BILL ANALYSIS Ó
SB 538
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Date of Hearing: July 3, 2013
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
SB 538 (Hill) - As Amended: April 1, 2013
Policy Committee: Banking and
Finance Vote: 9-1
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill makes various changes to the Corporate Securities Law
of 1968. Specifically, this bill:
1)Authorizes the Department of Corporations (DOC) Commissioner
to charge a renewal fee of up to $35 to licensed broker-dealer
agents and investment adviser representatives.
2)Authorizes DOC commissioner to apply to the appropriate
superior court for a civil judgment of imposed penalties after
the exhaustion of administrative penalties for a violation of
the Securities Law.
3)Ensures consistency with federal law by updating anti-fraud
provisions in the securities law.
4)Makes numerous technical changes to ease administration of the
Corporate Securities Law.
FISCAL EFFECT
Assuming the DOC charges a renewal fee in the range of $25 to
$35, resulting in $7.5 million to $10 million in special fund
revenue to the DOC.
COMMENTS
1)Purpose . According to the author, broker-dealers, investment
advisers, and their employees perform critically important
functions on behalf of Californians, over which the state
should provide an appropriate level of oversight. The author
SB 538
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notes, particularly in today's extremely low interest rate
environment, people are susceptible to aggressive sales
pitches on risky investment products that promise high rates
of investment return. Investment advisers have a fiduciary
duty to their clients, and broker-dealers are required to
ensure that the investments they recommend to their customers
are suitable for those customers. The author states these
professionals should not be pitching risky investment products
to people for whom these products are inappropriate. Yet, at
the present time the author contends, DOC lacks the resources
necessary to ensure that the state's investment professionals
are following the law, and adhering to their duties to
investors.
According to the author, the incremental cost to provide DOC
with the examiners it needs to conduct regular regulatory
examinations of its securities licensees is miniscule - in the
range of $25 to $30 annually. The author argues the state
should do everything possible to protect investors.
2)Background . Broker-dealers are individuals or firms that buy
and sell securities, on behalf of customers, or on behalf of
themselves. People who work for broker-dealers are called
registered representatives or agents. Broker-dealers and
their agents generally earn money by charging per transaction.
Individuals who advise customers on behalf of investment
adviser firms are called investment adviser representatives.
The law imposes a fiduciary duty on investment advisers in their
interactions with their clients, and requires broker-dealers
to evaluate the suitability of investments, before they
recommend those investments for their clients.
California is home to approximately 3,100 licensed broker-dealer
firms, which employ approximately 285,000 agents, and to
approximately 3,600 licensed investment adviser firms, which
employ just over 50,000 representatives.
3)Examinations . Due to funding restraints, broker-dealers,
their agents, or investment advisors are usually only reviewed
when they file their initial application. DOC aims to conduct
these examinations at least once every four years but this
often does not occur because of inadequate resources. The
primary way in which DOC monitors licensees is through
complaints that arise from customers. Dodd-Frank Wall Street
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Reform and Consumer Protection Act has added additional work
for DOC by adding approximately 500 investment adviser firms
and several thousand investment advisor representatives to
DOC's licensee population. California is one of a handful of
states that do not currently impose renewal fees on these
entities. Some other states, like Texas for example, charge
$275.
1)General Fund loan . Approximately $18.5 million is currently
on loan from the Corporations Fund to the General Fund. A
portion of these funds are from the account used to support
oversight of licensed broker-dealer agents and investment
adviser representatives. If these funds were repaid in the
near future, it would seem to reduce the need for a fee, or at
least lead to a smaller fee, to accomplish the four-year cycle
of audits.
1)There is no registered opposition to this bill.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081