(a) Eligibility requirements.

1. (1) Each nonresident broker-dealer, agent, investment adviser, or representative must be registered, exempt, excepted from registration, or qualified to engage in business as a broker-dealer, agent, investment adviser, or representative in the state of the registrant’s primary residence or, in the case of broker-dealers or investment advisers that are not natural persons, in the state in which the broker-dealer or investment adviser has its principal place of business.
2. (2) Each partner or officer of a registered broker-dealer or issuer may act as an agent only if registered as an agent as required by the Arkansas Securities Act, Arkansas Code § 23-42-101 et seq.

3. (3)

   1. (A) Except upon approval of the Securities Commissioner, an agent or representative may not be registered with more than one (1) broker-dealer, investment adviser, issuer, or any combination thereof, unless the business entities are affiliated.
   2. (B) An Agreement of Joint Supervision for Dual Registration from all unaffiliated firms shall be submitted to the commissioner for approval.
4. (4) Each registered broker-dealer shall have at least one (1) registered agent and each registered investment adviser shall have at least one (1) registered representative.

(b) Expiration and renewal of registration.

1. (1) All broker-dealer, agent, investment adviser, and representative registrations hereunder, and United States Securities and Exchange Commission registered investment adviser notice filings, shall automatically expire on December 31 of each year without notification by the commissioner, unless the registration or notice filing has been properly renewed, or is withdrawn, terminated, or cancelled.
2. (2) When a registration or notice filing expires without the filing of a renewal, a subsequent application shall be considered in all respects as an original application or notice filing unless an extension has been requested and granted in writing by the commissioner prior to expiration.

3. (3)

   1. (A) The registration of an agent or representative terminates upon the termination of the registrant’s employment with the broker-dealer or investment adviser.
   2. (B) A Form U5 must be used to report a termination of an agent or representative.
   3. (C) If a Form U4 is received from the agent or representative whose employment has terminated and is processed by the commissioner prior to the receipt of the Form U5 from the broker-dealer or investment adviser with which the registrant was formerly employed, the Form U4 shall be considered not only an application for initial registration with the new broker-dealer or investment adviser, but also notification of termination or withdrawal of the previous registration or application unless the agent or representative has complied with the dual registration requirements of 23 CAR § 300-301(a)(3).
4. (4) Termination of a broker-dealer or investment adviser registration for any reason shall automatically constitute a termination of all underlying agent or representative registrations.

(c) Supervision requirements.

1. (1) Supervisor.

   1. (A) Broker-dealer. An agent of a broker-dealer appointed to carry out supervisory responsibilities for a broker-dealer, pursuant to Arkansas Code § 23-42-301 of the Arkansas Securities Act, shall be registered in this state and comply with the examination requirements of 23 CAR § 300-302(c)(4) and (5).
   2. (B) Investment adviser. A representative of an investment adviser appointed to carry out supervisory responsibilities for an investment adviser, pursuant to Arkansas Code § 23-42-301 of the Arkansas Securities Act, shall be registered in this state as a representative.

2. (2) Written policies and procedures.

   1. (A) As evidence of compliance with the supervisory obligations imposed by Arkansas Code § 23-42-301 of the Arkansas Securities Act, every broker-dealer and investment adviser shall implement written policies and procedures, a copy of which shall be kept in each location at which the broker-dealer or investment adviser conducts business, and shall establish, maintain, and enforce those written policies and procedures designed to achieve compliance with the Arkansas Securities Act and to detect and prevent violations.
   2. (B) With consideration for the size and number of locations of the broker-dealer or investment adviser, the written policies and procedures, at a minimum, shall address the following:

(b) (b) This shall include the following:

1. (1) (1) Names, titles, registration status, and locations of all supervisors;
2. (2) (2) The names of the agents or investment adviser representatives the supervisor will supervise; and

3. (3) (3) The responsibilities of each supervisor;

   1. (ii) Methods to be used to determine that all supervisors are qualified by virtue of character, experience, and training to carry out their assigned responsibilities;

      1. (iii) Methods to be used to determine the good character, business repute, qualifications, and experience of any applicant prior to making application for registration of that person with the commissioner and hiring that person;
      2. (iv) The review and written approval by a supervisor of the opening of each new customer account;
      3. (v) The frequent examination of customer accounts to detect and prevent:

