Almost a year ago, the Commissioner of Corporations (now the Commissioner of Business Oversight) proposed to amend the custody rule, 10 CCR Section 260.237, for investment advisers under the Corporate Securities Law of 1968. The Department received several comments and recently proposed to amend its proposed custody rule by expressly incorporating by reference Form ADV-E and the Financial Accounting Standards Board Accounting Standards Codification 946-210-50-4 through 946-210-50-6.
Incorporation by reference has a number of benefits for both state agencies and those subject to rules. For example, adopting federal or other national standards promotes uniformity and reduces the costs of compliance. Incorporation by reference eliminates the necessity of reproducing the incorporated material in the state regulation. Incorporation, however, should not be used as an end run around the California's Administrative Procedure Act.
The Office of Administrative Law generally reviews material proposed for “incorporation by reference” in accordance with procedures and standards for a regulation published in the California Code of Regulations. 1 CCR § 20(b). Further an agency is permitted to incorporate by reference only if the following conditions are met:
1 CCR § 20(c). When a regulation that incorporates a document by reference is approved by OAL and filed with the Secretary of State, the document so incorporated is deemed to be a regulation subject to all provisions of the APA. 1 CCR § 20(e).
The comment period on the proposed change ends on September 28, 2013.