In the 2019 legislative session Colorado passed House Bill 19-1261, the Climate Action Plan to Reduce Pollution (“Climate Action Plan”), which includes targets for reducing statewide greenhouse gas pollution 26% by 2025, 50% by 2030, and 90% by 2050 from 2005 levels.[1]
To ensure that Colorado continues to make progress toward these targets, Governor Polis directed state agencies to develop a comprehensive Greenhouse Gas Pollution Reduction Roadmap (“GHG Roadmap”). The GHG Roadmap delivers a list of near-term actions the state will pursue over the next one to two years to make significant progress toward the 2025 and 2030 Climate Action Plan goals. The GHG Roadmap also analyzes further actions that can help put the state on a solid path to meeting the 2050 goal. A Version 2.0 of the GHG Roadmap is currently being prepared for release in draft in early 2024.

GHG Roadmap Ver. 1.0

The first GHG Emission Reduction Roadmap (Version 1.0) was prepared in draft in September of 2019 and finalized in January of 2020. Though primarily authored by Will Toor of the Colorado Energy Office and John Putnam of the Colorado Department of Public Health and Environment (“CDPHE”), it represents the work of many state agencies also including the Colorado Departments of Agriculture, Natural Resources, and Transportation. Additional support for the GHG Roadmap Ver. 1.0 was provided by the Department of Local Affairs, the Colorado Resiliency Office, and the Office of Just Transition. Colorado hired Energy + Environmental Economics (“E3”), a leading national consulting firm with expertise in GHG modeling, to develop a model of the state’s economy-wide emissions by sector. Technical staff from the Climate Change Unit at the CDPHE provided additional analysis of projected emissions reductions from near term policy recommendations.

The GHG Roadmap team constructed a Reference Case, which represents a projection of the state’s GHG emissions based on policies that were in place prior to 2019. The Reference Case assumes no new policies or actions to reduce emissions. That assessment found that the four largest emitting sectors were the same in 2020 as 2005. In 2020, transportation displaced electricity generation as the largest source of pollution. Electricity generation, oil and gas production, and fossil methane use in the residential, commercial, and industrial sectors remain the other three largest emitters.

While the state has made significant progress toward meeting the 2025 and 2030 goals, the analysis showed that additional actions are needed to reach the targets. E3 modeled an illustrative scenario, the HB 1261 Targets Scenario, to represent one approach Colorado could take to meet the Climate Action Plan targets through 2050. Based on these analyses, the GHG Roadmap proposes administrative, regulatory, legislative, procurement, incentive-based, and other measures to reduce emissions in different sectors of the state’s economy to achieve GHG pollution reductions in a cost effective and equitable way. The GHG Roadmap describes actions Colorado has taken to address climate change, analyzes the current trajectory for GHG emissions, and presents a suite of actions the state can pursue in the near term to make progress toward the Climate Action Plan goals.

The GHG Roadmap’s key findings for the state’s 2050 goals include:

• All sectors of Colorado’s economy will need to achieve reductions of 90-100%;
• The state’s 2 largest utilities will need to meet demand with zero-carbon electricity by 2050, with smaller utilities reducing GHG emissions by 80%;
• The transportation sector will need to be close to 100% electric vehicles (EVs) on the road by 2050;
• Achieving the 2050 goal will require further technical innovation such as green hydrogen, long duration energy storage, carbon capture and storage, and advanced biofuels;
• In the buildings sector full decarbonization by 2050 is based on a large-scale shift to the use of electric heat pumps, powered by zero carbon electricity, for space and water heating;
• Land conservation, restoration, and climate-adaptive ecosystem management will be critical
• for maintaining and enhancing resilient carbon sequestration on natural and working lands; and
• In agriculture, the development of markets that pay producers for ecosystem services may be an increasingly important tool.

Concerns of various commenters on GHG Roadmap 1.0 included that:

• It endorses large scale electrification and prescribes solutions 30 years into the future based on uncertain or non-existent technologies;
• It is aspirational, prescriptive, and inflexible rather than pursuing cost-effective measures in an iterative process;
• As a result, it vests greater power in electric utilities which simply pass costs on to consumers and stifle lower-cost outcomes that competition would encourage;
• It employs an accounting scheme that is fundamentally flawed;
• It relies on proprietary models of the State’s contractor, E3, the algorithms for which were not disclosed publicly; and
• It did not pursue a robust stakeholder and public participation process for such a transformational energy policy document.

GHG Roadmap Ver. 2.0

The state is now working to update the Greenhouse Gas Pollution Reduction Roadmap (“Roadmap 2.0”), including an updated inventory of emissions and a new set of Near-Term Actions that will guide implementation in the state. The State is soliciting written comments, holding open meetings and conducting sector roundtables in connection with the GHG Roadmap 2.0 update. The sector-specific roundtables concern topics including major sources of emissions in the transportation, electricity generation, oil and gas, industry, building energy use, land use and agriculture sectors. More information is available on the Colorado Energy Office website at: https://energyoffice.colorado.gov/climate-energy/ghg-pollution-reduction-roadmap-20.

Initial written comment on the planned GHG Roadmap Ver. 2.0 update was due by September 15, 2023. Among the concerns raise in initial public comment are:

• The need to prioritize feasibility and resource availability in Colorado’s Clean Energy Planning for 2040;
• The need to decarbonize Colorado’s electric grid before requiring or incentivizing widespread electrification of various sectors of the Colorado economy so as to avoid leakage and increased scope 2 emissions;
• Promoting the robust yet streamlined processes necessary to modernize permitting and siting of renewable energy generation and transmission projects on State lands;
• Including renewable natural gas (“RNG”) in the development of a circular clean energy economy in Colorado, in addition to proposed clean energy/battery recycling and waste stream measures identified;
• Facilitating the implementation of carbon dioxide removal (“CDR”) strategies including carbon capture, utilization and sequestration (“CCUS”) is essential for industry to reduce GHG emissions efficiently and cost-effectively, especially while awaiting the development of more renewables powering the grid;
• Rethinking proposed oil & gas sector strategies to avoid technology preferences being established in policy and regulations, and to also avoid unnecessarily combining GHG reduction and conventional air pollutant emissions mitigation strategies, as these are fundamentally different (global vs. local) and difficult to regulate together in a balanced way as recognized recently by the Colorado Air Quality Control Commission in the adoption of GEMM 2 rules last month;
• Developing a strategy for Urban Freight that is not exclusively based on electrification, especially for heavy-duty and long-haul vehicles; and
• Considering the unique needs of rural communities alongside actions that will benefit urban areas when developing Roadmap 2.0, especially with respect to possible strategies like expanded fare-free transit, since rural communities typically lack robust transit systems.

Preparation of GHG Roadmap 2.0 in draft for public comment is expected to occur by January of 2024. This policy document is crucial to the State’s approach to reducing emissions from all sectors of the state’s economy. As such, it is incumbent on industry, community and civic leaders and other stakeholders for each sector to be aware of the very significant likely consequences of the strategies to be adopted in GHG Roadmap 2.0. Once again, there is a lot of relevant information available on the Colorado Energy Office website at: https://energyoffice.colorado.gov/climate-energy/ghg-pollution-reduction-roadmap-20
, and may also be addressed and updated on the websites of other involved state agencies including CDPHE, CDOT (https://www.codot.gov/programs/research/pdfs/other-reports/colorado-greenhouse-gas-pollution-reduction-roadmap
), DNR and DOA.

[1] The 2050 target in the Climate Action Plan has since been modified from 90% to 100% by subsequent legislation, S.B. 23-016, concerning Greenhouse Gas Emission Reduction Measures, codified at C.R.S. § 25-7-102(g)(I)(F).

On Friday, October 20, 2023, the Colorado Department of Public Health & Environment (“CDPHE”), Air Quality Control Commission (“AQCC”) voted to adopt the Greenhouse Gas Emissions and Energy Management for Manufacturing Phase 2 Rule (“GEMM 2 Rule”) that implements key provisions of Colorado’s Environmental Justice Act (“EJ Act”)—HB 21-1266. The Colorado Legislature passed the EJ Act in July 2021 and one of its main provisions required that the state’s industrial and manufacturing sector reduce its greenhouse gas (“GHG”) emissions by 20% by the year 2030, as compared to the sector’s 2015 emissions. The final GEMM 2 Rule helps accomplish this goal by imposing strict mass based GHG reduction requirements on 18 industrial and manufacturing facilities within the state and imposing additional reduction requirements of harmful air pollutants for those facilities that are located within or less than one mile from a Disproportionately Impacted Community (“DIC”) and within 15 miles of a residential community.

A high-level summary of the GEMM 2 Rule and its most significant provisions is provided below.

Who is Affected by the GEMM 2 Rule?

The GEMM 2 Rule affects stationary sources in the industrial and manufacturing sector that emit greater than or equal to 25,000 metric tons (“mt”) of CO2 equivalent (“CO2e”) emissions per year. The rule also applies to any other manufacturing facilities that exist within Colorado as of the effective date of the rule and emit equal to or greater than 25,000 mt of CO2e in any year following the rule’s effective date.

