By Devyn Arlasky
On May 1, 2024, the Office of Administrative Law (OAL) approved the Department of Financial Protection and Innovation’s (DFPI) regulatory action under the Corporate Securities Law of 1968, PRO 07/21. The approved regulation adopts section 260.236.2 of Subchapter 2 of Chapter 3 of Title 10 of the California Code of Regulations (CCR) to implement continued education requirements for Investment Adviser Representatives (IARs) registered in California.
As outlined in the regulation’s final text, IARs must now fulfill continuing education requirements in every reporting period to maintain their credentials. Specifically, IARs must complete six credits of courses related to IAR ethics and professional responsibility and six credits of courses related to IAR products and practice. Such courses must be approved by the North American Securities Administrators Association (NASAA) and offered by an authorized provider. If IARs fail to comply with these education requirements by the end of a reporting period, they will not be eligible for registration renewal at the close of the calendar year. To regain eligibility for registration renewal, IARs must keep all continuing education requirements current. In its final statement of reasons, DFPI repeatedly emphasized that this new regulation intends to improve the quality of investment advice provided by IARs and to protect consumers who use IARs to manage their funds.
DFPI originally published notice of its intent to adopt regulatory action PRO 07/21 on November 16, 2022. In its initial statement of reasons, DFPI contended that there was no mechanism in place to ensure that IARs remain competent and knowledgeable about current industry regulations, developments, and practices after they initially become registered. Thus, to establish such a mechanism, DFPI found it necessary to draft PRO 07/21 and create continuing education requirements for IARs.
After the initial public comment period ended on January 16, 2023, DFPI submitted the proposed regulation to OAL for review. [see 28:2 CRLR 102] In December of 2023, OAL disapproved the proposed regulation because it failed to comply with the clarity standard of the Administrative Procedure Act (APA). Accordingly, DFPI adjusted the proposed regulation’s text. On February 15, 2024, DFPI released a notice of modifications and a modified text to the proposed regulation. The respective public comment period ended on March 1, 2024. [see 29:2 CRLR 94] Then, once again, DFPI submitted the proposed regulation to OAL for review. PRO 07/21 went into effect on May 1, 2024.