RIA Compliance Blog
Oregon requires all investment advisers and broker-dealers to maintain errors and omissions insurance for at least $1 million. Under Section 59.175 “every applicant for a license or renewal of a license as a broker-dealer or state investment adviser shall file with the director proof that the applicant maintains an errors and omissions insurance policy.” This law provides investors with recourse if they suffer losses because of an uninsured investment adviser. Presently, investment advisers in Oregon may obtain errors and omissions insurance through either the Oregon surplus lines, the Oregon risk retention markets, or both. However, according to the Oregon Secretary of State’s Department of Consumer and Business Services, which oversees the Division of Finance and Securities Regulation, neither of those groups is “admitted” or authorized to conduct insurance business in Oregon. As a result, the Department has decided that a temporary rule is necessary to help both Oregon investment advisers and insurance producers understand the steps they need to take to provide proof of insurance.
In response, the Department has passed a temporary rule, Rule 441-175-0815. This rule, which will be effective from June 12, 2018 through December 8, 2018, is designed “to clarify how affected advisors can demonstrate to the department they possess the requisite coverage.” In turn, the rule will assist the public in obtaining information confirming the investment adviser’s coverage. The Department is currently in the process of drafting permanent rules to replace the temporary rule once it expires.
According to the rule, proof of insurance may be evidenced by presenting the Department with an attestation of compliance on a form that the Oregon Director of Finance and Securities Regulation has approved, along with a policy declaration page or a certificate of liability coverage detailing errors and omissions coverage. The attestation must detail the name of the insurer, the policy number, the name of the insured licensee, and the dates of the policy period. The attestation should also state that the policy has been in continuous effect. It should also be signed by a person the investment adviser has permitted to make the attestation.
The rule also provides that the policy cannot feature exclusions for investment management services carried out in Oregon or for people engaging in investment management services in Oregon. The rule also permits an investment adviser to buy two or more separate policies in order to satisfy the insurance requirements. Finally, the rule provides that the requirement for errors and omissions insurance is satisfied when an investment adviser obtains a policy written by admitted or authorized insurers, registered surplus line insurers, and registered risk retention purchasing groups.
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 compliance with federal and state laws and rules. Please visit our website for more information.