While the GEMM 1 Rule passed in October 2021 limited GHG emissions from the state’s largest energy intensive and trade exposed industries in the industrial and manufacturing sector—namely four facilities in the cement and steel industries—the GEMM 2 Rule specifically identified 18 industrial and manufacturing facilities (“GEMM 2 Facilities”) as subject to the rule: American Gypsum Company LLC, Anheuser Busch Inc., Avago Technologies, Carestream Health, Inc., Cargill Meat Solutions, Front Range Energy, LLC, Golden Aluminum Inc., JBS Swift Beef Company, Leprino Foods, Microchip Technology, Molson Coors USA LLC, Natural Soda, LLC, Owen-Brockway Glass, Rocky Mountain Bottle Company, Sterling Ethanol, LLC, Suncor Energy USA, Western Sugar Cooperative, and Yuma Ethanol, LLC.

What Does the GEMM 2 Rule Require?

GEMM 2 Facilities are required to achieve facility-specific, onsite GHG reductions from their baseline emissions by implementing a portfolio of technically feasible and cost effective GHG reduction measures at their facilities. The GEMM 2 Rule’s cost effectiveness threshold was set at the 2030 social cost of GHGs—currently set at $89/ton. Such reduction measures may include equipment upgrades, efficiency improvements, the installation of additional controls, or onsite carbon capture, utilization and storage, among others.

CDPHE’s Air Pollution Control Division (“APCD”) first established each facility’s baseline emissions by using the higher of the facility’s reported 2021 or 2022 GHG emissions. In addition, facilities that demonstrated to the APCD that they had invested in capital projects that increased the facility’s production capacity between 2015 and 2030, but had not yet realized the additional production capacity, were eligible for a baseline adjustment equal to 75% of the facility’s increased production capacity, or 100% of the facility’s increased production capacity if the facility had already reduced its GHG emissions by 20% or greater.

The APCD then assigned tiered reduction requirements to the GEMM 2 Facilities based on the facilities’ GHG reductions since 2015 and their overall contribution to the group’s cumulative GHG emissions. Therefore, facilities that achieved significant GHG reductions since 2015 were assigned a lower 2030 reduction obligation than those facilities that achieved fewer GHG reductions, or increased their GHG emissions, since 2015. In addition, facilities with a high quantity of GHG emissions were assigned a greater 2030 reduction obligation than those facilities that emit a smaller quantity of GHGs. By considering these factors, the APCD sought to equitably distribute the GHG reduction requirements among the 18 GEMM 2 Facilities.

Depending on the facility’s assigned reduction requirement, the GEMM 2 Facilities must achieve an interim GHG reduction requirement of between 0 to 1.75% less than the facility’s baseline emissions beginning in 2024, and a final GHG reduction requirement of between 1 to 12.5% less than the facility’s baseline emissions by 2030. An additional GHG reduction of between 3 to 6% was assigned to certain facilities based on their percent contribution to the GEMM 2 Facilities’ cumulative total GHG emissions.

Finally, the GEMM 2 Rule requires facilities located within, or within one mile of, a DIC and within 15 miles of a residential community to prioritize onsite reductions of harmful air pollutants. As explained below, the amount of harmful air pollutant reductions is determined by the facility’s GHG Reduction Plan that must be submitted to the APCD by September 2025.

How does the Rule Work?

Beginning in 2024, GEMM 2 Facilities must secure their interim reduction requirement of between 0 to 1.75% and sustain this reduction through 2029.

Next, no later than September 20, 2025, GEMM 2 Facilities must develop and submit a GHG Reduction Plan to the APCD. The GHG Reduction Plan must include information on the facility’s emissions, a list of all GHG reduction measures that are technically feasible for implementation at the facility, and a portfolio of GHG reduction measures, the average cost of which is equivalent to the 2030 social cost of GHGs, that the facility is required to implement by 2030 to help the facility achieve its 2030 final GHG reduction requirement. The GHG Reduction Plan must also identify the estimated reduction of harmful air pollutants associated with the GHG reduction measures identified in the plan.

If a facility proposes to implement a technically feasible and cost-effective portfolio of GHG reduction measures, but the proposed measures do not achieve the facility’s 2030 GHG reduction requirement, the facility may purchase GHG credits for compliance. However, if the facility is located within one mile of a DIC and within 15 miles of a residential community, the facility must first identify the harmful air pollutant reductions associated with the GHG measures in its GHG Reduction Plan, up to 50% above the 2030 social cost of GHGs, and secure the harmful air pollutant reductions associated with these measures at the facility before they can participate in the GHG credit trading market.

To generate GHG credits, GEMM 2 Facilities must reduce their GHG emissions beyond their 2030 GHG reduction requirement. These GHG credits, which expire after 3 years, can then be traded among the GEMM 2 Facilities to help the facilities with few available onsite GHG reduction measures to comply with their 2024 and 2030 reduction requirements. No facility is required to place their GHG credits into the market, and individual GEMM 2 Facilities may enter into private GHG credit transactions at any time. Furthermore, the APCD will host an annual GHG credit auction whereby GEMM 2 Facilities can submit offers for sale and bids for GHG credits to the APCD.

Finally, if a facility cannot achieve its interim or 2030 GHG reduction requirement by implementing onsite GHG reduction measures, and there are not enough credits available in the GHG credit market to allow the facility to purchase credits to achieve its reduction requirement, the GEMM 2 Facility can pay into a state-managed GHG reduction fund, on a per metric ton of CO2e basis, up to the amount required to achieve the facility’s GHG reduction requirement for that year. The GHG reduction fund will then be used by the state to finance GHG reduction projects at other industrial and manufacturing sites, or finance otherwise cost-prohibitive onsite reduction measures at GEMM 2 Facilities. While the GHG reduction fund is not currently available, the APCD must propose establishment of the fund by September 2025, and implement the fund via rulemaking by the end of 2025.

By 2030, GEMM 2 Facilities must achieve their remaining GHG reduction requirement and sustain that reduction in perpetuity.

Compliance and Enforcement

GEMM 2 Facilities must demonstrate compliance with their annual GHG reduction requirements during two separate compliance periods. GEMM 2 Facilities must demonstrate compliance for the first compliance period—2024, 2025, and 2026—in 2027 by aggregating the facility’s annual GHG reduction requirement in each of those years and demonstrating to the APCD that the facility secured the reductions by the end of 2026. Next, GEMM 2 Facilities must demonstrate compliance for the second compliance period—2027, 2028, and 2029—in 2030 by the same method. Finally, beginning in September 2031, GEMM 2 Facilities must submit an annual report to the APCD that demonstrates compliance with the facility’s 2030 reduction requirement every year thereafter.

If a facility fails to demonstrate compliance in any compliance period, the facility’s annual GHG reduction requirement will be adjusted downwards by at least two times the amount, in mt of CO2e, by which the facility exceeded its aggregated GHG emission reduction requirement in either compliance period, or in any year after 2029. The GEMM 2 Facility must secure this additional “mitigation” reduction no later than three years after the compliance period or year of noncompliance.

In addition, the APCD maintains all the enforcement mechanisms available to it under the Colorado Air Pollution Prevention and Control Act, including the assessment of daily civil penalties.

Conclusion

The GEMM 2 Rule is the first regulation of its kind in the United States. While it is complex, the APCD anticipates that the GEMM 2 Rule’s 2024 interim reduction requirements will result in a 12% reduction in GHG emissions from the GEMM 2 Facilities by 2024. In addition, the APCD anticipates that the remaining reduction requirements will reduce the GEMM 2 Facilities’ GHG emissions by 20% by 2030. Accordingly, the GEMM 2 Rule will assist the state in achieving the EJ Act’s goal of reducing the state’s industrial and manufacturing sector GHG emissions by 20% by the year 2030 and help Colorado to cement itself as a national leader in climate and sustainability regulations.

If you would like to learn more about Colorado’s GEMM 2 Rule or discuss it in more detail, please contact John Jacus or Cole Killion.

Effective October 15, 2023, Colorado’s Air Quality Commission (the “Commission”) approved Regulation 28, titled “Building Benchmarking and Performance Standards,” which requires “covered building” owners to meet certain energy use targets or implement greenhouse gas emissions reductions to increase efficiency, as part of Colorado’s broader plan to reduce emissions by 50% prior to 2030.[1]  A ”covered building” under Regulation 28 includes any residential or commercial building over 50,000 square feet. This regulation impacts approximately 8,000 buildings in Colorado.

Regulation 28 does not apply to storage facilities, stand-alone parking garages, buildings in which over half of the gross floor area is used for manufacturing, industrial, or agricultural purposes, or single-family homes, duplexes, or triplexes.[2] The applicability of Regulation 28 to owners of public buildings, which includes those owned by a governmental entity and educational institutions, is limited.

Regulation Requirements

Covered building owners must report benchmarking data for the previous calendar year to the Colorado Energy Office (“CEO”) and pay an annual fee to the CEO of $100 per covered building, which payment does not apply to owners of public buildings.[3] The annual report must specify the owner’s plan to reduce the building’s greenhouse gas emissions in order to achieve Colorado’s 2026 target to reduce emissions by 7%.[4] In 2028, each annual report must address the owner’s plan to meet the 2030 target to reduce emissions by 20%.[5] Owners may apply to the CEO for a waiver, extension of the deadline, or an exemption from these reporting requirements.

Pathways to Compliance

In order to meet these emissions targets, owners must reduce the building’s greenhouse gas emissions through the following compliance pathways, which may be combined, providing some flexibility to owners:

1. Owners may implement energy efficiency measures and technologies to meet the property type weather-normalized site Energy Use Intensity (“EUI”) requirements set forth in Table I to Regulation 28.[6] If a covered building owner is unable to achieve the site EUI target, they may comply by maintaining a standard percent reduction in their covered building’s weather-normalized site EUI as compared to the covered building’s 2021 benchmark.[7]
2. If the owner is unable to meet the EUI targets, the owner may implement high-efficiency electric equipment and replace fossil fuel equipment to decrease the building’s greenhouse gas emissions.[8] An owner may also use customer-owned generation systems or utility subscription services to reduce their emissions.

