N.J. Admin. Code § 13:47A-2.6

Current through Register Vol. 56, No. 24, December 18, 2024

Section 13:47A-2.6 - Maintenance of books and records

(a) For purposes of this section, as referenced in Rule 204-2 (17 CFR 275.204-2) :

1. "Financial statements" shall mean a balance sheet prepared in accordance with generally accepted accounting principles, an income statement, a cash flow statement, and a net worth/capital computation, if applicable, as required by N.J.A.C. 13:47A-2.2.

2. "Other communication" shall include communications by electronic media and social media.

(b) For purposes of this section, the Bureau requires investment advisers to retain the books and records described in Rule 204-2(a)(11), (16), and 204-2(e)(3) ( 17 CFR 275.204- 2(a)(11), (16), and 275.204-2(e)(3)) under the Investment Advisers Act of 1940, 15 U.S.C. §§ 80b-1 et seq., that are distributed to two or more persons.

(c) Subject to the limitations of Section 222 of the Investment Advisers Act of 1940 ( 15 U.S.C. § 80b- 18a), all investment advisers shall keep at their principal place of business, open to inspection for the Bureau of Securities of the State of New Jersey, all books and records, as set forth in Rule 204-2 (17 CFR 275.204-2) under the Investment Advisers Act of 1940, 15 U.S.C. §§ 80 b et seq.

(d) Subject to the limitations of Section 222 of the Investment Advisers Act of 1940 ( 15 U.S.C. § 80b- 18a), all investment advisers shall keep at their principal place of business, open to inspection for the Bureau:

1. A litigation file documenting any criminal or civil action or administrative proceeding filed in any state or Federal court or by any administrative agency against the investment adviser or any of its personnel with respect to a securities or an investment advisory transaction and the disposition of the action or proceeding;

2. Written information about each investment advisory client that is the basis for making any recommendation or providing any investment advice to such client;

3. Written policies and procedures to supervise the activities of employees and investment adviser representatives that are reasonably designed to achieve compliance with applicable securities laws, rules, and regulations;

4. 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 that pertains to the registrant or its investment adviser representatives as that term is defined in Rule 204-2(a)(12)(iii)(A) ( 17 CFR 275.204- 2(a)(12)(iii)(A)) under the Investment Advisers Act of 1940, 15 U.S.C. §§ 80b-1 et seq., which file should contain, but is not limited to, all applications, amendments, renewal filings, and correspondence;

5. Copies, with original signatures of the investment adviser's appropriate signatory and the investment adviser representative, of each initial Form U4 and each amendment to Disclosure Reporting Pages (DRPs U4);

6. Copies of the written disclosure delivered pursuant to N.J.A.C. 13:47A-2.13. If the disclosure obligation is met in whole or in part by the delivery of a prospectus, the investment adviser need only note such delivery and need not retain a copy of the prospectus in each client's file;

7. Where the investment adviser inadvertently held or obtained a client's securities or funds and returned them to the client within three business days of receiving them or has forwarded checks drawn by clients and made payable to third parties within three business days of receipt, the investment adviser shall keep a ledger or other listing of all securities or funds held or obtained, including the following information:

i. Issuer;

ii. Type of security and series;

iii. Date of issue;

iv. For debt instruments, the denomination, interest rate, and maturity date;

v. Certificate number, including alphabetical prefix or suffix;

vi. Name in which registered;

vii. Date given to the investment adviser;

viii. Date sent to client or sender;

ix. Form of delivery to client or sender or copy of the form of delivery to client or sender;

x. Mail confirmation number, if applicable, or confirmation by client or sender of the fund's or security's return; and

xi. Date each check was received by the investment adviser;

8. 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 under Rule 206(4)-2(b)(2) ( 17 CFR 275.204- 2(b)(2)) under the Investment Advisers Act of 1940 (15 U.S.C. §§ 80b-1 et seq.), the investment adviser shall keep the following records:

i. A record showing the issuer 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

ii. 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; and

9. Sales or advertising material intended for the use in soliciting prospective investors or for training persons who will be making such communications.

