR EVEP.
i. An individual who elects to participate in the IAR EVEP is required to complete the required continuing education credits for each calendar year that elapses after the individual's investment adviser representative registration became ineffective, regardless of when the individual elects to participate in the IAR EVEP.
ii. An individual who complies with FINRA's Continuing Education Program for Persons Maintaining Their Qualification Following the Termination of a Registration Category (FINRA Rule 1240(c)) shall be considered in compliance with N.J.A.C. 13:47A-4.4(b)2.
[(c)] (d) Persons applying for registration as an agent who wish to act as an investment adviser representative, shall pass the Securities Industry Essentials Exam (SIE), the Series 7 and the [revised] Series 66 examinations [effective January 1, 2000], or their successor examinations, and persons applying for registration as investment adviser representatives, without otherwise registering as an agent, shall pass the [revised] Series 65 examination [effective January 1, 2000], or its successor examinations. Registered agents who have passed the [revised 2000] Series 66 examination can give investment advice as part of their agent activities without registering separately as investment adviser representatives.
Recodify existing (d)-(e) as (e)-(f) (No change in text.)
13:47A-4.4 Investment adviser representative continuing education
(a) For purposes of this section, the following words and terms shall have the following meanings, unless the context clearly indicates otherwise:
"Approved IAR continuing education content" means the materials, written, oral, or otherwise, that have been approved by NASAA, or its designee, and which make up the educational program provided to an investment adviser representative pursuant to this section.
"Authorized provider" means a person that NASAA, or its designee, has authorized to provide continuing education content required by this section.
"Credit" means a unit that has been designated by NASAA, or its designee, as at least 50 minutes of educational instruction.
"Home state" means the state in which the investment adviser representative has its principal office and place of business.
"IAR ethics and professional responsibility content" means approved investment adviser representative continuing education [page=992] content that addresses an investment adviser representative's ethical and regulatory obligations.
"IAR products and practice content" means approved investment adviser representative continuing education content that addresses an investment adviser representative's continuing skills and knowledge regarding financial products, investment features, and practices in the investment advisory industry.
"NASAA" means the North American Securities Administrators Association or a committee designated by its Board of Directors.
"Reporting period" means one 12-month period as determined by NASAA. An investment adviser representative's initial Reporting Period with this State commences the first day of the first full Reporting Period after the individual is registered or required to be registered with this State.
(b) Every registered investment adviser representative shall complete the following continuing education requirements each reporting period as a condition of registration renewal:
1. Six credits of investment adviser representative ethics and professional responsibility content offered by an authorized provider, with at least three hours covering the topic of ethics; and
2. Six credits of investment adviser representative products and practice content offered by an authorized provider.
(c) An investment adviser representative who is also registered as an agent of a FINRA member broker-dealer and who complies with FINRA's continuing education requirements shall be deemed to satisfy the continuing education requirements at (b)2 above for each applicable reporting period, provided the FINRA continuing education content:
1. Focuses on compliance, regulatory, ethical, and sales practices standards;
2. Derives from state and Federal investment advisory statutes, rules, and regulations, securities industry rules and regulations, and accepted standards and practices in the financial services industry; and
3. Requires that its participants demonstrate proficiency in the subject matter of the educational materials.
(d) Credits of continuing education completed by an investment adviser representative who currently holds one of the certifications described at N.J.A.C. 13:47A-4.3(a) shall be deemed to satisfy the continuing education requirements at (b) above provided:
1. The investment adviser representative completes the credits of continuing education as a condition of maintaining the certification for the relevant reporting period;
2. The credits of continuing education completed during the relevant reporting period by the investment adviser representative are mandatory to maintain the certification; and
3. The continuing education content provided by the certifying organization during the relevant reporting period is approved IAR continuing education content.
(e) Every investment adviser representative is responsible for ensuring that the authorized provider reports the investment adviser representative's completion of the applicable IAR continuing education requirements.
(f) An investment adviser representative who completes credits of continuing education in excess of the amount required for the reporting period shall not carry forward excess credits to a subsequent reporting period.