Regulation 28 provides owners flexibility in what efficiency measures are utilized, including (1) converting natural gas equipment to electric space and water heating, (2) adding LED lighting and timer lights, (3) increasing insulation, (4) thickening walls, (5) replacing windows and doors, and (6) installing high-efficiency appliances. Owners may also enroll in utility-offered programs or purchase renewable energy credits.[9] However, if an owner is unable to meet the 2026 or 2030 building performance standards by implementing these measures, the owner should request an adjustment to the timeline for these emissions targets.

Regulation 28 further requires owners to maintain records related to the building’s compliance pathway and performance standards for seven years for the CEO to review upon request.[10]

Requests for Adjustments

If necessary, owners may request an adjustment from the CEO by demonstrating the owner’s plan to achieve the performance targets within the proposed adjusted timeline, as well as measures the owner has already taken to reach that goal (including submitting purchase orders for new equipment, documentation demonstrating supply chain delays, or documentation demonstrating collaboration with the building’s utilities to update the infrastructure).[11]

Owners of under-resourced buildings may also apply for an adjusted timeline from the CEO. The application must include (1) each year of benchmarking data up to the current date, (2) a narrative detailing the building characteristic or functional variations that qualify it for the adjustment, such as age of construction or historical status, (3) an inventory of the natural gas equipment in the building, (4) documentation of operation and maintenance improvements, and (5) documentation of collaboration with the building’s utilities to determine the feasibility of electrification.[12]

All requests for an adjusted timeline are due by December 31, 2025, for the 2026 target and December 31, 2029, for the 2030 target.

Penalties for Non-Compliance

Beginning June 1, 2024, penalties for failure to submit the benchmarking report include a fine of up to $500 for the first violation and $2,000 for each subsequent violation. An owner whose building fails to meet the performance standards is subject to a civil penalty of up to $2,000 for the first violation and up to $5,000 for each subsequent violation.[13] Each month that an owner fails to demonstrate compliance with the building performance standards or fails to demonstrate progress towards meeting the standards constitutes an independent violation.

Real Estate Industry Opposition.

Commercial real estate owners vehemently opposed Regulation 28, objecting to the unfair burden the retroactive application of these standards will have on existing buildings and further arguing that they are already experiencing significant financial stress due to high vacancy rates, rising foreclosures, stagnant demand, declining lease rates, rising interest rates, and ongoing supply chain problems.[14] BOMA estimates that the cost of compliance with Regulation 28 will exceed $3.1 billion.

[1] GHG Pollution Reduction Roadmap 2.0., https://energyoffice.colorado.gov/climate-energy/ghg-pollution-reduction-roadmap-20

[2] Section A.III.O.

[3] Sections A.IV.A, B.I.

[4] Section B.I.A.1.

[5] Section B.I.A.2.

[6] Section C.I.A.1.

[7] Section C.I.A.3.a.

[8] Section C.I.B.1.

[9] Section C.I.B.1.e.

[10] Section D.I.

[11] Section C.II.A.

[12] Section C.II.C.1.

[13] Sections E.1 and E.2.

[14] Colorado Real Estate Alliance & Regulation 28, Fact Sheet.

On November 3, 2023, the United States Forest Service announced a proposed amendment to its special use regulations at 36 C.F.R. part 251 to allow the Forest Service to review and process applications for carbon capture and storage beneath National Forest System Lands.

The Forest Service’s special use regulations set forth screening criteria that a proponent for a special use permit must meet. An existing screening criterion at 36 C.F.R. § 251.54(e)(1)(iv) does not allow the Forest Service to authorize exclusive and perpetual use and occupancy of National Forest System lands for any purpose. The proposed rule would create an express exception to this prohibition by stating that “the Forest Service may authorize exclusive and perpetual use and occupancy for carbon capture and storage in subsurface pore spaces.”

The proposed rule would also define “carbon capture and storage” as “the capture, transportation, injection, and storage of carbon dioxide in subsurface pore spaces in such a manner as to qualify the carbon dioxide stream for the exclusion from classification as a ‘hazardous waste’ pursuant to United States Environmental Protection Agency regulations at 40 CFR 261.4(h).” This definition would specify that carbon capture and storage does not constitute a hazardous waste and therefore is not subject to the prohibition against authorizing storage of hazardous substances on National Forest System lands at 36 C.F.R. § 251.54(e)(1)(ix).

The proposed rule would not affect the U.S. Environmental Protection Agency’s authority to regulate and permit the underground injection and storage of carbon through its Class VI Underground Injection Control program.

The Forest Service is accepting public comment on the proposed rule through January 2, 2024. Procedures for commenting are outlined in the Federal Register notice.

The Corporate Transparency Act (the “CTA”) was enacted on January 1, 2021[1] in an effort by Congress to prevent and combat money laundering, terrorist financing, tax fraud, and other illicit activities by imposing new disclosure requirements on certain companies formed or doing business in the U.S. On September 29, 2022, the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) issued final regulations to implement Section 6403 of the CTA (the “Final CTA Rules”)[1]. Under the Final CTA Rules, certain entities—referred to as “reporting companies”—will be required to submit specified information about the reporting company, its beneficial owners and company applicants to FinCEN.

Below is a high-level overview of the key provisions and implications of the Final CTA Rules. For further details and legal counsel, please do not hesitate to contact a Davis Graham Partner.

What is a “reporting company”?

A “reporting company” includes (i) any corporation, limited liability company, and any other form of entity created by filing with a secretary of state or similar office under the laws of a state or Indian tribe (referred to as “domestic reporting companies”), and (ii) any corporation, limited liability company, and any other form of entity created under the laws of a foreign country and registered to conduct business in the U.S. or tribal jurisdiction (referred to as “foreign reporting companies”).

What entities are outside of the definition of “reporting company”?

To fall under the definition of a “reporting company,” the entity must have been created or qualified to do business by the filing of a document with a secretary of state or similar official. Accordingly, sole proprietorships, common law trusts, and general partnerships do not currently fall under the definition of “reporting company.” Trusts that are created by a filing, such as statutory or business trusts, however, will be subject to the CTA reporting requirements.

The Final CTA Rules provide 23 categories of exemptions from the “reporting company” definition, including public companies, large operating companies, subsidiaries of certain other exempt entities, inactive entities, pooled investment vehicles, and nonprofit organizations. See the Appendix attached hereto for a summary of each of the 23 exemptions.

Note that the applicability of an exemption will be an ongoing determination—if an entity no longer qualifies under an exemption, it will become a reporting company and be required to promptly file a report.

If my entity is a “reporting company,” what information is required to be submitted to FinCEN?

Each reporting company will be required to report the following for itself: (i) full legal name; (ii) trade name or DBA; (iii) street address of principal place of business or, for a foreign reporting company, its primary location in the U.S.; (iv) jurisdiction of formation and, for a foreign reporting company, the state or tribal jurisdiction in which it is registered; and (v) tax identification number or, for a foreign reporting company that doesn’t have a tax identification number, other unique tax ID number.

Reporting companies will be required to report the following for each individual that is a beneficial owner or company applicant with respect to such reporting company: (i) full legal name; (ii) date of birth; (iii) current residential or, for company applicants, business street address; (iv) unique identifying number from an acceptable identification document (e.g., a non-expired passport or driver’s license) or FinCEN identifier; and (v) an image of the document from which the identifying number was obtained.

Who qualifies as a “beneficial owner”?

A beneficial owner is any individual that, directly or indirectly, either:

• owns or controls at least 25% of the total ownership interests of the reporting company, calculated as they stand at the time of the calculation and on a fully diluted basis, or
• exercises substantial control over the reporting company.

An individual is deemed to have “substantial control” if such individual (i) serves as a senior officer of the reporting company; (ii) has authority over the appointment or removal of any senior officer or a majority of the board of directors; (iii) directs, determines or has substantial influence over, important decisions made by the reporting company; or (iv) exerts similar control.

The Final CTA Rules also describe five types of individuals that are exempt from the definition of “beneficial owner.” Note that there is no limit on the number of beneficial owners a reporting entity might have.

Who is a “company applicant”?

A company applicant is the individual directly responsible for creating or registering the reporting company, and, if different, the individual who is primarily responsible for directing or controlling the filing. Each reporting company formed after January 1, 2024 will have at least one, but not more than two, company applicants.

What are the deadlines for submitting reports?

• Existing Companies – Reporting companies created before January 1, 2024 must file their initial reports by January 1, 2025. Note that reporting companies formed prior to January 1, 2024 do not need to report information about company applicants.
• Companies formed after January 1, 2024 – Reporting companies created after January 1, 2024 must file their initial reports by the earlier of: (i) 30 calendar days[2] of the date the reporting company receives actual notice of its creation or registration, and (ii) the date on which the secretary of state or similar office provides public notice of the reporting company’s existence or registration.
• Entities that no longer qualify for an exemption – Entities that were once exempt but that no longer qualify for any exemptions must file their initial reports within 30 calendar days after the date that they no longer meet the criteria for any exemptions.
• Updates and Corrections – If there are changes or inaccuracies in previously reported information, the reporting company must file an updated report to FinCEN no later than 30 days after it becomes aware of the change or of the inaccuracy.

What are the penalties for non-compliance?

