The North American Securities Administration Association (NASAA) is a voluntary body composed of state securities regulators across all 50 states, Canada, and Mexico. Founded in 1919, it is the oldest international regulatory organization devoted to investor protection.
Many in the investment advisory business know NASAA as the group that develops and maintains the Series 63, Series 65, and Series 66 exams administered by the Financial Industry Regulatory Authority (FINRA). A Series 63 license is required by 45 states, including California, for broker-dealers to solicit orders for securities in a particular state. The Series 65 provides the same for investment advisory representatives (IARs), while the Series 66 license essentially serves as a combination of the 63 and 65 exams.
An Emphasis on Education to Avoid Fraud
NASAA works to promote education to help investors identify and avoid fraud, to investigate violations of state and provincial law, and to file enforcement actions. That’s among the reasons it develops the questions on the 63, 65, and 66 with a focus on fiduciary obligations and ethical practices.
For years, NASAA members have worked toward the creation of a continuing education (CE) requirement for IARs to maintain their licenses with state regulators similar to other financial service professions.
Under NASAA’s model rule, beginning 2022 IARs would be required to complete 12 hours of CE annually, with six hours focused on ethics and professional responsibility and the remaining six hours devoted to products and practice. NASAA said its model rule is designed to be compatible with other CE programs.
The ethics and professional responsibility component is designed to ensure ongoing knowledge and competency related to an IAR’s duties and obligations to his or her clients, including issues related to the fiduciary duty owed to each client.
The products and practice component is designed to ensure ongoing knowledge and competency related to investment products, strategies, standards, and compliance practices relevant to the investment advisory industry.
More Specifics Behind NASAA’s Model Rule
NASAA said the CE program would:
- “ensure continued competency by IARs” and expand their knowledge base;
- maintain flexibility in IAR continuing education content;
- minimize duplicative continuing education requirements, compliance burdens, and the cost to complete continuing education; and
- encourage uniformity among regulators and jurisdictions that implement IAR continuing education.
NASAA outlined that Prometric will be responsible for approving potential IAR CE providers and content, and that the providers and content will be assessed based on such criteria as:
- how the learning objectives of the IAR CE will be met;
- the qualifications of the instructors and the quality of the materials;
- prior experience in delivering educational content;
- customer/student evaluations;
- the ability to track coursework; and
- prior financial services experience.
It’s important to note that NASAA does not intend the CE requirement to be a compliance “check-the-box” exercise.
For more detailed information, NASAA has issued FAQs covering this new model rule.
NASAA’s Ongoing Focus on Policies and Procedures
Another model rule NASAA members have recently approved would require state-registered advisory firms to establish, maintain, and enforce written policies and procedures that address regulatory compliance, supervision, proxy voting, physical security and cybersecurity, business continuity and succession, code of ethics compliance, and the handling of material non-public information. This model rule is meant to consolidate certain existing NASAA model rules that cover investment adviser policies and procedures requirements. Notably, some states already have rules that require advisers registered in their state to adopt compliance policies and procedures.
NASAA said the goal of this model rule is “to help enhance the culture of investment adviser regulatory compliance to minimize conflicts and risks to better serve investors.”
NASAA’s website provides a variety of investor and professional resources. It includes a fraud center, a fraud awareness quiz, a list of fraud red flags, how to contact a local securities regulator, and how to investigate a broker or investment adviser.
How Core Compliance Can Help
Our team of professionals can work with your firm to review and implement policies and procedures that cover fraud prevention, regulatory compliance, business continuity, fiduciary ethics, and much more. Should you have any questions on the new NASAA rules or need assistance with compliance, please contact us at (619) 278-0020 or Info@corecls.com to schedule a meeting with one of our experienced consultants.