(b) (b) Irregularities; or

1. (c) (c) Abuses;

   1. (vi) The prompt review and documentation of the handling of customer complaints;

      1. (vii) The prompt review and written approval by a supervisor of all securities transactions, investment advice, and correspondence pertaining to the securities business of registrants;
      2. (viii) The review and written approval by a supervisor of the delegation by a customer of discretionary authority with respect to the customer’s account and frequent examination of discretionary accounts to prevent:

(b) (b) Irregularities; or

1. (c) (c) Abuses;

   1. (ix)

(b) (b) Written records shall be maintained reflecting the interview or meeting;

1. (x) Periodic inspections.

(a)

1. (1) (a)(1) Each place of business shall be periodically inspected to ensure that the written policies and procedures and systems are enforced.

2. (2)

   1. (A) (2)(A) An office of supervisory jurisdiction of a broker-dealer shall be inspected at least annually.
   2. (B) (B) For the purposes of this section, the term “office of supervisory jurisdiction” shall have the same meaning as that term is defined in FINRA Rule 3110(f).
3. (3) (3) The principal place of business of each investment adviser shall be inspected at least annually.

4. (4) (4) In establishing an inspection cycle, the broker-dealer and investment adviser shall give consideration to:

   1. (A) (A) The size of the broker-dealer or investment adviser;
   2. (B) (B) The number and location of the offices;
   3. (C) (C) The volume of business and the number of agents or investment adviser representatives assigned to the location;
   4. (D) (D) The nature and complexity of the securities products and services offered from the location; and
   5. (E) (E) The disciplinary history of the registered agents and investment adviser representatives working at the location.

(b)

1. (1) (b)(1) The obligation of diligent supervision required by this section may require that one (1) or more locations of a broker-dealer or investment adviser in this state receive more inspections or be on a periodic inspection cycle different than other locations of the broker-dealer or investment adviser, and that inspections be unannounced.

2. (2) (2) Unannounced visits may be appropriate when there are indicators of misconduct such as receipt of:

   1. (A) (A) Significant customer complaints;
   2. (B) (B) Personnel with disciplinary records; or

   3. (C) (C) Excessive trade corrections; and

      1. (xi)

(b) (b) The plan shall provide for at least the following:

1. (1) (1) The protection, backup, and recovery of books and records;
2. (2) (2) Alternate means of communications with customers, key personnel, employees, vendors, service providers, including third-party custodians and regulators, including but not limited to providing notice of a significant business interruption or the death or unavailability of key personnel or other disruptions or cessation of business activities;
3. (3) (3) Office relocation in the event of temporary or permanent loss of a principal place of business;
4. (4) (4) Assignment of duties to qualified responsible persons in the event of the death or unavailability of key personnel; and

5. (5)

   1. (A) (5)(A) Otherwise minimizing service disruptions and client harm that could result from a sudden significant business interruption.
   2. (B) (B) An investment adviser should periodically test the Business Continuity and Succession Plan to ensure that it is adequate, effective, and current.

6. (3)

   1. (A) All written policies and procedures and evidence of compliance with written policies and procedures shall be maintained for three (3) years, the first two (2) years being in an easily accessible place.
   2. (B) The retention and preservation of records may be on electronic medium if adequate facilities are maintained for examination.

7. (4) To the extent that this section imposes any recordkeeping requirement on an investment adviser registered under Arkansas Code § 23-42-301 of the Arkansas Securities Act, the recordkeeping requirement does not apply if the investment adviser meets the following conditions:

   1. (A) Has its principal place of business in a state other than this state;
   2. (B) Is licensed as an investment adviser in the state where it has its principal place of business; and
   3. (C) Is in compliance with the recordkeeping requirements of the state in which it has its principal place of business.

8. (5)

   1. (A) Final responsibility for proper supervision shall rest with the broker-dealer or investment adviser.
   2. (B) It is the responsibility of the broker-dealer or investment adviser to ensure through inspections of each business location that the written policies and procedures are enforced and the supervisory obligations imposed by this section are being honored.