South Carolina Code of Regulations
Chapter 13 - ATTORNEY GENERAL
Article 2 - SECURITIES
Subarticle 4 - BROKER-DEALERS, AGENTS, INVESTMENT ADVISERS, INVESTMENT ADVISER REPRESENTATIVES, AND FEDERAL COVERED INVESTMENT ADVISERS
Section 13-408 - Recordkeeping Requirements for Investment Advisers
Universal Citation: SC Code Regs 13-408
Current through Register Vol. 48, No. 9, September 27, 2024
A. Every investment adviser registered or required to be registered under the South Carolina Uniform Securities Act of 2005 shall make and keep true, accurate and current the following books, ledgers and records:
(1) A journal or
journals, including cash receipts and disbursement records, and any other
records of original entry forming the basis of entries in any ledger;
(2) General and auxiliary ledgers (or other
comparable records) reflecting asset, liability, reserve, capital, income and
expense accounts;
(3) A memorandum
of each order given by the investment adviser for the purchase or sale of any
security, of any instruction received by the investment adviser from a client
concerning the purchase, sale, receipt or delivery of a particular security,
and of any modification or cancellation of any such order or instruction. The
memoranda shall show the terms and conditions of the order, instruction,
modification or cancellation; shall identify the person connected with the
investment adviser who recommended the transaction to the client and the person
who placed the order; and shall show the account for which entered, the date of
entry, and the bank or broker-dealer by or through who executed where
appropriate. Orders entered pursuant to the exercise of discretionary power
shall be so designated;
(4) All
check books, bank statements, canceled checks and cash reconciliations of the
investment adviser;
(5) All bills
or statements (or copies of), paid or unpaid, relating to the investment
adviser's business as an investment adviser;
(6) All trial balances, financial statements
and internal audit working papers relating to the investment adviser's business
as an investment adviser;
(7)
Originals of all written communications received and copies of all written
communications sent by the investment adviser relevant to (a) any
recommendation made or proposed to be made and any advice given or proposed to
be given, (b) any receipt, disbursement or delivery of funds or securities, or
(c) the placing or execution of any order to purchase or sell any security,
provided, however, (i) that the investment adviser shall not be required to
keep any unsolicited market letters or other similar communications of general
public distribution not prepared by or for the investment adviser, and (ii)
that if the investment adviser sends any notice, circular or other
advertisement offering any report, analysis, publication or other investment
advisory service to more than ten persons, the investment adviser shall not be
required to keep a record of the names and addresses of the persons to whom it
was sent; except that if the notice, circular or advertisement is distributed
to persons named on any list, the investment adviser shall retain with the copy
of the notice, circular or advertisement a memorandum describing the list and
its source;
(8) A list or other
record of all accounts which identifies the accounts in which the investment
adviser is vested with any discretionary power with respect to the funds,
securities or transactions of any client;
(9) A copy of all powers of attorney and
other evidences of the granting of any discretionary authority by any client to
the investment adviser;
(10) A copy
in writing of each agreement entered into by the investment adviser with any
client, and all other written agreements otherwise relating to the investment
adviser's business as an investment adviser;
(11) A file containing a copy of each notice,
circular, advertisement, newspaper article, investment letter, bulletin, or
other communication, including those by electronic media, that the investment
adviser circulates or distributes, directly or indirectly, to two or more
persons (other than persons connected with the investment adviser), and if the
notice, circular, advertisement, newspaper, newspaper article, investment
letter, bulletin, or other communication recommends the purchase or sale of a
specific security and does not state the reasons for the recommendation, a
memorandum of the investment adviser indicating the reasons for the
recommendation;
(12) Records of
Beneficial ownership (investment adviser or investment adviser representative)
(a) A record of every transaction in a
security in which the investment adviser or any advisory representative (as
hereinafter defined) of the investment adviser has, or by reason of any
transaction acquires, any direct or indirect beneficial ownership, except:
(i) transactions effected in any account over
which neither the investment adviser nor any advisory representative of the
investment adviser has any direct or indirect influence or control;
and
(ii) transactions in securities
which are direct obligations of the United States. The record shall state the
title and amount of the security involved; the date and nature of the
transaction (i.e. purchase, sale or other acquisition of disposition); the
price at which it was effected; and the name of the broker-dealer or bank with
or through whom the transaction was effected. The record may also contain a
statement declaring that the reporting or recording of any transaction shall
not be construed as an admission that the investment adviser or advisory
representative has any direct or indirect beneficial ownership in the security.