The Final CTA Rules impose penalties for willful violations by individuals and entities. Such violations include willfully reporting or attempting to report false or fraudulent information to FinCEN or willfully failing to complete or update reports to FinCEN. Each violation is subject to penalties of $500 per day up to $10,000 per violation, and possible jail time (up to two years).

How do reporting companies file reports and who will have access to the submitted reports?

Reporting companies will need to file their reports through a secure filing system on FinCEN’s website, which will be available on January 1, 2024.

FinCEN is mandated to maintain reported information confidentially, accessible only to select federal, state, or foreign agencies for investigative and enforcement purposes, as well as financial institutions requesting this information to facilitate compliance with customer due diligence regulations, with the consent of the reporting company.

[1] FinCEN Issues Final Rule for Beneficial Ownership Reporting to Support Law Enforcement Efforts, Counter Illicit Finance, and Increase Transparency (Adopting Release)

[2] On September 28, 2023, FinCEN issued a Notice of Proposed Rulemaking that would extend this filing deadline for reporting companies created or registered on or after January 1, 2024 but prior to January 1, 2025. Those entities would have 90 days following notice of the reporting company’s creation or registration to submit its initial report. The 30-day timeline would continue to apply to reporting companies formed on or after January 1, 2025.

APPENDIX – SUMMARY OF EXEMPTIONS FROM THE “REPORTING COMPANY” DEFINITION

1. Securities reporting issuer: Any entity that is (i) an issuer of a class of securities registered under Section 12 of the Securities Exchange Act of 1934 (the “Exchange Act”) or (ii) required to file supplementary and periodic reports under Section 15(d) of the Exchange Act.
2. Governmental authority: Any entity that (i) is established under the laws of the United States, an Indian tribe, a state, or a political subdivision of a state, or under an interstate compact between two or more states and (ii) exercises governmental authority on behalf of the US or any such Indian tribe, state, or political subdivision.
3. Bank: Any bank, as defined in Section 3 of the Federal Deposit Insurance Act, Section 2(a) of the Investment Company Act of 1940 (the “1940 Act”), or Section 202(a) of the Investment Advisers Act of 1940 (the “IAA”).
4. Credit union: Any federal credit union or state credit union, as defined in Section 101 of the Federal Credit Union Act.
5. Depository institution holding company: Any (i) bank holding company, as defined in Section 2 of the Bank Holding Company Act of 1956, or (ii) savings and loan holding company, as defined in Section 10(a) of the Home Owners’ Loan Act.
6. Money services business: Any money transmitting business or money services business registered with FinCEN under 31 U.S.C. 5330 or 31 CFR 1022.380, respectively.
7. Broker or dealer in securities: Any broker or dealer as defined Section 3 of the Exchange Act that is registered under Section 15 of the Exchange Act.
8. Securities exchange or clearing agency: Any exchange or clearing agency as defined in Section 3 of the Exchange Act that is registered under Sections 6 or 17A of the Exchange Act.
9. Other Exchange Act-registered entity: Any other entity not described in exemptions 1, 7 or 8 that is registered with the Securities and Exchange Commission (the “SEC”) under the Exchange Act.
10. Investment company or investment adviser: Any entity that is (i) an investment company as defined in Section 3 of the 1940 Act or an investment adviser as defined in Section 202 of the IAA, and (ii) registered with the SEC under the 1940 Act or the IAA.
11. Venture capital fund adviser: Any investment adviser that (i) is described in Section 203(l) of the IAA and (ii) has filed Item 10, Schedule A, and Schedule B of Part 1A of Form ADV, or any successor thereto, with the SEC.
12. Insurance company: Any insurance company, as defined in Section 2 of the 1940 Act.
13. State-licensed insurance producer: Any entity that (i) is an insurance producer that is authorized by a state and subject to supervision by the insurance commissioner or a similar official or agency of a state and (ii) has an operating presence at a physical office within the United States.
14. Commodity Exchange Act-registered entity: Any entity that is (a) a registered entity, as defined in Section 1a of the Commodity Exchange Act (the “Commodity Act”), or (b) (i) a futures commission merchant, introducing broker, swap dealer, major swap participant, commodity pool operator, or commodity trading advisor, as defined in Section 1a of the Commodity Act, or a retail foreign exchange dealer, as described in Section 2(c)(2)(B) of the Commodity Act, and (ii) registered with the Commodity Futures Trading Commission under the Commodity Act.
15. Accounting firm: Any public accounting firm registered in accordance with Section 102 of the Sarbanes-Oxley Act of 2002.
16. Public utility: Any entity that is a regulated public utility, as defined in Section 7701(a)(33)(A) of the Internal Revenue Code of 1986 (the “Code”), that provides telecommunications services, electrical power, natural gas, or water and sewer services within the United States.
17. Financial market utility: Any financial market utility designated by the Financial Stability Oversight Council under Section 804 of the Payment, Clearing, and Settlement Supervision Act of 2010.
18. Pooled investment vehicle: Any pooled investment vehicle that is operated or advised by a person described in exemptions 3, 4, 7, 10 or 11.
19. Tax-exempt entity: Any entity that is (i) an organization that is described in Section 501(c) of the Code (determined without regard to Section 508(a) of the Code) and exempt from tax under Section 501(a) of the Code (with a 180 day grace period if an organization ceases to meet the foregoing parameters), (ii) a political organization, as defined in Section 527(e)(1) of the Code, that is exempt from tax under Section 527 of the Code or (iii) a charitable trust or split-interest trust, as described in paragraph (1) or (2) of Section 4947(a) of the Code.
20. Entity assisting a tax-exempt entity: Any entity that (i) operates exclusively to provide financial assistance to, or hold governance rights over, any entity described in exemption 19, (ii) is a United States person, (iii) is beneficially owned or controlled exclusively by one or more United States persons that are United States citizens or permanent residents and (iv) derives at least a majority of its funding or revenue from one or more United States persons that are United States citizens or permanent residents.
21. Large operating company: Any entity that (i) employs more than 20 full time employees in the United States, (ii) has an operating presence at a physical office within the United States and (iii) filed a federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales, as reported as gross receipts or sales (net of returns and allowances) on the entity’s income tax return (excluding gross receipts or sales from sources outside of the United States), which for an entity that is part of an affiliated group of corporations within the meaning of 26 U.S.C. 1504 that filed a consolidated return shall be the amount reported on the consolidated return for such group.
22. Subsidiary of certain exempt entities: Any entity whose ownership interests are controlled or wholly owned, directly or indirectly, by one or more entities described in exemptions 1 through 5, 7 through 17, 19, or 21.
23. Inactive entity: Any entity that (i) was in existence on or before January 1, 2020, (ii) is not engaged in active business, (iii) is not directly or indirectly owned in whole or in part by a foreign person, (iv) has not experienced any change in ownership in the preceding 12-month period, (v) has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding 12-month period and (vi) does not otherwise hold any kind or type of assets, whether in the United States or abroad, including any ownership interest in any corporation, LLC or other similar entity.

This is the third in a three-part series discussing the new and amended rules (collectively the “Rules”) adopted by the Colorado Division of Securities (“Division”) effective as of March 30, 2023 (the “Effective Date”). The series discusses the new and amended rules under the Colorado Securities Act (the “Colorado Act”) applicable to certain Colorado investment advisers and their registered representatives (“IARs”). Part 3 reviews the Division’s amendments to the requirements of advisory contracts under Rule 51-4.8(IA)(P)[1], mandatory disclosures related to Form ADV Part 2 under Rule 51-4.7(IA) (the “Mandatory Disclosure Rule”), and maintenance of books and records under Rule 51-4.6(IA) (the “Books and Records Rule”) (collectively the “Amended Rules”) and provides best practices and compliance recommendations.

Part 1 of this three-part series focused on the new Continuing Education Rule and offered practical guidance to advisers and their IARs for meeting the new requirements. Part 2 provided a comprehensive analysis of the Compliance Rule, and offered concrete recommendations to investment advisers registered with the State of Colorado (such advisers, “Colorado Licensed Advisers”) for their compliance programs.

Requirements of Advisory Contracts

Rule 51-4.8(IA)(P) was amended to clarify the information that an adviser must disclose in its advisory contracts with its clients. The amendment removes previous language embedded in the Rule that required advisory contacts or alternative disclosure documents to contain “the information required by Form ADV Part 2.” Form ADV is the uniform form used by investment advisers to register with both the U.S. Securities and Exchange Commission (the “SEC”) and state securities authorities. The form consists of three parts, Part 1, Part 2, and Part 3. Form ADV Part 2 serves as the primary disclosure document for advisers and sets forth requirements for narrative disclosures about the investment advisory firm and the business practices of its principals, fees, conflicts of interest, and disciplinary information.[2]

In its Cost-Benefit Analysis of the proposed rule changes, the Division acknowledged that Form ADV Part 2 provides more detailed information and disclosures than what is typically material in an advisory contract.[3]
The Division further explained its removal of the provision should make it clear that material terms of an advisory contract should be in contained within the contract itself and should include terms consistent with but not necessarily identical to those disclosed in Form ADV Part 2. Accordingly, under amended subsection (P) of Rule 51-4.8(IA), an advisory contract must be in writing and must disclose or address the following components: (1) the services to be provided, (2) the term of the contract, (3) the advisory fee, (4) the formula for computing the fee, 5) the amount of prepaid fees to be returned in the event of contract termination or non-performance, (6) whether the contract grants discretionary power to the adviser, and (7) a non-assignment provision in favor of the client.

