Purpose

Update Minnesota laws to regulate securities broker-dealers, their agents, and investment advisers more broadly. The bill adds post-registration requirements, clarifies compliance rules for federal covered securities (including Reg A Tier 2, Regulation Crowdfunding, and small corporate offerings), and strengthens enforcement and rulemaking power for regulators. It aims to improve recordkeeping, financial stability, data security, and investor protection while aligning Minnesota practices with federal securities laws.

Main Provisions

• Federal covered securities and small corporate offerings

  • Expands how Minnesota handles federal covered securities, including small corporate offerings registered under Rule 504 of Regulation D.
  • Requires filings and records related to federal registration statements filed with the Securities and Exchange Commission (SEC), plus a consent to service of process from the issuer.
  • After an initial offer, requires ongoing records necessary to compute fees and to show value of securities sold in this state.
  • Creates and governs notice filings for federal covered securities, with renewals and potential incorporation by reference of SEC records.
  • For offerings under Section 18(b)(4)D (a subset of federal covered securities), allows the administrator to require a notice filing that includes Form D and the Appendix, plus a consent to service of process.
  • Provides stop orders if there are noncompliance or fee deficiencies, with voiding when corrected.
  • Establishes eligibility and disqualification rules for SCOR (Small Corporate Offering Registration), including certain criminal, regulatory, or enforcement history.

• Regulation A Tier 2 and Regulation Crowdfunding

  • Sets notice filing requirements for issuers using Regulation A Tier 2 in Minnesota, including initial filings, renewals every 12 months, and amendments to increase offering amounts.
  • Requires notice filings for Regulation Crowdfunding offerings, with Uniform Notice forms and related documents; ties Minnesota filing timelines to federal activity and, in some cases, to where the issuer’s principal place of business is located.

• Post-registration requirements for broker-dealers and investment advisers (Minnesota 80A series)

  • Financial requirements: regulators may set minimum financial standards for broker-dealers and investment advisers.
  • Financial reporting: brokers and advisers must file required financial reports and promptly correct any material inaccuracies.
  • Recordkeeping: firms must maintain required records and keep them in accessible formats; records may be stored in data storage systems that meet regulatory standards; must have written supervisory procedures and a system to enforce them, including designated supervisory personnel at branch offices.
  • Private funds: advisers to private funds must keep and report specific information (assets under management, leverage use, counterparty risk, positions, valuation policies, types of assets, side arrangements) and provide necessary reports to the administrator.
  • Audits and inspections: the administrator may conduct audits or inspections with or without notice and may copy or remove records for audit purposes; reasonable charges may be assessed.
  • Custody and bonds/insurance: rules may require insurance or bonds for firms with custody or discretionary authority over client funds or securities; amounts and conditions to be determined by the administrator; exemptions may apply for higher-funded firms.
  • Custody restrictions: brokers and investment advisers may have custody restrictions or conditions to protect clients.
  • Investment adviser brochure rule: rules may require certain disclosure to clients.
  • Continuing education: individuals registered may be required to participate in approved continuing education.
  • Business continuity and succession: advisers must have written policies and procedures to protect operations, including backups, notices to clients and providers, relocation plans, and staff assignments to prevent service disruption.
  • Physical security and cybersecurity: advisers must implement written policies to protect client records and ensure confidentiality, integrity, and availability; annual privacy policy updates to clients; plans to detect and respond to security events; and resilience planning.
  • Written confirmations: brokers must promptly provide customers with transaction confirmations detailing the trade, prices, commissions, whether acting as agent or principal, identities of parties, whether the trade was unsolicited, and the agent who executed the trade; disclosures may align with SEC and FINRA standards.
  • Clauses prohibiting waiving rights: contracts with customers cannot require waivers of rights under Minnesota securities laws or orders; such waiver clauses are void.
  • Principal office employment: brokers with a Minnesota principal office must have at least one registered person employed full-time at that office (with some exceptions for certain investment products).

• Prohibited conduct and fraud provisions

  • Broad rule against fraudulent activities in providing investment advice, including devices or practices intended to defraud or deceive.
  • Rules may define fraudulent, deceptive, or manipulative acts or practices by advisers or adviser representatives (beyond supervised federal entities) and prescribe means to prevent these behaviors.

Significant Changes to Existing Law

• Expanded post-registration obligations for broker-dealers and investment advisers, including:

  • Financial stability requirements and mandatory financial reports.
  • More comprehensive recordkeeping requirements, including modern data storage and branch office oversight.
  • Mandatory written supervisory procedures and a dedicated supervisory structure at branches.
  • New or strengthened obligations to safeguard client funds and securities (custody rules, bonding/insurance options, and related protections).
  • Mandatory business continuity, succession planning, physical security, and cybersecurity programs.
  • Annual privacy policy communications to clients and timely updates if information changes.
  • Detailed, standardized client transaction confirmations.
  • Prohibition of contract clauses that waive rights under state securities law.

• Regulatory alignment with federal regimes

  • Incorporates and applies concepts from federal Regulation D (Rule 504), Regulation A Tier 2, Regulation Crowdfunding, and related SEC forms (Form D, Form U2, Form U7) within Minnesota’s regulatory framework.
  • Enables Minnesota’s administration to issue rules and orders to implement these federal structures at the state level.

• Strengthened investor protection

  • Adds disqualification criteria for issuers and brokers, with potential waivers under certain licensing conditions or good cause shown by regulators.
  • Allows for stop orders to suspend offerings that fail to meet requirements, with automatic voiding if deficiencies are corrected later.

Who Is Affected

• Broker-dealers and their agents operating in Minnesota
• Investment advisers and their representatives
• Issuers of federal covered securities (including those using Regulation A Tier 2, Regulation Crowdfunding, and small corporate offerings)
• Private funds and advisers to private funds
• Investors and purchasers in Minnesota offerings

Effective Context

• The bill updates Minnesota statutes to reflect federal securities regime concepts, builds in more robust compliance and reporting structures, and strengthens oversight and investor protections for securities activities in the state.

Relevant Terms

• federal covered securities
• small corporate offering registration (SCOR)
• Regulation D Rule 504
• Rule 504 of Regulation D
• Regulation A Tier 2
• Regulation Crowdfunding (Reg CF)
• Form D
• Form U7
• Form U2
• Uniform Notice of Federal Crowdfunding Offering
• notice filing
• stop order
• consent to service of process
• broker-dealer
• investment adviser
• private fund
• assets under management
• leverage
• counterparty credit risk
• custody of funds or securities
• bond or insurance for custody
• written supervisory procedures
• data storage and recordkeeping
• privacy policy
• business continuity and succession plan
• physical security
• cybersecurity
• continuing education
• principal office employment
• prohibited conduct in providing investment advice
• fraud, deceptive or manipulative acts or practices
• Securities Act of 1933
• Securities Exchange Act of 1934
• Investment Advisers Act of 1940
• Form D, Form U2, Form U7
• stop order, waiver provisions, good cause
• auditing and inspections
• consent to service of process
• Section 15h, Section 222 (SEC/IA references)