Kentucky Administrative Regulations › Title 808 - PUBLIC PROTECTION CABINET - DEPARTMENT OF FINANCIAL INSTITUTIONS › Chapter 10 - Securities › Section 808 KAR 10:200 - Investment advisers' minimum liquid capitalization; bond

Current through Register Vol. 51, No. 1, July 1, 2024
RELATES TO:
				KRS
				292.331(4),
				292.336(6),
				7 U.S.C.
				6f
NECESSITY, FUNCTION, AND CONFORMITY:
				KRS
				292.500(3) authorizes the
				commissioner to promulgate administrative regulations necessary to carry out
				the provisions of KRS Chapter 292.
				KRS
				292.331(4) authorizes the
				commissioner to require a minimum liquid net capital for investment advisers.
				KRS
				292.336(6) authorizes the
				commissioner to prescribe rules for the conduct of business by investment
				advisers. This administrative regulation establishes the requirements for
				minimum liquid capitalization and bonding for an investment adviser.
Section 1. Definitions.
(1) "Custody" means holding, directly or
			 indirectly, client funds or securities, or having any authority to appropriate
			 them or obtain possession, in accordance with the requirements established in
			 Section 2 of this administrative regulation.
(2) "Independent party" means a person that:
(a) Is engaged by the adviser to act as a
			 gatekeeper for the payment of fees, expenses and capital withdrawals from the
			 pooled investment;
(b) Does not
			 control, is not controlled by, and is not under common control with the
			 adviser; and
(c) Does not have, and
			 has not had within the past two (2) years, a material business relationship
			 with the adviser.
(3)
			 "Independent representative" means a person who:
(a)
1. For
			 an advisory client, acts as an agent; or
2. For a pooled investment vehicle:
a. Acts as an agent for the limited partners
			 of a limited partnership, for members of a limited liability company, or for
			 other beneficial owners of another type of pooled investment vehicle; and
b. By law or contract is obligated
			 to act in the best interests of the advisory client or the limited partners,
			 members, or other beneficial owners;
(b) Does not control, is not controlled by,
			 and is not under common control with the adviser; and
(c) Does not have, and has not had within the
			 past two (2) years, a material business relationship with the
			 adviser.
(4) "Net worth"
			 means an excess of assets over liabilities as determined by generally-accepted
			 accounting principles, but shall not include as assets:
(a) Deferred charges, goodwill, franchise
			 rights, organizational expenses, patents, copyrights, marketing rights,
			 unamortized debt discount and expense, or any other intangible asset;
(b) Home, home furnishings, automobiles, and
			 any other items not readily marketable, if the adviser is an
			 individual;
(c) Advances or loans
			 to stockholders and officers or related parties of stockholders or officers, if
			 the adviser is a corporation;
(d)
			 Advances or loans to partners or related parties of partners, if the adviser is
			 a partnership; and
(e) Advances or
			 loans to members or related parties of members, if the adviser is a limited
			 liability company.
(5)
			 "Qualified custodian" means any of the following institutions or entities not
			 controlling and not controlled by, nor under common control with, the adviser:
(a) A bank or savings association that has
			 deposits insured by the Federal Deposit Insurance Corporation;
(b) A registered broker-dealer holding the
			 client assets in customer accounts;
(c) A registered futures commission merchant
			 under Section 4f(a) of the Commodity Exchange Act,
			 7 U.S.C.
			 6f(a), holding the client
			 funds in customer accounts, but only with respect to the client funds and
			 futures contracts in those accounts or other securities incidental to
			 transactions in the purchase or sale of a commodity for future delivery or
			 options thereon; and
(d) A foreign
			 financial institution that customarily holds financial assets for its
			 customers, if the foreign financial institution keeps the advisory client's
			 assets in customer accounts segregated from the institution's proprietary
			 assets.