Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
292.330
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
292.500(3) authorizes the
commissioner to promulgate administrative regulations necessary to carry out
the provisions of KRS Chapter 292.
KRS
292.336(6) authorizes the
commissioner to promulgate administrative regulations regulating the conduct of
business by broker-dealers and investment advisers. This administrative
regulation establishes requirements relating to the conduct of a broker-dealer,
agent, investment adviser, or representative.
Section 1. Definitions.
(1) "Current brochure" or "current brochure
supplement" means the most recent revision of the brochure or brochure
supplement, including all amendments to date.
(2) "Sponsor of a wrap fee program" means an
investment adviser that is compensated under a wrap fee program for:
(a) Sponsoring, organizing, or administering
the program; or
(b) Selecting, or
providing advice to clients regarding the selection of, other investment
advisers in the program.
(3) "Wrap fee program" means an advisory
program under which a specified fee or fees not based directly upon
transactions in a client's account is charged for:
(a) Investment advisory services, which may
include portfolio management or advice concerning the selection of other
investment advisers; and
(b) The
execution of client transactions.
Section 2. Suitability. A broker-dealer,
agent, investment adviser, or investment adviser representative who recommends
to a customer the purchase, sale or exchange of a security shall have
reasonable grounds to believe that the recommendation is not unsuitable for the
customer on the basis of:
(1) Information
furnished by the customer after reasonable inquiry concerning the customer's
investment objectives, financial situation and needs; and
(2) Other information known by the
broker-dealer, agent, investment adviser or investment adviser
representative.
Section
3. Supervision of Broker-dealer Agents.
(1) Each agent shall be subject to the
supervision of a supervisor designated by the broker-dealer employing the
agent. The responsibilities of a designated supervisor with respect to each
agent under his supervision shall include the prompt review and written
approval of:
(a) The opening of each new
customer account by the agent;
(b)
Each securities transaction by the agent;
(c) All incoming or outgoing correspondence
including postal mail, electronic mail, and faxes;
(d) All advertising, sales literature, and
seminars; and
(e) The handling of
any customer complaint.
(2) Either a registered principal of the
broker-dealer or an agent's designated supervisor shall:
(a) Review outside business activity by the
agent;
(b) Review any brokerage
account owned by the agent;
(c)
Periodically review customer accounts of the agent; and
(d) Regularly inspect the records of the
agent at the agent's place of business.
Section 4. Written Supervisory Procedures.
(1) Broker-dealers.
(a) Each broker-dealer shall establish,
maintain and enforce written procedures that:
1. Are reasonably designed to detect and
prevent violations of:
a. KRS Chapter 292, 808
KAR Chapter 10, and orders issued under that chapter;
b. The rules promulgated by the Securities
and Exchange Commission pursuant to
15 U.S.C.
78w; and c. If the broker-dealer is a member
of a self-regulatory organization as defined in
15 U.S.C.
78c(a)(26), the rules of the
self-regulatory organization pursuant to
15
U.S.C. 78s(b); and
2. Include the procedures adopted
by the broker-dealer to comply with the requirements of Section 3 of this
administrative regulation.
(b) The broker-dealer shall keep a copy of
the procedures required by paragraph (a) of this subsection in each office
where an agent transacts business in securities.
(2) Investment advisers.
(a) Except as provided in paragraph (b) of
this subsection, each investment adviser shall:
1. Establish, maintain, and enforce written
procedures that are reasonably designed to detect and prevent violations of KRS
Chapter 292, 808 KAR Chapter 10, and orders issued under that chapter;
and
2. Keep a copy of the
procedures in each office where a representative provides investment advice to
a client.
(b) The
requirements established in paragraph (a) of this subsection shall not apply to
an investment adviser that:
1. Has its
principal place of business in a state other than Kentucky if the investment
adviser is registered in that state and is in compliance with that state's
written supervisory procedures requirements; or
2. Has two (2) or fewer persons registered as
an investment adviser representative of the investment adviser.