Mandatory Disclosures Related To Form ADV Part 2

The Division adopted changes to Rule 51-4.7(IA) to clarify mandatory disclosures and the delivery to clients of an updated Part 2 of an adviser’s Form ADV. Form ADV Part 2 is divided into Part 2A and Part 2B and sets forth the information required in “client brochures” and “brochure supplements.” Under the “Mandatory Disclosure Rule,” an investment adviser and its investment adviser representative are obligated to furnish each advisory client and prospective advisory client with a copy of Part 2 of the investment adviser’s Form ADV. The Division’s amendments add language regarding the annual delivery of Part 2: advisers must deliver within 120 days of their fiscal year-end, an updated Form ADV Part 2 “disclosure statement” or a summary of material changes to the investment adviser’s Form ADV Part 2 that includes an offer to provide a copy of the updated Form ADV Part 2.

Amendments With Respect To Maintaining Books And Records Under Rule 51-4.6(IA)

The Division adopted changes to Rule 51-4.6(IA), the Books and Records Rule, which requires advisers to keep and maintain certain books and records relating to their investment advisory business. Rule 51-4.6(IA) subsection (3) was amended to require investment advisers to provide and keep additional information on their memorandum of trade orders (or trade blotters). Rule 51-4.6(IA) subsection (5) was amended to require firms to maintain copies of “invoices” in addition to bills and other financial statements. In addition, new recordkeeping obligations added to the Books and Records include Rule 51-4.6(IA)(7), which was amended to expand the records requirement of firms to all written communications relating to the business of the investment adviser and Rule 51-4.6(IA)(16), which was added to require advisers to maintain a written summary of all oral complaints in addition to the current requirement to maintain written communications concerning litigation and customer complaints. Advisers will thus be required to take the time to memorialize verbal complaints.

Takeaways for Amended Rules

• Consider the Scope and Applicability of the New and Amended Division Rules: Investment advisers licensed with the State of Colorado should bear in mind the scope and applicability of the Amended Rules, particularly with respect to Form ADV Part 2.

• Review and Update All Advisory Contracts: Colorado Licensed Advisers should consider providing addendums or supplements to advisory contracts that no longer meet the new requirements of Rule 51-4.8(IA)(P). Advisers should also consider reviewing their contracts on a recurring basis to seek to ensure those agreements are compliant with the Division’s regulatory requirements, reflect the adviser’s current business model, and are, most critically, consistent with the practices and fee structures disclosed in other advisory documents, such as Form ADV Part 2A and the adviser’s marketing materials.
• Review Recordkeeping Practices: Colorado Licensed Advisers should also consider whether their recordkeeping practices are consonant with the requirements of the amended Rule. As part of this determination, a Colorado Licensed Adviser should also consider whether (and to what extent) they are sufficiently positioned to promptly provide the firm’s books and records to the Division, preferably in an electronic format, if requested.

Conclusion

The topics highlighted in Parts 1 & 2 of this series (and other regulatory elements that were also part of the recent amendments) deserve attention by all investment advisers whose operations relate in some way to the state of Colorado. These new amendments will investment advisers differently.

Should you have a question about the contents of this article please contact Peter Schwartz, Martine Ventello, or any other member of the Davis Graham Asset Management team.

[1]
Section (P) falls under the larger umbrella of Division Rule 51-4.8(IA), which is a catch-all rule governing investment advisers’ dishonest or ethical conduct.

[2]
General Instructions for Part 2 of Form ADV are available at https://www.sec.gov/about/forms/formadv-part2.pdf

[3]
See the Division’s Cost-Benefit Analysis associated with these Amended Rules here: https://drive.google.com/file/d/1exIuxL_-wT4wYSKdRd6pqaikL5W80sLE/view

This is the second in a three-part series discussing the newly amended rules (collectively the “Rules”) adopted by the Colorado Division of Securities (“Division”) effective as of March 30, 2023 (the “Effective Date”) applicable to certain Colorado investment advisers and their registered representatives (“IARs”). The Rules mostly affect investment advisers registered with Colorado State (such advisers, “Colorado Licensed Advisers”). The Rules also have a lesser impact on investment advisers who are excluded or excepted from Colorado registration.

This Part 2 describes, in detail, the requirements of new Rule 51-4.12(IA) (the “Compliance Rule” or the “Rule”), and offers concrete recommendations to Colorado Licensed Advisers for their compliance programs. Part 1 focused on the new Continuing Education Rule and offered practical guidance to advisers and their IARs for meeting the new requirements. Part 3 will review the amended Rules as a whole and provide best practices and compliance recommendations going forward.

The Compliance Rule

Rule 51-4.12(IA) adds a three-part compliance program requirement for Colorado Licensed Advisers, which includes establishing, maintaining, and enforcing written policies and procedures, designating a Chief Compliance Officer (“CCO”) to oversee the program, and conducting an Annual Review of the program.^[1] The Rule does not require that the CCO conduct the Annual Review, nor does it specify a particular time of year for its completion. Furthermore there is no requirement for the Annual Review to be written.

The scope of the compliance program includes the Colorado Licensed Adviser, its “Supervised Persons,” and its “Access Persons” (with regard to reporting personal trading). All employees, officers, partners, directors, IARs, and other persons who provide advice on behalf of the adviser and are subject to the adviser’s supervision and control are considered “Supervised Persons.”^[2] “Access Persons” are “Supervised Persons” who have access to nonpublic information regarding client transactions or reportable fund holdings, make securities recommendations to clients, or have access to nonpublic recommendations, and generally, all officers, directors, and partners.^[3]

The following areas must be substantively addressed in the firm’s policies and procedures:

Supervisory Policies and Procedures

Colorado Licensed Advisers must adopt, maintain, and enforce supervisory policies and procedures designed to prevent the firm or any of its Supervised Persons from violating the provisions of the Colorado Securities Act and the rules of the Division thereunder (the “Colorado Act”). This supervisory charge is consistent with existing Rule 51-4.6 (IA)(18) (the “Books and Records Rule”), which requires advisers to maintain written supervisory procedures and procedures to supervise the activities of its personnel and to ensure compliance with the securities laws.

Physical Security and Cybersecurity Policies and Procedures

Colorado Licensed Advisers must adopt, maintain, and enforce cybersecurity procedures that safeguard customers’ “Confidential Personal Information” and prevent unauthorized access to client records. Additionally, the new Rule outlines seven considerations that the Division’s Commissioner may use to evaluate whether an adviser’s cybersecurity policies and procedures are “reasonably designed.”^[4] The procedures under the new Rule must include five essential cybersecurity components:

• Annual Risk Assessment: Procedures must provide for a risk assessment which would require the firm or an agent to conduct annual risk assessments of the particular threats and cyber risks to their systems.

• User Security and Access: Procedures must provide for certain access controls designed to minimize employee user-related risks and prevent unauthorized access to electronic communications, databases, and media.

• Identity Authentication: Procedures must provide for authentication practices, particularly concerning authenticating investor or client instructions and verifying an investor’s identity and the authenticity of such request.

• Information Protection: Procedures must provide for the firm’s use and management of electronic communications, in particular, the use of secure email, encryption, digital signatures.

• Disclosure of Risks: Procedures should provide for relevant disclosures to clients regarding the risks of the firm’s use of electronic communications.

The Compliance Rule also adds a new privacy policy requirement which requires Colorado Licensed Advisers to provide their privacy policy to clients at the time of engagement and annually thereafter. The privacy policy must explain how the investment adviser collects and shares non-public personal information, to the extent permitted by state and federal law. If there are any inaccuracies in the privacy policy, the adviser must promptly make updates and provide the revised policy to every client.

Code of Ethics

The Compliance Rule calls for Colorado Licensed Advisers to establish a code of ethics that must cover several of the following matters set out below:

• Standard of Conduct and Compliance with Laws: The code of ethics must set forth a minimum standard of conduct for all personnel and must require their compliance with the Colorado Act, the federal securities laws, and the rules adopted respectively thereunder. The Division has not stated what this minimum standard should be, but the standard must reflect its fiduciary obligations.
• Reporting Violations: Each adviser’s code of ethics must include provisions requiring Supervised Persons to report any code violations promptly to the CCO or other designee.
• Distribution and Acknowledgment: The code must require the adviser to provide each supervised person with a copy of the code, and any amendments, and to obtain written acknowledgment from each supervised person of their receipt of a copy of the code.
• Personal Securities Transactions: The code of ethics must require Access Persons to periodically report their personal securities transactions and holdings to the CCO or other designee. A complete report of each Access Person’s holdings of “Reportable Securities” in which an Access Person has, or acquires, a direct or indirect “beneficial interest” is due no later than ten (10) days after the person becomes an Access Person (the “Initial Report”) and at least once a year after that (the “Annual Report”). These Holdings Reports must be current as of a date not more than forty-five (45) days before the individual becomes an Access Person for Initial Reports or the date the report is submitted for Annual Reports. The code must also require Access Persons to provide quarterly reports of all their personal Reportable Securities transactions (“Quarterly Reports”). Quarterly Reports are due no later than thirty (30) days after the close of the calendar quarter.^[5]
  In addition, the Rule permits three exceptions to the personal securities reporting obligations for (i) transactions effected under an automatic investment plan; (ii) securities held in accounts over which the Access Person had no direct or indirect influence or control; and (iii) transaction reports that would duplicate information contained in trade confirmations or account statements that the adviser has received and maintains as part of its recordkeeping. If the adviser has only one Access Person, it is not required to submit Quarterly or Annual personal trading Reports to itself or to obtain its own approval for certain transactions.

