Does California's New Consumer Financial Protection Law Apply To SEC Registered Investment Advisers?

As has been previously noted, California's Governor recently signed  AB 1864 (2020 Cal. Stats. Ch. 157) into law (aka the "California Consumer Financial Protection Law").  Broadly speaking, this new law will bestow new regulatory authority on the Department of Business Oversight (to be renamed the Department of Financial Protection and Innovation) with respect to persons who engage in offering or providing a "consumer financial service" to a resident of California.  Notably, the law will not apply to persons licensed by the DFPI, including investment advisers registered under the California Corporate Securities Law of 1968.  Cal. Fin. Code § 90002(b)(3).  

This leads to the question of whether federally registered investment advisers will be subject to the CCFPL.  The CCFPL specifies that a person is covered "to the extent not preempted by federal law".  Cal. Fin. Code § 90005(f).  The National Securities Markets Improvement Act of 1996 bifurcated registration, licensing and qualification requirements between the SEC and the states, with "larger advisers with national businesses . . . [being] registered with the SEC and subject to national rules".  S. Rep. No. 293, 104th Cong. at p. 4 (1996).  Section 203A(b) of the Investment Advisers Act, however, preserves state authority to bring enforcement actions for fraud and deceit against federally registered advisers as well as persons excepted form the the definition of "investment adviser".  The CCFPL, however, also outlaws acts that are "unfair" and "abusive". 

According to the SEC, the NSMIA's preservation of state authority does not extend to activities that are merely dishonest or unethical:

"Section 203A(b)(2) preserves state authority to investigate and bring enforcement actions with respect to fraud or deceit against a Commission-registered adviser or a person associated with a Commission-registered adviser. In the Proposing Release, the Commission interpreted section 203A(b)(2) as precluding a state from indirectly regulating the activities of Commission-registered advisers by applying state requirements that define "dishonest" or "unethical" business practices unless the prohibited practices would be fraudulent or deceptive absent the requirements. [footnote omitted] NASAA and state commenters took strong exception to this interpretation.  Some argued states could continue to enforce business practice rules as a means of enforcing anti-fraud rules. The Commission does not believe that the Coordination Act can be read to preserve such state regulatory authority over Commission-registered advisers."

Rules Implementing Amendments to the Investment Advisers Act of 1940 (IA 1633, May 15, 1997) (emphasis added).  

Because the CCFPL was a rush job by the legislature and the Governor, there was no opportunity for issues such as this to be aired and addressed.  See this post from earlier this week.  The CCFPL will take effect on January 1, 2021.