UNOFFICIAL COPY 22 RS BR 1991
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AN ACT relating to persons regulated under the Securities Act of Kentucky. 1
Be it enacted by the General Assembly of the Commonwealth of Kentucky: 2
Section 1. KRS 292.336 is amended to read as follows: 3
(1) (a) Every registered broker-dealer, firm employing issuer agents, and investment 4
adviser shall make and keep all accounts, correspondence, memoranda, 5
papers, books, and other records which the commissioner by rule or order 6
prescribes. 7
(b) All records required shall be: 8
1. Preserved for three (3) years unless the commissioner, by administrative 9
regulation or order, prescribes otherwise for particular types of records; 10
and[. All required records shall be ] 11
2. Kept within this state or shall, at the request of the commissioner, be 12
made available at any time for examination by him or her either in the 13
principal office of the registrant or by production of exact copies thereof 14
in this state. 15
(c) If a broker-dealer is registered with the United States Securities and Exchange 16
Commission, then the books and records required by this section are limited to 17
those that the Securities Exchange Act of 1934, 15 U.S.C. secs. 78a et seq., 18
requires the broker-dealer to maintain. 19
(d) If an investment adviser has his or her principal place of business in another 20
state, then the requirements of this subsection[section] shall be limited to the 21
books and records requirements of that state, if the adviser is registered in that 22
state and[ is] in compliance with its recordkeeping requirements. 23
(2) (a) Subject to paragraphs (b) and (c) of this subsection, every registered broker-24
dealer, investment adviser, and firm employing issuer agents shall file 25
any[such] reports[ as] required by the commissioner through administrative 26
regulation or order promulgated under this chapter. 27 UNOFFICIAL COPY 22 RS BR 1991
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(b) If a broker-dealer is registered with the United States Securities and Exchange 1
Commission, then the reports required by this subsection shall be[section are] 2
limited to those required under the Securities Exchange Act of 1934, 15 3
U.S.C. secs. 78a et seq. 4
(c) If an investment adviser has his or her principal place of business in another 5
state, then the requirements of this subsection[section] shall be limited to the 6
reporting requirements of that state, if the adviser is registered in that state and 7
in compliance with its reporting requirements. 8
(3) (a) Subject to paragraph (b) of this subsection, if the information contained in 9
any document filed is or becomes inaccurate or incomplete in any material 10
respect, then the broker-dealer, investment adviser, or firm employing issuer 11
agents, as applicable, shall promptly file a correcting amendment. 12
(b) In the case of a covered adviser, the adviser shall file only copies of those 13
documents required to be filed with the United States Securities and 14
Exchange Commission. 15
(4) (a) The commissioner may conduct examinations, within or outside this state, of 16
each broker-dealer, issuer agent, or investment adviser at such times and in 17
such scope as he or she determines. 18
(b) 1. Examinations of each broker-dealer, issuer agent, or investment 19
adviser[,] may be made without prior notice to the broker-dealer, issuer 20
agent, or investment adviser. 21
2. The expense reasonably attributable to any[ such] examination shall be 22
paid by the broker-dealer, issuer agent, or investment adviser whose 23
business is examined, but the expense so payable shall not exceed an 24
amount which the commissioner by administrative regulation prescribes. 25
(c) For the purpose of avoiding unnecessary duplication of examinations, the 26
commissioner, insofar as he or she deems it practicable in administering this 27 UNOFFICIAL COPY 22 RS BR 1991
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subsection, may cooperate with securities administrators of other states, the 1
United States Securities and Exchange Commission, and any national 2
securities exchange or national securities association registered under the 3
Securities Exchange Act of 1934, 15 U.S.C. secs. 78a et seq. 4
(5) (a) Every investment adviser that is registered or required to be registered shall 5
establish written procedures relating to a business continuity and 6
succession plan. 7
(b) The plan shall: 8
1. Be based upon the facts and circumstances of the investment adviser's 9
business model, including the size of the firm, types of services 10
provided, and number of locations; 11
2. At a minimum, provide for: 12
a. The protection, backup, and recovery of books and records; 13
b. Alternate means of communication with customers, key 14
personnel, employees, vendors, service providers, including 15
third-party custodians, and regulators, including but not limited 16
to providing notice of: 17
i. A significant business interruption; 18
ii. The death or unavailability of key personnel; and 19
iii. Other disruptions or cessations of business activities; 20
c. Office relocation in the event of temporary or permanent loss of 21
a principal place of business; and 22