(e) Subject to the limitations of Section 222 of the Investment Advisers Act of 1940 ( 15 U.S.C. § 80b- 18a), if an investment adviser has custody or possession of securities or funds of any clients, as defined in N.J.A.C. 13:47A-7.2, the investment adviser must make and keep the following additional records:

1. 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;

2. A copy of each of the 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 investment adviser shall also maintain copies of such statements along with the date such statements were sent to the clients;

3. If applicable to the investment 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;

4. A record of any finding by the independent certified public accountant of any material discrepancies found during the examination;

5. If applicable, evidence of the client's designation of an independent representative;

6. All records and evidence of compliance required by Rule 206(4)-2 ( 17 CFR 275.206(4)-2) under the Investment Advisers Act of 1940; and

7. If an investment adviser has custody of funds or securities because it advises a pooled investment vehicle, as defined in Rule 206(4)-2(d)(2)(iii) ( 17 CFR 275.206(4)-2), the investment adviser shall also keep the following records:

i. True, accurate, and current account statements;

ii. Where the investment adviser complies with Rule 206(4)-2 ( 17 CFR 275.206(4)-2), the records required to be made and kept shall include the date(s) of the audit, a copy of the audited financial statements, and evidence of the mailing of the audited financial to all limited partners, members, or other beneficial owners within 120 days of the end of its fiscal year; and

iii. Where the investment adviser complies with N.J.A.C. 13:47A-6.3(a)56 ii(2), the records required to be made and kept shall include a copy of the written agreement with the independent party reviewing all fees and expenses, indicating the responsibilities of the independent third party, and copies of all invoices and receipts showing approval by the independent party for payment through the qualified custodian.

(f) In addition to the requirements of Rule 204-2(e) (17 CFR 275.204-2(e)), every investment adviser subject to (c) above shall preserve the following records in the manner prescribed:

1. Books and records required to be made under (d) above 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 such record, the first two years in the principal office of the investment adviser, or for the time period during which the investment adviser was registered or required to be registered in the State, if less.

2. Notwithstanding other record preservation requirements of Rule 204-2(e), the following records or copies shall be required to be maintained for the period described in Rule 204-2(e) 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:

i. Records required to be preserved under paragraphs (a)(3), (a)(7) through (10), (a)(14) and (15), (a)(17) through (19), (b) and (c) inclusive of SEC Rule 204-2 of the Investment Advisers Act of 1940 ( 17 CFR 275.204- 2 (1996)); and

ii. The records or copies required under the provision of Rule 204-2(a)(11) and (a)(16), 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 location's physical address, mailing address, electronic mailing address, or telephone number.

(g) An investment adviser subject to (c) and (d) above, before ceasing to conduct or discontinuing business as a registered investment adviser, shall arrange for and be responsible for the preservation of the books and records required to be maintained and preserved under this section for the remainder of the period specified in this section, and shall notify the Bureau in writing, within 30 days of a termination of its business or a change to the address where the books and records will be maintained, of the exact address where the books and records will be maintained during the period.

(h) Investment advisers required to maintain and preserve records pursuant to this section, shall comply with the storage requirements of this subsection.

1. Pursuant to this section, the records required to be maintained and preserved may be immediately produced or reproduced, and maintained and preserved for the required time, by an investment adviser on:

i. Paper or hard copy form, as those records are kept in their original form;

ii. Micrographic media, including microfilm, microfiche, or any similar medium; or

iii. Electronic storage media, including any digital storage medium or system that meets the terms of this subsection.

2. The investment adviser must:

i. Arrange and index the records in a way that permits easy location, access, and retrieval of any particular record;

ii. Provide promptly any of the following that the Bureau (by its examiners or other representatives) may request:

(1) A legible, true, and complete copy of the record in the medium and format in which it is stored;

(2) A legible, true, and complete printout of the record; and

(3) Means to access, view, and print the records; and

iii. Separately store, for the time period required for preservation of the original record, a duplicate copy of the record on any medium allowed by this subsection.

3. In the case of records created or maintained on electronic storage media, the investment adviser must establish and maintain policies and procedures:

i. To maintain and preserve the records, so as to reasonably safeguard them from loss, alteration, or destruction;

ii. To limit access to the records to properly authorized personnel and the Bureau (including its examiners and other representatives); and

iii. To reasonably ensure that any reproduction of a non-electronic original record on electronic storage media is complete, true, and legible when retrieved.

(i) To the extent that the U.S. Securities and Exchange Commission promulgates changes to Rule 204-2 of the Investment Advisers Act of 1940, investment advisers in compliance with such rules as amended shall not be subject to enforcement action by the Bureau for violation of this section to the extent that the violation results solely from the investment adviser's compliance with the amended SEC rules.

(j) Every investment adviser doing business within this State and that has its principal place of business in a state other than this State shall be exempt from the requirements of this section, provided the investment adviser is licensed in such other state and is in compliance with such other state's recordkeeping requirements.

N.J. Admin. Code § 13:47A-2.6

Amended by 47 N.J.R. 2155(a), effective 8/17/2015