(g) An investment adviser representative who fails to comply with this section by the end of a reporting period will renew as "Approved--Pending IAR CE" at the close of the calendar year in this State until the investment adviser representative completes and reports all required investment adviser representative continuing education credits for all reporting periods as required by this section. An investment adviser who is Approved-Pending IAR CE at the close of the next calendar year shall not be eligible for investment adviser representative registration or renewal of an investment adviser representative registration.
(h) An investment adviser representative registered or required to be registered in this State who is registered as an investment adviser representative in the individual's home state is considered to be in compliance with this section provided:
1. The investment adviser representative's home state's continuing education requirements are, at a minimum, the same as those in this section; and
2. The investment adviser representative is in compliance with the home state's investment adviser representative continuing education requirements.
(i) An investment adviser representative who was previously registered pursuant to the Act and became unregistered must complete investment adviser representative continuing education for all reporting periods that occurred between the time that the investment adviser representative became unregistered and when the person became registered again pursuant to the Act unless the investment adviser representative takes and passes the examination or receives an examination waiver as required at N.J.A.C. 13:47A-4.3(b) in connection with the subsequent application for registration.
13:47A-[4.4] 4.5 (No change in text.)
SUBCHAPTER 6. DISHONEST OR UNETHICAL BUSINESS PRACTICES
13:47A-6.3 Examples of dishonest or unethical practices for broker-dealers, agents, issuer-agents, advisers, and internet site operators
(a) "Dishonest or unethical practices" as used [in] at N.J.S.A. 49:3-47 et seq., specifically [in] at N.J.S.A. 49:3-[53(a)(3)] 53.a(3) and 49:3-[58(a)(2)(vii)] 58.a(2)(vii), shall include the following:
1.-62. (No change.)
63. Engaging in any act, practice, or course of business which is fraudulent, deceptive, or manipulative in contravention of Section 206(4) of the Investment Advisers Act of 1940 (15 U.S.C. [§206(4)] § 206(4)), notwithstanding the fact that such investment adviser is not registered or required to be registered [under] pursuant to Section 203 of the Investment Advisers Act of 1940 (15 U.S.C. [§203] § 203); [or]
64. Failing to pay and fully satisfy any final judgment or arbitration award, resulting from an investment-related, customer-initiated arbitration, or court proceeding, unless alternative payment arrangements are agreed to between the customer and the investment adviser or investment adviser representative, or the broker-dealer or broker-dealer agent, in writing, and the investment adviser or investment adviser representative, or broker-dealer or broker-dealer agent complies with the terms of the alternative payment arrangement;
65. Attempting to avoid payment of any final judgment or arbitration award resulting from an investment-related, customer-initiated arbitration or court proceeding, unless alternative payment arrangements are agreed to between the customer and the investment adviser or investment adviser representative, or the broker-dealer or broker-dealer agent, in writing, and the investment adviser or investment adviser representative, or the broker-dealer or broker-dealer agent complies with the terms of the alternative payment arrangements;
66. Failing to pay and fully satisfy any fine, civil penalty, order of restitution, order of disgorgement, or similar monetary payment obligation imposed, whether administratively or through court proceedings, upon the investment adviser or investment adviser representative, or the broker-dealer or agent by the Securities and Exchange Commission, a court of competent jurisdiction, the securities or other financial services regulator of any state or province, or any self-regulatory organization; or
[64.] 67. (No change in text.)
SUBCHAPTER 12. EXEMPTIONS FOR SECURITIES TRANSACTIONS AND SECURITIES [page=993] OFFERINGS; EMPLOYEE BENEFIT PLANS; ACCREDITED INVESTORS
13:47A-12.4 Manual exemptions
The manuals issued by Mergent's [and by Standard and Poor's] are recognized for the "manual" exemption [under] pursuant to N.J.S.A. 49:3-[50(b)(2)(i)(B)] 50.b(2)(i)(B). This exemption encompasses both the printed manuals and the electronic data services of Mergent's [and Standard and Poor's].