Furthermore, this rule will enable states to augment the Federal securities regulatory scheme, by allocating more resources to the area of branch office examinations and by focusing more on the state-related issues. California is in the process of implementing a routine branch office examination program. The objective of the program is to gather information concerning the activities and sales practice in broker-dealer and, in the near future, investment adviser branch offices domiciled in California. There are more than 9,000 reported broker dealer branch offices in California. Consequently, the states have taken primary oversight responsibility over branches located within their respective jurisdictions.
Most states aggressively register and examine branch offices.
The '34 Act does not require broker-dealers to maintain books and records in branches. Therefore, states are precluded from requiring broker-dealers to make or keep books and records in branches or local offices. This has hindered California and other states' ability to bridge the regulatory gap by conducting routine regulatory examinations of branch offices. Enforcement cases brought by the Department show that most violations of law and related fraudulent activity originate and are carried out from branch office locations. Recent enforcement action against SunAmerica Securities, Royal Alliance and Consolidated Investment Services, for failure to supervise are the most notable cases that demonstrate the supervisory problems in branch offices.