A transaction shall be recorded not later than ten (10) days after the end of
the calendar quarter in which the transaction was effected.
(b) For purposes of Subsection A
(12) above, the following definitions will apply:
(i) "advisory representative" shall mean any
partner, officer or director of the investment investment adviser; any employee
who participates or participated in any way in the determination of which
recommendations shall or should be made; any employee who, in connection with
his duties, obtains any information concerning which securities are being
recommended prior to the effective dissemination of the recommendations; and
any of the following persons who obtain information concerning securities
recommendations being made by the investment adviser prior to the effective
dissemination of the recommendations:
(A) any
person in a control relationship to the investment adviser;
(B) any affiliated person of a controlling
person; and
(C) any affiliated
person of an affiliated person;
(ii) "control" shall mean the power to
exercise a controlling influence over the management or policies of a company,
unless such power is solely the result of an official position with such
company. Any person who owns beneficially, either directly or through one or
more controlled companies, more than twenty-five percent (25%) of the voting
securities of a company shall be presumed to control such company.
(c) An investment adviser shall
not be deemed to have violated the provisions of Subsection A (12) above
because of the failure to record securities transactions of any advisory
representative if the investment adviser establishes that it instituted
adequate procedures and used reasonable diligence to promptly obtain reports of
all transactions required to be recorded;
(13) Records of Beneficial ownership (other)
(a) Notwithstanding the provisions of
Subsection A (12) above, where the investment adviser is primarily engaged in a
business or businesses other than advising investment advisory clients, a
record must be maintained of every transaction in a security in which the
investment adviser or any advisory representative (as hereinafter defined) of
the investment adviser has, or by reason of any transaction acquires, any
direct or indirect beneficial ownership, except:
(i) transactions effected in any account over
which neither the investment adviser nor any advisory representative of the
investment adviser has any direct or indirect influence or control;
and
(ii) transactions in securities
which are direct obligations of the United States. The record shall state the
title and amount of the security involved; the date and nature of the
transaction (i.e. purchase, sale, or other acquisition or disposition); the
price at which it was effected; and the name of the broker-dealer or bank with
or through whom the transaction was effected. The record may also contain a
statement declaring that the reporting or recording of any transaction shall
not be construed as an admission that the investment adviser or advisory
representative has any direct or indirect beneficial ownership in the security.
A transaction shall be recorded not later than 10 days after the end of the
calendar quarter in which the transaction was effected.
(b) An investment adviser is "primarily
engaged in a business or businesses other than advising investment advisory
clients" when, for each of its most recent three (3) fiscal years or for the
period of time since organization, whichever is lesser, the investment adviser
derived from such other business or businesses, on an unconsolidated basis,
more than fifty percent (50%) of:
(i) its
total sales and revenues; and
(ii)
its income (or loss) before income taxes and extraordinary items.