• Pre-approval of Certain Securities Transactions: Lastly, in addition to requiring Access Persons periodically to report personal securities transactions, the code of ethics must also require Access Persons to pre-clear any acquisitions of security in an initial public offering or a limited offering private placement.

Misuse of Material Non-Public Information

The Compliance Rule requires the adoption of policies and procedures reasonably designed to prevent the misuse of material, non-public information. Following the federal standard, the Rule defines “material, non-public information” as material information that has not been disseminated in a manner making it available to investors. Information is material when it is substantially likely that the information would be important to a reasonable investor making an investment decision or is likely to have a significant impact on valuation. The design of the adviser’s policies and procedures will turn on the size and structure of the adviser as well as the nature of the material, non-public information its associated persons are likely to receive.

Business Continuity and Succession Planning

Incorporating aspects of former standalone Rule 51-4.12(IA) Business Continuity and Succession Planning, the Compliance Rule requires the adoption of policies and procedures relating to business continuity and succession planning (or “BCP”). While the specifics of a succession plan will vary depending on each adviser’s business model, the new Rule calls for procedures to include five components:

• Books and Records: Procedures must provide for the protection, backup, and recovery of books and records.

• Communication: Procedures must provide alternative means of communication with customers, key personnel, employees, vendors, and service providers (including third-party custodians).

• Relocation: Procedures must provide for office relocation, if necessary, in the event of temporary or permanent loss of a principal place of business.

• Designation: Procedures must provide for the assignment of duties to qualified, responsible persons in the event of the death or unavailability of key personnel.

• Mitigation: Procedures must provide for controls, practices, and components of the plan that minimize service disruptions and client harm in the event of a sudden significant business interruption.

Takeaways for the Compliance Rule

• Understand the Scope and Applicability of the Compliance Rule: The Compliance Rule applies to an “investment adviser licensed or required to be licensed” with the Division under the Colorado Act. Critically, this means the Rule does not apply to Colorado-based investment advisers that would otherwise be fully regulated by the state but for a licensing exemption (such advisers generally herein “Colorado Exempt Advisers”) or an exclusion from the Colorado “investment adviser” definition (such advisers, “Colorado Excluded Advisers”). For example, Rule 51-4.12(IA) does not apply to advisers relying upon the Colorado private fund adviser licensing exemption under Rule 51-4.11(IA).^[6]
  Likewise, because investment advisers that meet the requirements of the federal exemptions for “family office” advisers, “venture capital fund” advisers, and “foreign private” advisers are exempt from the adviser licensing requirements of the Colorado Act, Rule 51-4.12(IA) does not include these Colorado Exempt Advisers in its coverage either.^[7]
  Similarly, Colorado Excluded Advisers, such as U.S. Banks and Bank Holding Companies, and those who do not otherwise satisfy all three of the elements of the “investment adviser” definition, are not considered within the scope of Rule 51-4.12(IA).^[8]
  Lastly, the new Rule does not affect investment advisers registered with the U.S. Securities and Exchange Commission (such advisers, “SEC Registered Advisers”) who are subject to the existing federal compliance regime established by the Investment Advisers Act of 1940 (the “Advisers Act,” as amended) and Rule 206(4)-7 thereunder.^[9]
• Designate a Chief Compliance Officer: Advisers must “designate” (note: not “hire”) a CCO. The CCO may be an employee with other duties, such as the general counsel or chief legal officer, or a third party specifically engaged to be the adviser’s CCO. Hybrid approaches also include aspects of outsourcing to third parties and internal work. Although not expressly stated, under the Federal equivalent of the Compliance Rule, rule 206(4)-7 under the Advisers Act, the expectation is that the compliance officer should have a position of sufficient seniority and authority within the organization to compel others to adhere to the compliance policies and procedures.

• Identify the firm’s “Supervised Persons” and “Access Persons”: The determination as to whether a person constitutes an “Access Person” requires a facts-and-circumstances analysis that focuses on the Supervised Person’s role and responsibilities and access to nonpublic investment information. Special consideration should be given to the involvement of consultants, affiliates, contractors, service providers, and temporary employees to determine if they function as employees. It is important to note that the status of an Access Person may change over time and may require reassessment.
• Alert and Train Personnel On Their Reporting Obligations: Firms should consider implementing a system for reminders of upcoming compliance deadlines for Quarterly and Annual personal trading transactions and holdings reports. Likewise, firms may want to hold orientation or training sessions with new and existing employees to remind them of their reporting obligations under the code of ethics. This approach could help ensure that reporting is completed on time and importantly, the firm will be far better equipped to avoid violations of its code of ethics if its personnel understand it.
• Determine the When, Who, and What of Conducting the Annual Review: While there is no single approach to conducting an Annual Review, Colorado Licensed Advisers should consider looking to the best practices of SEC Registered Advisers to determine their own “when, who, and what.” Typically, many of these firms perform the review after the end of their fiscal year to align with other year-end review processes. The responsibility for conducting the review usually falls on the CCO, but some firms may hire third-party service providers or outside counsel for assistance. Moreover, although the Compliance Rule and its federal equivalent does not specifically require documentation of the Annual Review, many advisers opt to create a report similar to one required to be provided by the CCO of a registered investment company to its board of directors (or equivalent governing body) setting forth any (i) material changes to the compliance report during the year, and (ii) “material compliance matters” that occurred.^[10]

• Review the Divisions’ Examination Priorities: Licensed Advisers should be mindful of the Division’s 2023 investment adviser examination priorities, which may serve as a valuable tool to assess compliance readiness and to understand the potential enforcement focus of the Division going forward.^[11]

Conclusion

Building off prior guidance issued by the Division in October 2021, the Compliance Rule imposes a number of discrete requirements on Colorado Licensed Advisers.^[12]
It also signals the Division’s continued focus on compliance programs as one of its top priorities in 2023.^[13] As coverage of the new Compliance Rule overlaps in many ways with SEC rules 206(4)-7 and 204A-1, Colorado Licensed Advisers should also consider looking to federal guidance to build and develop an effective compliance program.

Should you have a question about the contents of this article please contact Peter Schwartz, Martine Ventello, or any other member of the Davis Graham Asset Management team.

[1]
See Rule 51-4.12(IA)(C); Rule 51-4.4.1(IA)(B).

[2]
Under Rule 51-4.4.1(IA)(D)(11), ‘‘Supervised person’’ means any partner, officer, director (or other person occupying a similar status or performing similar functions), or employee of an investment adviser, or other person who provides investment advice on behalf of the investment adviser and is subject to the supervision and control of the investment adviser. The definition includes investment adviser representatives, employees, independent contractors, or other associated persons and supervised personnel, or other person acting on the behalf of the investment adviser.

[3]
The Rule includes a presumption of Access Person status for all directors, officers, and partners of an investment adviser whose primary business is providing investment advice. See Rule 51-4.4.1(IA)(D)(1).

[4]
In determining whether the cybersecurity procedures are reasonably designed, the Commissioner may consider: “(i.) The firm’s size; (ii.) The firm’s relationships with third parties; (iii.) The firm’s policies, procedures, and training of employees with regard to cybersecurity practices; (iv.) Authentication practices; (v.) The firm’s use of electronic communications; (vi.) The automatic locking of devices that have access to Confidential Personal Information; and (vii.) The firm’s process for reporting of lost or stolen devices.” Rule 51-4.4.1(IA)(A)(3)(a).

[5]
The Division’s Compliance Rule effectively treats all securities as a “Reportable Security” with five exceptions that mirror those exceptions with the definition in Section 202(a)(18) of the Securities Act of 1933: (1) Direct obligations of the Government of the United States; (2) Bankers’ acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; (3) Shares issued by money market funds; (4) Shares issued by open-end funds other than reportable funds; and (5) Shares issued by unit investment trusts that are invested exclusively in one or more open-end funds, none of which are reportable funds.

[6] For a deeper discussion of the contours of the private fund adviser licensing exemption, see Davis Graham Legal Alert: Division of Securities Adopts New Exemption from Investment Adviser Licensing Requirements. A private fund adviser who provides investment advice solely to one or more “qualifying private funds” is exempt from the Colorado licensing requirements, subject to certain additional conditions. A “qualifying private fund” means a private fund that meets the definition of a “qualifying private fund” in Rule 203(m)-1 under the federal Investment Advisers Act of 1940 (the “Advisers Act”) which, in effect defines “qualifying private fund” as a “3(c)(1) and 3(c)(7) funds”, as they are more fully defined under the federal Investment Company Act of 1940 (the “1940 Act”). Advisers relying upon the Colorado private fund adviser licensing exemption in Rule 51-4.11(IA) should bear in mind that they could potentially operate as an “Exempt Reporting Adviser” by taking advantage of the federal private fund adviser exemption under Section 203(m)(1) of the Advisers Act and rule 203(m)-1 thereunder (“Private Fund Adviser Exemption”) or the Section 203(l) and rule 203(l)-1 thereunder (“Venture Capital Fund Exemption”). The Private Fund Adviser Exemption is available to advisers who solely manage “qualifying private funds” and have less than $150 million in assets under management. A detailed analysis of the Venture Capital Fund Exemption conditions is beyond the scope of this Alert, but very broadly, investment advisers that solely advise venture capital funds may be exempt from registration under the Advisers Act.

