Esta ley enmienda la "Uniform Securities Act" de Puerto Rico para excluir de la definición de "Broker-dealer" la oferta y venta a individuos para la inversión de fondos depositados en cuentas de retiro individual (deducibles y no deducibles) y cuentas de ahorro educativo. También autoriza a la Oficina del Comisionado de Instituciones Financieras a eximir a bancos, instituciones de ahorro y compañías fiduciarias con poderes bancarios del requisito de registrarse como "Broker-dealer" hasta el 12 de noviembre de 2004 o la fecha que establezca la SEC de EE.UU., armonizando la ley local con la "Gramm-Leach-Bliley Act" federal.
(Approved March 27, 2004)
To amend subparagraph 4 of subsection
(c) of Section 401 of Act No. 60 of June 18, 1963, as amended, known as the "Uniform Securities Act," to exclude from the definition of Broker-dealer the offer and sale to individuals for the investment of funds deposited in an individual retirement account, a non-deductible individual retirement account or an educational savings account; to authorize the Office of the Commissioner of Financial Institutions of Puerto Rico to exempt banks, savings institutions and trust companies with banking powers from the requirement of registering as Broker-dealer until November 12, 2004, or until the date established by the U.S. Federal Securities and Exchange Commission; and for other purposes.
Act No. 60 of June 18, 1963, as amended, known as the "Uniform Securities Act" (hereinafter, the "Uniform Securities Act"), was adopted from the "Uniform Securities Act of 1956," a model law drafted by the "National Conference of Commissioners of Uniform State Laws." From time to time, our "Uniform Securities Act" has been amended to update and temper it to the changes and developments in the securities market as well as in the applicable legal framework.
On November 12, 1999, the President of the United States signed the bill known as the "Financial Modernization Act of 1999," officially entitled "Gramm-Leach-Bliley Act of 1999" (hereinafter, the "GLB Act"). The GLB Act eliminated multiple federal and state barriers that formerly hindered the
affiliation between banking institutions and entities engaged in the securities business, the insurance business, and other financial activities.
With regard to the securities business, the GLB Act introduces the concept of "functional regulation" (as used in the GLB Act) and provides that federal and state securities business regulators shall continue the functional regulation of such businesses regardless of the legal nature of the entity that carries out such activities. In agreement with the concept of functional regulation, the GLB Act revokes the exceptions that, until then, excluded banks from the definitions of the statutory categories of "broker," "dealer" and "investment adviser," subject to the regulations of the different federal securities laws. Said exemptions have been replaced by a limited list of activities that shall be allowed to banks, without it being understood that they operate as "brokers," "dealers" or "investment advisers," subject to the registration requirements and other provisions of the securities laws that would otherwise apply.
The GLB Act established that the above said amendments to the definitions of the statutory categories of "broker," "dealer" and "investment adviser" would take effect May 12, 2001. Subsequently, the exemption of banks under the definition of "broker" (notwithstanding the effectiveness of the amendments to the GLB Act) has been extended by means of orders issued by the Securities and Exchange Commission (hereinafter, the "SEC"). The last order issued by the SEC on April 8, 2003 extends the effectiveness of the exemption of the banks from the definition of the term "broker" until November 12, 2004.
In view of the above, the Legislature, by means of Act No. 422 of October 19, 2000 ("Act No. 422") amended Section 401 of the "Uniform Securities Act" to harmonize our code of laws to the provisions of the GLB
Act. As with the GLB Act, Act No. 422 provided that the amendments to the definitions of the statutory categories of "broker-dealer" and "investment adviser" would take effect on May 12, 2001.
Notwithstanding, the amendments adopted through Act No. 422, the Legislature deems it is necessary to again amend Section 401 of the "Uniform Securities Act" so that the code of laws of the Commonwealth of Puerto Rico is tempered to the provisions of the GLB Act. Furthermore, the Legislature considers that to achieve this purpose, it is necessary to authorize the Office of the Commissioner of Financial Institutions of Puerto Rico (the "Office of the Commissioner") so that the definition of the statutory category of "broker-dealer" under the "Uniform Securities Act" shall not take effect until November 12, 2004, or until such a date as the Federal Securities and Exchange Commission provides, in the event it extends said term or provides another term.