(c) For purposes of Subsection A
(13) above, the following definitions will apply:
(i) "advisory representative", when used in
connection with a company primarily engaged in a business or businesses other
than advising investment advisory clients, shall mean any partner, officer,
director, or employee of the investment adviser who participates in any way in
the determination of which recommendation shall be made, or whose functions or
duties relate to the determination of which securities are being recommended
prior to the effective dissemination of the recommendations; and any of the
following persons, who obtain information concerning securities recommendations
being made by the investment adviser prior to the effective dissemination of
such recommendations or of the information concerning the recommendations:
(A) any person in a control relationship to
the investment adviser;
(B) any
affiliated person of a controlling person; and
(C) any affiliated person of an affiliated
person;
(ii) "control"
shall mean the power to exercise a controlling influence over the management or
policies of a company, unless such power is solely the result of an official
position with such company. Any person who owns beneficially, either directly
or through one or more controlled companies, more than twenty five percent
(25%) of the voting securities of a company shall be presumed to control such
company.
(d) An
investment adviser shall not be deemed to have violated the provisions of
Subsection A (13) above because of the failure to record securities
transactions of any advisory representative if the investment adviser
establishes that it instituted adequate procedures and used reasonable due
diligence to promptly obtain reports of all transactions required to be
recorded;
(14) A copy of
each written statement and each amendment or revision, given or sent, to any
client or prospective client of the investment adviser, and a record of the
dates that each written statement and each amendment or revision, was given, or
offered to be given, to any client or prospective client who subsequently
became a client;
(15) For each
client that was obtained by the adviser by means of a solicitor to whom a cash
fee was paid by the adviser:
(a) evidence of
a written agreement to which the adviser is a party related to the payment of
such fee;
(b) a signed and dated
acknowledgment of receipt from the client evidencing the client's receipt of
the investment adviser's disclosure statement and a written disclosure
statement of the solicitor; and
(c)
a copy of the solicitor's written disclosure statement. The written agreement,
acknowledgment and solicitor disclosure statement will be considered to be in
compliance if such documents are in compliance with Rule 275.206(4)-3 of the
Investment Advisers Act of 1940.
For purposes of this Rule, the term "solicitor" shall mean any person or entity who, for compensation, acts as an agent of an investment adviser in referring potential clients;
(16) All accounts, books, internal working
papers, and any other records or documents that are necessary to form the basis
for or demonstrate the calculation of the performance or rate of return of all
managed accounts or securities recommendations in any notice, circular,
advertisement, newspaper article, investment letter, bulletin, or other
communication including but not limited to electronic media that the investment
adviser circulates or distributes, directly, or indirectly, to two (2) or more
persons (other than persons connected with the investment adviser); provided,
however, that, with respect to the performance of managed accounts, the
retention of all account statements, if they reflect all debits, credits, and
other transactions in a client's account for the period of the statement, and
all worksheets necessary to demonstrate the calculation of the performance or
rate of return of all managed accounts shall be deemed to satisfy the
requirements of this paragraph;
(17) A file containing a copy of all written
communications received or sent regarding any complaints or litigation
involving the investment adviser or any investment adviser representative or
other employee, and any current or former customer or client;
(18) Written information about each
investment advisory client that is the basis for making any recommendation or
providing any investment advice to such client;
(19) Written procedures to supervise the
activities of employees and investment adviser representatives that are
reasonably designed to achieve compliance with applicable securities laws and
regulations; and
(20) A file
containing a copy of each document (other than any notices of general
dissemination) that was filed with or received from any state or federal agency
or self regulatory organization and that pertains to the registrant or its
investment adviser representatives. The file should contain, but is not limited
to, all applications, amendments, renewal filings, and
correspondence.
(21) A copy, with
original signatures of the investment adviser's appropriate signatory and the
investment adviser representative, of each initial Form U-4 and each amendment
to Disclosure Reporting Pages (DRPs Form U-4). Each copy must be retained by
the investment adviser (filing on behalf of the investment adviser
representative) and must be made available for inspection upon regulatory
request.