d. Assignment of duties to qualified responsible persons in the 23
event of the death or unavailability of key personnel; and 24
3. Otherwise minimize service disruptions and client harm that could 25
result from a sudden significant business interruption. 26
(c) The investment adviser shall, at least annually, review the plan, and the 27 UNOFFICIAL COPY 22 RS BR 1991
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review shall be documented and maintained for three (3) years. 1
(6) (a) Every investment adviser that is registered or required to be registered shall 2
establish and implement written physical security and cybersecurity policies 3
and procedures designed to ensure the confidentiality, integrity, and 4
availability of physical and electronic records and information. 5
(b) The policies and procedures shall: 6
1. Be tailored to the investment adviser's business model, taking into 7
account the size of the firm, types of services provided, and the 8
number of locations; 9
2. At a minimum: 10
a. Protect against reasonably anticipated threats or hazards to the 11
security or integrity of client records and information; 12
b. Ensure that the investment adviser safeguards confidential client 13
records and information; and 14
c. Protect any records and information for which the release could 15
result in harm or inconvenience to any client; and 16
3. Cover at least the following five (5) functions: 17
a. Identification - development of organizational understanding to 18
manage information security risk to systems, assets, data, and 19
capabilities; 20
b. Protection - development and implementation of appropriate 21
safeguards to ensure delivery of critical infrastructure services; 22
c. Detection - development and implementation of appropriate 23
activities to identify the occurrence of an information security 24
event; 25
d. Response - development and implementation of appropriate 26
activities to take action regarding a detected information security 27 UNOFFICIAL COPY 22 RS BR 1991
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event; and 1
e. Recovery - development and implementation of appropriate 2
activities to maintain plans for resilience and to restore any 3
capabilities or services that were impaired due to an information 4
security event. 5
(c) 1. The investment adviser shall, at least annually, review the policies and 6
procedures to ensure the adequacy of the security measures and 7
effectiveness of their implementation. 8
2. The review shall be documented and previous versions of the policies 9
and procedures shall be maintained for three (3) years from the date 10
of development. 11
(7) The commissioner may by administrative regulation prohibit unreasonable charges, 12
profits, commissions, or other compensation of broker-dealers and investment 13
advisers. 14
(8)[(6)] The commissioner may promulgate administrative regulations to prescribe 15
rules for the conduct of business by broker-dealers and investment advisers which 16
he or she finds appropriate in the public interest and for the protection of investors. 17
(9)[(7)] The commissioner may enter into an arrangement, agreement, or other 18
working relationship with federal, other state, and self-regulatory authorities 19
whereby documents may be filed and maintained in a central depository system with 20
the Financial Industry Regulatory Authority (FINRA) or other agencies or 21
authorities. 22
SECTION 2. A NEW SECTION OF KRS CHAPTER 292 IS CREATED TO 23
READ AS FOLLOWS: 24
(1) As used in this section: 25
(a) "Approved IAR continuing education content" means the materials, 26
written, oral, or otherwise: 27 UNOFFICIAL COPY 22 RS BR 1991
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1. That have been approved by NASAA or its designee; and 1
2. Which make up the educational program provided to an investment 2
adviser representative under this section; 3
(b) "Authorized provider" means a person that NASAA or its designee has 4
authorized to provide continuing education content required by this section; 5
(c) "Credit" means a unit that has been designated by NASAA or its designee 6
as at least fifty (50) minutes of educational instruction; 7
(d) "Ethics and professional responsibility content" means approved IAR 8
continuing education content that addresses an investment adviser 9
representative's ethical and regulatory obligations; 10
(e) "FINRA" means the Financial Industry Regulatory Authority; 11
(f) "Home state" means a state, other than Kentucky, in which the investment 12
adviser representative has his or her principal office and place of business; 13
(g) "NASAA" means the North American Securities Administrators 14
Association or a committee designated by its board of directors; 15
(h) "Products and practice content" means approved IAR continuing education 16
content that addresses an investment adviser representative's continuing 17
skills and knowledge regarding financial products, investment features, and 18
practices in the investment advisory industry; and 19
(i) 1. "Reporting period" means one (1) twelve (12) month period as 20
determined by NASAA. 21
2. An investment adviser representative's initial reporting period 22
commences the first day of the first full reporting period after the 23
