Yesterday, the Department of Corporations issued this notice to investment advisers registered with the it. The notice advises that the Department is adopting the new Part 2 to Form ADV effective October 12, 2010. The Department has announced the following compliance dates:
By way of background, an investment adviser registered with the Securities and Exchange Commission or California must complete a Form ADV. Rule 203-1 and 10 CCR ยง 260.231. The Form ADV consists of two parts. Part 1 contains information about the adviser's business and whether it has had problems with regulators or clients. Part 2 describes the adviser's services, fees, and strategies. On July 28, 2010, the SEC adopted a new Part 2 pursuant to this release. The October 12, 2010 date referenced in the Department's notice corresponds to the effective date of the SEC's rule changes.
While the Department's notice simply brings the state requirement into conformity with the recent changes by the SEC, I question whether the Department may effect this change simply by issuing a notice. Under California's Administrative Procedure Act, new rules or changes to existing rules must be adopted pursuant to a process of notice and comment. While cumbersome, this process ensures both public notice and the opportunity to provide input. In an emergency, regulations may be temporarily adopted as emergency rules. Although I recognize that the Department is facing workload issues exacerbated by "Friday Furloughs", these changes should be implemented in compliance with the APA.