(22) Where the investment
adviser inadvertently held or obtained a client's securities or funds and
returned them to the client within three business days, or has forwarded
third-party checks within three business days, a ledger or other listing of all
securities or funds held or obtained. Such ledger or other listing shall
include the following information:
(a)
Issuer;
(b) Type of Security and
series;
(c) Date of
issue;
(d) For debt instruments,
the denomination, interest rate, and maturity date;
(e) Certificate number, including any
alphabetical or other prefix or suffix;
(f) Name in which registered;
(g) Date given to the adviser;
(h) Date securities or funds were sent to
client or sender, or date third-party checks were forwarded;
(i) Name and address to whom the securities
or funds were sent, or third-party checks were forwarded;
(j) Form of delivery to client or sender, or
copy of the form of delivery to client or sender; and
(k) Mail confirmation number, if applicable,
or confirmation by client or sender of the fund's or security's
return.
(23) If an
investment adviser obtains possession of securities that are acquired from the
issuer in a transaction or chain of transactions not involving any public
offering that comply with the exception from custody, the investment adviser
shall keep and maintain the following records:
(a) A record showing the issuer's or current
transfer agent's name, address, phone number, and other applicable contact
information pertaining to the party responsible for recording client interests
in the securities; and
(b) A copy
of any legend, shareholder agreement, or other agreement, showing that those
securities are transferable only with prior consent of the issuer or holders of
the outstanding securities of the issuer.
B. If an investment adviser subject to Section A of this Rule has custody or possession of securities or funds of any client, the records required to be made and kept under Section A above shall include:
(1) A journal or other record showing
all purchases, sales, receipts and deliveries of securities (including
certificate numbers) for all accounts and all other debits and credits to the
accounts;
(2) A separate ledger
account for each client showing all purchases, sales, receipts and deliveries
of securities, the date and price of each purchase and sale, and all debits and
credits;
(3) Copies of
confirmations of all transactions effected by or for the account of any client;
and
(4) A record for each security
in which any client has a position, which record shall show the name of each
client having an interest in the security, the amount or interest of each
client, and the location of each security.
(5) A copy of any and all documents executed
by the client (including a limited power of attorney) under which the
investment adviser is authorized or permitted to withdraw a client's funds or
securities maintained with a custodian upon the investment adviser's
instruction to the custodian;
(6) A
copy of each client's quarterly account statements, as generated and delivered
by the qualified custodian. If the investment adviser also generates a
statement that is delivered to the client, the adviser shall also maintain
copies of such statements along with the date such statements were sent to the
clients;
(7) If applicable to the
adviser's situation, a copy of the special examination report verifying the
completion of the examination by an independent certified public accountant and
describing the nature and extent of the examination; and
(8) A record of any finding by the
independent certified public accountant of any material discrepancies found
during the examination.
C. Every investment adviser subject to Subsection A of this Rule who renders any investment supervisory or management service to any client shall, with respect to the portfolio being supervised or managed and to the extent that the information is reasonably available to or obtainable by the investment adviser, make and keep true, accurate and current:
(1) Records showing separately for each
client the securities purchased and sold, and the date, amount and price of
each purchase and sale; and
(2) For
each security in which any client has a current position, information from
which the investment adviser can promptly furnish the name of each client and
the current amount or interest of the client.
D. Any books or records required by this Rule may be maintained by the investment adviser in such manner that the identity of any client to whom the investment adviser renders investment supervisory services is indicated by numerical or alphabetical code or some similar designation.
