Monday, July 29, 2019

Nebraska proposes adoption of NASAA policy statements, cyber requirements for advisers

By John M. Jascob, J.D., LL.M.

The Nebraska Department of Banking and Finance will hold a rulemaking hearing on August 19, 2019, concerning revisions to the state’s securities regulations. The proposed changes incorporate by reference a series of NASAA Statements of Policy that would now govern offerings registered under the Nebraska Securities Act. The amendments would also adopt cybersecurity and related recordkeeping requirements for investment advisers, repeal the state’s Uniform Limited Offering Exemption following the SEC's repeal of Rule 505, and eliminate certain manual signature and physical check requirements.

NASAA Statements of Policy. The proposal would replace the existing rule entitled “Underwriting Expenses, Underwriter’s Warrants, Selling Expenses, and Selling Securities Holders” with a new rule captioned "North American Securities Administrator Association Statements of Policy." Under the new rule, issues of offerings registered in the state must now comply with the requirements of 23 NASAA Statements of Policy pertaining to corporate finance, all of which are incorporated by reference. The proposal would also repeal various previous provisions governing these offerings found at 48 NAC 22-34, and 36, while repealing definitions that are no longer necessary due to the proposed amendments.

Cybersecurity requirements for investment advisers. A new provision requires every registered investment adviser to establish, update, and enforce written physical security and cybersecurity policies and procedures reasonably designed to ensure the confidentiality, integrity, and availability of physical and electronic records and information. The investment adviser must also maintain a current copy of these policies and procedures either in hard copy in a separate location or stored on electronic storage media that is separate from and not dependent upon access to the investment adviser’s computers or a network.

Another new provision stipulates that an investment adviser’s use of a client’s password to access the client’s account is a dishonest and unethical business practice. An investment adviser’s failure to establish, maintain, and enforce a required policy constitutes a dishonest and unethical business practice.

Federal covered securities, repeal of ULOE. Proposed amendments would eliminate the requirement that issuers offering securities in Nebraska under federal Regulation A, Tier 2 use a broker-dealer, provided no commissions or other remuneration are paid. Other amendments propose for outright repeal the state’s Uniform Limited Offering Exemption because this rule is no longer necessary following the SEC’s repeal of Regulation D, Rule 505.

Manual signatures and physical checks. Proposed amendments eliminate requirements for manual signatures and the payment of filing fees by physical checks or money orders by broker-dealers. issuer-dealers, investment advisers, and issuers offering securities under the Nebraska Intrastate Issuer Exemption.

Request for comments. All the proposed rules are available on the Department of Banking and Finance’s website. All interested persons are invited to attend and testify at the hearing. Interested persons may also submit written comments to the Department prior to the hearing.