[7]See Colorado Securities Commissioner Interpretive Order No. 12-IN-001, March 30, 2012, providing that investment advisers meet the federal exemption requirements for family office advisers, venture capital fund advisers, and foreign private advisers are otherwise exempt from the adviser licensing requirements of the Colorado Securities Act. Against, at the federal level, venture capital fund advisers that rely on the Section 203(l) “Venture Capital Fund Exemption” are also considered SEC “Exempt Reporting Advisers. ”

[8] The term “bank” is defined in Section 202(a)(2) of the Advisers Act. Persons who: (1) engage in the business of advising others (2) regarding securities (3) for compensation are regulated as investment advisers by the Advisers Act and under C.R.S. § 11-51-401(1.5) at the Colorado level. However, a person must satisfy all three of the elements of the “investment adviser” definition for such regulations to apply. Section 202(a)(11) of the Advisers Act defines the term “investment adviser” to mean “any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities.” Under C.R.S. § 11-51-201(9.5)(a)(I) “investment adviser” is defined as verbatim to Section 202(a)(11) of the Advisers Act and includes (II) “financial planners or other persons who, as an integral component of other financially related services, provide investment advisory services to others for compensation and as a part of a business or who hold themselves out as providing investment advisory services to others for compensation.”

[9] Colorado uses the term “Federal Covered Adviser.” See
C.R.S. § 11-51-201(5.5)(a). Generally speaking, Section 203A of the Advisers Act prohibits “Mid-Size Advisers” with between $25 million and $100 million of assets under management from registration with the SEC. In some cases, however, advisers under the $100 million threshold may be required to register with the SEC instead of the states where an adviser is: (1) exempt from state registration in its home state or (2) not subject to subject to examination by the securities authority of the state. See
Advisers Act Section 203A(a)(2)(B)(i). Advisers who take advantage of an exception from Colorado registration should pay close attention to the interaction of state and federal investment adviser regulation.

[10]
See generally, SEC Rule 38a-1(a)(4)(iii).

[11]
The Division’s Examination Priorities can be found at: https://securities.colorado.gov/press-release/alert-the-colorado-division-of-securities-announces-2023-investment-adviser.

[12]
See Colorado Division of Securities Investment Adviser Guide (Volume I), October 28, 2021.

[13]
See Colorado Division of Securities 2023 Investment Adviser Examination Priorities, January 31, 2023, at p.,3, (“The Staff expects that one of the Division’s top examination priorities in 2023 will be assisting advisers in complying with new rules”).

On July 3, 2023, the U.S. Fish and Wildlife Service (FWS) proposed to list the dunes sagebrush lizard as endangered. The dunes sagebrush lizard exists solely in shinnery oak duneland complexes in the Permian Basin, both in Texas and New Mexico.

FWS has considered dunes sagebrush lizard to be a species of concern for decades. FWS first identified the dunes sagebrush lizard, then known as the “sand dune lizard,” as a candidate for listing in 1982. The species remained a candidate species when FWS proposed to list it in 2010. In 2012, however, FWS withdrew its proposed listing rule after concluding that conservation efforts addressed and alleviated threats to the species adequately for it to continue to be viable into the future.

FWS based its new proposal to list the dunes sagebrush lizard as endangered principally on past and projected future impacts to the species from oil and gas development and frac sands mining. Specifically, FWS based its listing proposal on several determinations, including that: 1) nearly half of shinnery oak duneland habitat has been degraded so that it is no longer capable of supporting populations of the species; 2) habitat fragmentation caused by oil and natural gas development and frac sands mining is likely to continue to occur in the future; and 3) even if no new development occurs in the species’ habitat, existing oil and gas development will continue to negatively impact the species and make it vulnerable to other threats. FWS’s proposed listing rule relied on a species status assessment it recently finalized.

Notably, FWS has not proposed to designate critical habitat with the proposed listing rule.

The Effect of Listing on Land Users – Incidental Take Prohibition & Section 7 Consultation

Listing wildlife as endangered has two effects on land users. First, the ESA prohibits take of endangered wildlife. Second, a federal agency must consult with FWS before issuing a permit or land use authorization that may affect an endangered species.

The ESA prohibits take of endangered wildlife, which is defined to include harming, harassing, and killing endangered wildlife, among other actions. The ESA’s prohibition on take includes both intentional take and take that occurs unintentionally as the result of otherwise lawful activities, such as energy development (“incidental take”).

The proposed rule identifies the following actions as potentially resulting in prohibited take of dunes sagebrush lizard:

• Destruction, alteration, or removal of shinnery oak duneland and shrubland vegetation;
• Degradation, removal, or fragmentation of shinnery oak duneland and shrubland formations and ecosystems;
• Disruption of water tables in dunes sagebrush lizard habitat;
• Introduction of nonnative species that compete with or prey upon the dunes sagebrush lizard;
• Unauthorized release of biological control agents that attack any life stage of the dunes sagebrush lizard or that degrade or alter its habitat; and
• Herbicide or pesticide applications in shinnery oak duneland and shrubland vegetation and ecosystems.

To engage in land use activities that will result in incidental take of endangered wildlife on private lands, land users must obtain a permit from FWS. To obtain a permit, the land user must have entered into a candidate conservation with assurances (CCAA) with FWS prior to listing or must develop an approved habitat conservation plan.

In New Mexico, the Center for Excellence (“CEHMM”) administers a CCAA for oil and gas operators on private lands. Prior to the effective date of any listing decision, an operator may execute a written agreement with CEHMM committing to adhere to certain conservation measures to protect the dunes sagebrush lizard. If and when the dunes sagebrush lizard is listed, an enhancement of survival permit accompanying the CCAA will authorize any incidental take that occurs as the result of activities conducted in accordance with the agreement.

In Texas, two conservation plans have been developed. One conservation plan is a CCAA that covers oil and gas activities, agriculture, and ranching activities. The other conservation plan is a CCAA that covers oil and gas activities, sand mining, linear infrastructure, wind, solar, local governments, agriculture, and ranching. As the preamble to the proposed rule details, however, few land users are participating in these conservation plans.

In addition to prohibiting take of endangered species, the ESA requires federal agencies to consult with FWS to ensure their actions do not jeopardize the continued existence of endangered species, in a process known as “section 7 consultation.” Section 7 consultation can lead to delay and additional conservation measures. With respect to the dunes sagebrush lizard, the Bureau of Land Management (BLM) must consult with FWS before issuing leases, permits, and rights-of-way for energy and other land uses in southeast New Mexico. In New Mexico, CEHMM administers a Candidate Conservation Agreement on federal lands. Prior to the effective of a listing, an operator may execute a written agreement committing to adhere to certain conservation measures to protect the dunes sagebrush lizard; in exchange, the operator will enjoy a streamlined process for section 7 consultation and a high degree of certainty that FWS will not require additional conservation measures.

Public Participation & Next Steps

FWS is accepting public comment on the proposed listing rule until September 1, 2023. On July 31, 2023, FWS will hold a public informational session from 5 to 6 p.m. and a public hearing from 6 to 8 p.m., mountain standard time.

The ESA directs that FWS must issue a final listing rule or to withdraw the proposed rule within one year of publication of the proposed rule (i.e., by July 3, 2024). The ESA allows FWS to extend this deadline by six months if there is substantial disagreement regarding the sufficiency or accuracy of available data relevant to the proposed listing rule.

Please contact Katie Schroder with questions about the proposed listing rule or its effect.

On June 16, 2023, the Bureau of Land Management (BLM) published a proposed rule that would revise the agency’s existing regulations for wind and solar rights-of-way and leases on public lands contained at 43 C.F.R. part 2800. Most significant, the proposed rule would adjust rental rates and capacity fees for wind and solar rights-of-way, modify BLM’s competitive process for offering lands for lease, and revise the BLM’s criteria for prioritizing right-of-way applications. Through this proposed rule, the BLM aims to promote the development of renewable energy on public lands and deliver greater certainty for the private sector.

Annual Rents and Payments (§ 2806)

The Federal Land Policy and Management Act (FLPMA) requires that the BLM rent public lands at fair market value. The BLM’s existing regulations attempted to capture fair market value for wind and solar rights-of-way by imposing a multicomponent fee that was comprised of an acreage rent, capacity fee, and any competitive bids. The Energy Act of 2020 amended FLPMA to allow the BLM to reduce rental rates and capacity fees for wind and solar projects. See 43 U.S.C. § 3003. In the proposed rule, the BLM seeks to exercise this authority by revising the rental and fee structure for both new and existing wind and solar rights-of-way. Most notably, the proposed rule would:

• Require the payment of either an acreage fee or a capacity fee, whichever is higher in a given year;
• Implement a capacity fee based on wholesale power prices and the actual energy produced by a facility rather than an estimate of the energy that could be generated at a facility;
• Implement an acreage fee based on per-acre values for pastureland from the National Agricultural Statistics Service Cash Rents Survey. The acreage fee would be established at the beginning of the grant or lease term and then adjusted annually at a proposed 3% percent; and
• Include a “Buy American” escalating capacity fee reduction, whereby a greater value of American-made products used in facility construction would result in a greater reduction of capacity fees.

Competitive Process for Solar and Wind Energy Development Applications or Lease (Subpart 2809)

The existing regulations require the BLM to use a competitive process to lease lands within designated right-of-way leasing areas. The proposed rule would give the BLM discretion to use a competitive process both within and outside of designated leasing areas. Under the proposed rule, the BLM may use a competitive process on its own initiative, when nominated or requested by the public, or when there are two or more competing applications.