E. Every investment adviser subject to Section A of this rule shall preserve the following records in the manner prescribed:
(1) All books and
records required to be made under the provisions of Subsections A to C (1),
inclusive, of this Rule (except for books and records required to be made under
the provisions of Subsections A (11) and A (16) of this Rule), shall be
maintained and preserved in an easily accessible place for a period of not less
than five years from the end of the fiscal year during which the last entry was
made on the record, the first two (2) years in the principal office of the
investment adviser;
(2) Partnership
articles and any amendments, articles of incorporation, charters, minute books,
and stock certificate books of the investment adviser and of any predecessor,
shall be maintained in the principal office of the investment adviser and
preserved for at least three (3) years after termination of the
enterprise;
(3) Books and records
required to be made under the provisions of Subsections A (11) and A (16) of
this Rule shall be maintained and preserved in an easily accessible place for a
period of not less than five (5) years, the first two (2) years in the
principal office of the investment adviser, from the end of the fiscal year
during which the investment adviser last published or otherwise disseminated,
directly or indirectly, the notice, circular, advertisement, newspaper article,
investment letter, bulletin, or other communication, including communications
made by electronic media; and
(4)
Notwithstanding other record preservation requirements of this Rule, the
following records or copies shall be required to be maintained at the business
location of the investment adviser from which the customer or client is being
provided or has been provided with investment advisory services:
(a) records required to be preserved under
Subsections A (3), A (7)-(10), A (14)-(15), A (17)-(19), B and C inclusive, of
this Rule, and
(b) the records or
copies required under the provision of Subsections A (11) and A (16) of this
Rule, which records or related records identify the name of the investment
adviser representative providing investment advice from that business location,
or which identify the business locations physical address, mailing address,
electronic mailing address, or telephone number. The records will be maintained
for the period described in Subsection E (1) of this Rule.
F. An investment adviser subject to Section A of this Rule, before ceasing to conduct or discontinuing business as an investment adviser shall arrange for and be responsible for the preservation of the books and records required to be maintained and preserved under this Rule for the remainder of the period specified in this Rule, and shall notify the Securities Commissioner in writing of the exact address where the books and records will be maintained during the period.
G. Preservation and reproduction of records
(1) The records required to be maintained and
preserved pursuant to Sections A through F above may be immediately produced or
reproduced, and maintained and preserved for the required time by an investment
adviser on:
(a) Paper or hard copy form, as
those records are kept in their original form;
(b) Micrographic media, including microfilm,
microfiche, or any similar medium; or
(c) Electronic storage media, including any
digital storage medium or system that meets the terms of this
section.
(2) The
investment adviser must:
(a) Arrange and index
the records in a way that permits easy location, access, and retrieval of any
particular record;
(b) Promptly
provide any of the following that the Securities Commissioner, through one of
its examiners or other representatives, may request:
(i) A legible, true, and complete copy of the
record in the medium and format in which it is stored;
(ii) A legible, true, and complete printout
of the record; and
(iii) Means to
access, view, and print the records; and
(c) Store separately from the original
record, for the time required for the original record, a duplicate copy of the
record in any medium allowed by this section.
(3) With respect to records created or
maintained on electronic storage media, the investment adviser must establish
and maintain procedures:
(a) To maintain and
preserve the records, so as to reasonably safeguard records from loss,
alteration, or destruction;
(b) To
limit access to the records to properly authorized personnel and the Securities
Commissioner, including one or more of its examiners or other representatives;
and
(c) To reasonably ensure that
any reproduction of a non-electronic original record on electronic storage
media is complete, true, and legible when retrieved.
H. For purposes of this Rule, "investment supervisory services" means the giving of continuous advice as to the investment of funds on the basis of the individual needs of each client; and "discretionary power" shall not include discretion as to the price at which or the time when a transaction is to be effected, if, before the order is given by the investment adviser, the client has directed or approved the purchase or sale of a definite amount of the particular security.
I. Any book or other record made, kept, maintained and preserved in compliance with Rules 17a-3 [ 17 C.F.R. 240.17a-3] and 17a-4 [ 17 C.F.R. 240.17a-4] under the Securities Exchange Act of 1934, which is substantially the same as a book or other record required to be made, kept, maintained and preserved under this Rule, shall be deemed to be made, kept, maintained and preserved in compliance with this Rule.
J. Every investment adviser registered or required to be registered in this State that has its principal place of business in a state other than this State shall be exempt from the requirements of this Rule, provided the investment adviser is licensed in such state and is in compliance with such state's recordkeeping requirements.
Disclaimer: These regulations may not be the most recent version. South Carolina may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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