individual is registered, or required to be registered, under this 24
chapter. 25
(2) Except as otherwise provided this section, every registered investment adviser 26
representative shall complete the following continuing education requirements 27 UNOFFICIAL COPY 22 RS BR 1991
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each reporting period: 1
(a) Six (6) credits of ethics and professional responsibility content offered by an 2
authorized provider, with at least three (3) hours covering the topic of 3
ethics; and 4
(b) Six (6) credits of products and practice content offered by an authorized 5
provider. 6
(3) An investment adviser representative shall be considered in compliance with 7
subsection (2)(b) of this section for each applicable reporting period if: 8
(a) The investment adviser representative: 9
1. Is also registered as an agent of a FINRA-member broker-dealer; and 10
2 Complies with FINRA's continuing education requirements; and 11
(b) FINRA's continuing education content meets all of the following baseline 12
criteria, as determined by NASAA: 13
1. The content focuses on compliance, regulatory, ethical, and sales 14
practices standards; 15
2. The content is derived from: 16
a. State and federal investment advisory statutes, rules, and 17
regulations; 18
b. Securities industry rules and regulations; or 19
c. Accepted standards and practices in the financial services 20
industry; and 21
3. The content requires that its participants demonstrate proficiency in 22
the subject matter of the educational materials. 23
(4) Continuing education credits completed by an investment adviser representative 24
shall be considered to comply with subsection (2) of this section for each 25
applicable reporting period if: 26
(a) The investment adviser representative: 27 UNOFFICIAL COPY 22 RS BR 1991
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1. Is not required to pass a written examination by administrative 1
regulation or order promulgated pursuant to KRS 292.331(3); 2
2. Completes continuing education credits necessary for maintaining, 3
and remaining in good standing to hold, a professional designation 4
identified by the commissioner by administrative regulation or order; 5
and 6
3. Is required to complete continuing education credits to maintain, and 7
remain in good standing to hold, the professional designation 8
identified by the commissioner by administrative regulation or order; 9
and 10
(b) The continuing education content provided by the credentialing 11
organization for the professional designation identified by the 12
commissioner by administrative regulation or order is approved IAR 13
continuing education content. 14
(5) An investment adviser representative registered or required to be registered in 15
Kentucky who is registered as an investment adviser representative in the 16
individual's home state shall be considered in compliance with this section if: 17
(a) The investment adviser representative's home state has continuing 18
education requirements that are at least as stringent as the NASAA Model 19
Rule on Investment Adviser Representative Continuing Education; and 20
(b) The investment adviser representative is in compliance with the home state's 21
investment adviser representative continuing education requirements. 22
(6) Every investment adviser representative shall be responsible for ensuring that the 23
authorized provider reports the investment adviser representative's completion of 24
the approved IAR continuing education content. 25
(7) An investment adviser representative who completes continuing education credits 26
in excess of the amount required for the reporting period may not carry forward 27 UNOFFICIAL COPY 22 RS BR 1991
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excess credits to a subsequent reporting period. 1
(8) (a) An investment adviser representative who fails to comply with this section 2
by the end of a reporting period shall: 3
1. Be subject to registration renewal as "CE inactive" at the close of the 4
calendar year in Kentucky; and 5
2. Remain "CE inactive" until the investment adviser representative 6
completes and reports all required continuing education credits for all 7
reporting periods as required by this section. 8
(b) An investment adviser representative who is "CE inactive" at the close of 9
the next calendar year shall not be eligible for: 10
1. Investment adviser representative registration; or 11
2. Renewal of investment adviser representative registration. 12
(9) A person who was previously registered under this chapter as an investment 13
adviser representative and became unregistered shall complete approved IAR 14
continuing education content for all reporting periods that occurred between the 15
time that the investment adviser representative became unregistered and the time 16
the person became registered again under this chapter unless the investment 17
adviser representative makes a subsequent application for registration and 18
complies with any examination requirement under KRS 292.331(3). 19
(10) The commissioner may, in his or her discretion, waive any requirements of this 20
section. 21
Section 3. This Act takes effect on January 1, 2023. 22