Section 5.
Brochure and Brochure Supplement.
(1) An
investment adviser shall:
(a) Deliver to a
client or prospective client a current brochure and, if applicable, current
brochure supplement for a supervised person. The current brochure and current
brochure supplement shall:
1. Contain all
information required by Part 2 of Form ADV as incorporated by reference in
808
KAR 10:010; and
2. Be delivered before or at the time of
entering into an investment advisory contract with that client;
(b) Deliver to each client
annually, within 120 days after the end of the investment adviser's fiscal year
and without charge:
1. A current brochure;
or
2. The summary of material
changes to the brochure as required by Item 2 of Form ADV, Part 2A that offers
to provide the current brochure without charge, accompanied by the Web site
address (if available) and an e-mail address (if available) and telephone
number by which a client may obtain the current brochure, and the Web site
address for obtaining information about the investment adviser through the
Investment Adviser Public Disclosure (IAPD) system; and
(c) Deliver the following to each client
promptly after creating an amended brochure or brochure supplement, as
applicable, if the amendment constitutes a material revision:
1. The amended brochure or brochure
supplement, as applicable, along with a statement describing the material
revision; or
2. A statement
describing the material revision.
(2)
(a) If
an investment adviser is a sponsor of a wrap fee program, then the brochure
that this section requires the investment adviser to deliver to a client or
prospective client of the wrap fee program shall be a wrap fee program brochure
containing all the information required by Part 2A, Appendix 1 of Form ADV. Any
additional information in a wrap fee program brochure shall be limited to
information applicable to wrap fee programs that the investment adviser
sponsors.
(b) An investment adviser
does not have to deliver a wrap fee program brochure if another sponsor of the
wrap fee program delivers, to the client or prospective client of the wrap fee
program, a wrap fee program brochure containing all the information required by
Part 2A, Appendix 1 of Form ADV.
(c) A wrap fee program brochure shall not
take the place of any brochure supplements that the investment adviser is
required to deliver under this section.
(3) If an investment adviser provides
substantially different advisory services to different clients, the investment
adviser may provide them with different brochures, if each client receives all
information about the services and fees that are applicable to that client. The
brochure delivered to a client may omit any information required by Part 2A of
Form ADV if the information does not apply to the advisory services or fees
that are provided or charged, or that are proposed to be provided or charged,
to that client.
(4) This section
shall not relieve an investment adviser from an obligation, pursuant to a
provision of KRS Chapter 292, 808 KAR Chapter 10, or other federal or state
law, to disclose information to its advisory clients or prospective advisory
clients not specifically required by this section.
Section 6. Multiple Registration.
(1) A person shall not be concurrently
registered as an agent of more than one (1) broker-dealer or issuer unless the
person obtains prior written consent from the commissioner.
(2) A person shall not be concurrently
registered as an investment adviser representative of more than one (1)
investment adviser unless the person obtains prior written consent from the
commissioner.
(3) A request for
multiple registration shall be in writing and shall contain a statement by each
employer that the employer:
(a) Consents to
the multiple employment of the agent or representative; and
(b) Agrees to assume joint and several
liability with all other employers for an act or omission of the agent or
representative during the employment period that violates KRS Chapter 292, 808
KAR Chapter 10, or orders issued under that chapter.
(4) The commissioner shall consent to
multiple registration pursuant to a request under subsection (3) of this
section if the commissioner finds that:
(a)
The multiple registration does not impair a determination of the supervisory
responsibilities of each employer with respect to the employee; and
(b) The disciplinary histories of the person
and each employer are not unfavorable.
(5) The commissioner may consent to multiple
registration in other cases if the commissioner finds that the multiple
registration does not impair determination of the respective supervisory
responsibilities of each employer with respect to the employee.
STATUTORY AUTHORITY:
KRS
292.336(6),
292.500(3)