Likewise, the Legislature recognizes that there are certain details in the Puerto Rico banking market with regard to bank offers and sale to individuals of investment products for the investment of funds deposited by these individuals in individual retirement accounts (deductible and nondeductible) and education savings accounts, and therefore, it is required to add this activity to the activities that shall be allowed to banks without it being understood that they operate as "broker-dealers" under the "Uniform Securities Act."
Section 1.- Subsection (C) of Section 401 of Act No. 60 of June 18, 1963, as amended, known as the "Uniform Securities Act," is hereby amended to read as follows:
(C) Broker-dealer - shall mean any person engaged in effecting transactions in securities, on the account of others or on his own account. "Broker-dealer" shall not include: (1) a government instrumentality, (2) an agent, (3) an issuer; (4) a bank, savings institution, or a trust company with banking powers, provided the activities of these institutions related to the securities business are limited to: (A) those categories listed in subsections (B)(i) through (B)(xi) of Section 3(a)(4) and subsections (C)(ii) and (C)(iii) of Section 3(a)(5) of the Securities Exchange Act of 1934, and (B) the offer and sale to individuals for the investment of funds deposited in:
(i) an individual retirement account, as the term is defined in Section 11698 of the Internal Revenue Code of Puerto Rico of 1994, as amended, (ii) a non-deductible individual retirement account, as defined in Section 1169 of the Internal Revenue Code of Puerto Rico of 1994, as amended, or (iii) an educational savings account, as defined in Section 1172 of the Internal Revenue Code of Puerto Rico of 1994, as amended; (5) a person who does not have a place of business in Puerto Rico if: (A) the person carries out transactions in Puerto Rico exclusively with or through:
(i) the issuers of the securities involved in the
transaction; (ii) other broker-dealers; (iii) banks, savings institutions, trust companies, insurance companies, investment companies as such are defined in the Investment Companies Act of Puerto Rico, pension trusts or shares in the benefit or other financial institutions or institutional buyers acting on their own account or as trustees, or (B) during any other period of twelve consecutive months does not in any way make more than fifteen sale or purchase offers in Puerto Rico to persons other than those specified in paragraph (A), whether the person making the offer or the persons to whom the offer is made are in Puerto Rico. "
Section 2.- The Office of the Commissioner of Financial Institutions of Puerto Rico is hereby authorized to exempt banks, savings institutions and trust companies with banking powers from the requirement of registering as Broker-dealers until November 12, 2004, or until such a date that the U.S. Securities and Exchange Commission provides, in the event it extends this term or provides another term.
Section 3.- This Act shall take effect immediately after its approval.
I hereby certify to the Secretary of State that the following Act No. 87 (H.B. 3792) of the $\mathcal{T}^{ ext {th }}$ Session of the $14^{ ext {th }}$ Legislature of Puerto Rico:
AN ACT to amend subparagraph 4 of subsection
(c) of Section 401 of Act No. 60 of June 18, 1963, as amended, known as the "Uniform Securities Act," to exclude from the definition of Broker-dealer the offer and sale to individuals for the investment of funds deposited in an individual retirement account, a nondeductible individual retirement account or an educational savings account; to authorize the Office of the Commissioner of Financial Institutions of Puerto Rico to exempt banks, savings institutions and trust companies with banking powers from the requirement of registering as Broker-dealer until November 12, 2004, or until the date established by the U.S. Federal Securities and Exchange Commission; and for other purposes, has been translated from Spanish to English and that the English version is correct.
In San Juan, Puerto Rico, today $3^{ ext {rd }}$ of August of 2005.
Francisco J. Domenech Director