Additionally, the proposed rule would adjust the BLM’s process by which interested parties can nominate lands for competitive lease (§ 2809.11). The proposed rule would also assign different statuses to successful bidders for lands within and outside designated leasing areas; these statuses reflect the BLM’s need for further evaluation of lands outside of designated leasing areas (§ 2809.15).

Prioritization Factors for Solar and Wind Energy Development Rights-of-Way (§ 2804.35)

The proposed rule would revise the BLM’s direction as to how it will prioritize applications for wind and solar rights-of-way. The BLM explained that the existing rule relied on screening criteria that were overly prescriptive. Instead, the BLM has proposed factors it will “holistically” consider to prioritize applications, which include:

• Whether a project is in an area preferred for wind and solar development;
• Whether a project avoids adverse impacts or conflicts;
• Whether a project conforms with land use plans;
• Whether a project is consistent with laws;
• Whether the project incorporates best management practices; and
• Any other factors identified in BLM guidance.

Duration of Grants and Leases (§ 2805.11)

The proposed rule would extend the maximum term of a lease or grant for solar or wind development projects from 30 years to 50 years.

Public Participation

Public comments on the proposed rule must be received by August 15, 2023, and may be submitted at www.regulations.gov
(RIN 1004-AE78). The BLM will host three virtual public meetings
regarding the proposed rule on June 29, July 11, and July 25, 2023. The BLM anticipates finalizing the rule by the summer of 2024.

For more information about the proposed rule, please see the BLM’s FAQs. If you have questions about the proposed rule or how to participate in the public comment process, please contact Katie Schroder or Natalie Boldt.

The Colorado Division of Securities (“Division”) has adopted new and amended rules (collectively the “Rules”) applicable to certain Colorado investment advisers and their representatives, effective as of March 30, 2023 (the “Effective Date”).

The new rules primarily affect investment advisers registered with the Colorado Division of Securities (such advisers, “Colorado Licensed Advisers”) and investment advisers registered with the U.S. Securities and Exchange Commission (such advisers, “SEC Registered Advisers”) that have one or more Colorado-based Investment Adviser Representatives (“IARs”). To a lesser degree, however, the amended rules also impact investment advisers who are excluded or excepted from Colorado registration.[1] In addition, the newly adopted rules under the Colorado Securities Act (the “Colorado Act”) include a new continuing education requirement for IARs under Rule 51-4.4.1(IA) (the “Continuing Education Rule”) and a new compliance program requirement under Rule 51-4.12(IA) (the “Compliance Rule”) for Colorado Licensed Advisers to adopt, implement, and enforce written policies and procedures to address the performance of certain fiduciary and substantive obligations under the Colorado Act. The new Compliance Rule also requires each Colorado Licensed Adviser to designate a chief compliance officer and conduct an annual review of its compliance policies and procedures.[2] Lastly, amendments concerning an adviser’s maintenance of books and records under Rule 51-4.6(IA), the requirements of advisory contracts under Rule 51-4.8(IA)(P), mandatory disclosures related to Form ADV Part 2 under Rule 51-4.7(IA), and other clarifying edits, were also adopted on the Effective Date (collectively the “Amended Rules”).[3]
Although the bulk of the Rules are verbatim adoptions of the model rules of the North American Securities Administrators Association (“NASAA”) they contain substantive changes that may result in new compliance requirements for investment advisers and their IARs.

Part 1 of this three-part series focuses on the new Continuing Education Rule and offers practical guidance to advisers and their IARs for meeting the new requirements. Part 2 will provide a comprehensive analysis of the new Compliance Rule, and offer concrete recommendations to Licensed Advisers for their compliance programs. Part 3 will review the Amended Rules as a whole and provide best practices and compliance recommendations going forward.

The Continuing Education Rule

Rule 51-4.4.1(IA) adds a new continuing education requirement for all licensed Investment Adviser Representatives.[4]
IARs must attain at least twelve (12) Credits each twelve-month (12) Reporting Period to maintain IAR registration.[5] A “Credit” means a unit that NASAA or its designee has designated as at least 50 minutes of educational instruction. So, all in all, IARs are required to complete at least ten (10) 60-minute hours of continuing education. Of the twelve (12) Credits, there is a products and practices component and an ethics component. IARs must complete six (6) Credits of products and practice content and six (6) Credits of regulatory and ethics content with at least three (3) hours dedicated solely to ethics. While an IAR may take more than twelve (12) Credits in a single Reporting Period to satisfy the previous Reporting Period’s deficiency, the IAR may not “carry forward” continuing education Credits above that Reporting Period’s amount into a subsequent Reporting Period.

IARs are expected to self-manage finding, completing, and passing continuing education courses from an Authorized Provider. Documentation of course completion is a shared responsibility between an Authorized Provider and the IAR. An IAR who fails to obtain the required twelve (12) Credits by the end of Reporting Period will renew the IAR license as “CE Inactive” and will remain in “CE Inactive” status until they fulfill all required Credits. “CE Inactive” status will appear publicly on the Investment Adviser Public Disclosure (“IAPD”) and FINRA’s BrokerCheck tool. An IAR who remains “CE inactive” at the close of the following calendar year is not eligible for IAR licensing or renewal of an IAR license. No exemptions or waivers are available based on experience or other qualifications, but the Commissioner may discretionarily waive any Rule requirements.

In Colorado, all IARs with a Colorado nexus must be licensed with the Division, whether they are employed or act on behalf of an SEC Registered Adviser that conducts advisory business in the state or a Colorado Licensed Adviser.[6] The new Rule addresses the reality of multi-state registered IARs, providing that IARs who are registered or licensed in multiple states may receive reciprocity in Colorado for their compliance with continuing education requirements in the IAR’s “Home State” so long as the Home State’s requirements are at least as stringent as the Colorado Continuing Education Rule and the IAR is otherwise in compliance with the Home State’s requirements. Similarly, dual-registrant IARs, those IARs who, in addition to state licensing, are also registered as an agent of a Financial Industry Regulatory Authority (“FINRA”) member broker-dealer, may receive reciprocity for their compliance with FINRA’s continuing education requirements so long as the FINRA continuing education content meets NASAA’s baseline criteria.

The first Reporting Period is expected to begin in 2024, and the Division is expected to provide further information to firms.

Takeaways for the Continuing Education Rule

• Get to Know FINRA’s FinPro System: IARs should immediately familiarize themselves with FINRA’s Financial Professional Gateway system (FinPro), which IARs must use to monitor and report their Credits.[7]

• Compliance Reminders for Continuing Education Requirements: Even though it is the IAR’s responsibility to earn the required continuing education Credits, it is the advisory firm’s responsibility to ensure that all its personnel are appropriately licensed.[8]
  Firms should consider implementing a system for reminding IARs of upcoming compliance deadlines. This could help avoid non-registration mishaps and avoid last-minute scrambles to complete the requirements at the last minute by, for example, encouraging IARs to spread out continuing education throughout the Reporting Period.
• Understand the Passing Requirements: Per NASAA, every course must have an assessment of at least ten questions. There is also a requirement that IARs pass assessments with a score of at least 70% within no more than three attempts.

Conclusion

With the Continuing Education Rule, Colorado has for the first time imposed a continuing education requirement for IARs that must be satisfied every year going forward to remain licensed. An IAR’s failure to acknowledge and abide by the requirements could negatively impact his or her registration status. Additional guidance may be forthcoming from the Colorado Division of Securities. In the meantime, NASAA has published some FAQs that clarify the mechanics of the continuing education requirement generally.[9]

Should you have a question about the contents of this article please contact Peter Schwartz, Martine Ventello, or any other member of the Davis Graham Asset Management team.

[1]
In particular, those venture capital funds and private equity funds relying on the Colorado private fund adviser licensing exemption in Rule 51-4.11(IA). The second article in this series will address the scope of the new rule in that context.

[2]
See Rule 51-4.12(IA)(C); Rule 51-4.4.1(IA)(B).

[3]
See
https://securities.colorado.gov/statutes-and-rules-2
and the Division’s accompanying release at https://securities.colorado.gov/press-release/alert-new-colorado-securities-rules-effective-today
for more details.

[4]
Under C.R.S.§ 11-51-201(9.6), investment adviser representatives are defined as “individuals who have a place of business in this state; who is a partner, officer, or director of an investment adviser; who occupies a status similar to or performs functions similar to those of a partner, officer, or director for an investment adviser; or who is employed or otherwise associated with an investment adviser who: (I) Makes recommendations or otherwise renders advice to clients regarding securities; (II) Manages securities accounts or portfolios for clients; (III) Determines which recommendation or advice regarding securities should be given to clients; or (IV) Supervises employees of, or persons otherwise associated with, an investment adviser or a federal covered adviser who perform any of the duties specified in this paragraph (a).”

[5]
Under the Rule, a “Reporting Period” is one twelve-month (12) period as determined by NASAA, measured from the first day of the first full Reporting Period after the individual is licensed or required to be licensed with the State of Colorado.

[6]
Colorado uses the Term “Federal Covered Adviser,” which means a person who is registered or required to be registered under Section 203 of the Investment Advisers Act of 1940. See C.R.S. § 11-51-201(5.5)(a).

[7]
FINRA’s FinPro System can be found at: https://www.finra.org/registration-exams-ce/finpro

[8] See Colorado Division of Securities Investment Adviser Guide (Volume I), October 28, 2021, at p. 12 (“It is the firm’s responsibility to ensure that all individuals are properly licensed.”)

[9]
NASAA’s FAQs can be found at: https://www.nasaa.org/industry-resources/investment-advisers/resources/iar-ce-faq/