Texas Proposes Balance Sheet Requirement for Investment Advisers

The Texas State Securities Board has recently proposed amending Section 116.2 of the Texas Securities Regulations to add a new requirement that each investment adviser seeking to register under the Texas Securities Act submit to the Board a balance sheet prepared in accordance with generally accepted accounting principles that reflects the current financial condition of the investment adviser.

One of the stated reasons for proposal of the rule is that, in the experience of the Securities Board, applicants have been having some difficulty in locating and completing the suggested balance sheet template contained on the Board’s website. The Board believed that providing an actual form and requiring its use will be more helpful to potential applicants and will make administrative of the requirement simpler for the Board itself.

Under the proposed amendment, the balance sheet should be compiled, reviewed or audited by an independent certified public accountant or independent public accountants or must instead be attested by a sworn statement of the applicant’s principal financial officer. The date of the balance sheet must be not more than ninety days prior to the date of filing. If the principal financial officer attests the balance sheet, he or she must make the certification on Form 133.18, titled “Certification of Balance Sheet by Principal Financial Officer.”

The proposed rule was filed with the office of the Secretary of State on May 20, 2015 and shows an earliest possible date of adoption as July 5, 2015. As of the present date, the website of the Texas Securities Board does not show the rule as having been adopted on its website.

The rule, if adopted, would make slight but important changes to the current balance sheet requirement. Namely, the requirement that the balance sheet be either compiled, reviewed or audited by a CPA is new, and replaces a provision stating only that it be prepared by the CPA. Furthermore, the certification on Form 133.18 that is undoubtedly the option that many smaller investment advisers will choose, is also a new requirement, as is Form 133.18 itself.

Parker MacIntyre provides legal and compliance services to investment advisers, broker dealers, registered representatives, hedge funds, and issuers of securities, among others. Our regulatory practice group assists financial service providers with complex issues that arise in the course of their business, including complying with federal and state laws and rules. Please visit our website for more information.

*****Update — As of October 16, 2015, the Texas Securities Board is now showing that to register as a Registered Investment Adviser in Texas, the balance sheet requirement must be fulfilled.