37 TAC §151.75
The Texas Board of Criminal Justice proposes new §151.75,
concerning Standards of Conduct for Financial Advisors.
The purpose of the new rule concerns the standards of conduct and disclosure
requirements applicable to financial advisors or service providers who provide
financial services or advise the Texas Department of Criminal Justice in connection
with the management or investment of state funds. This new rule is proposed
pursuant Chapter 2263, Texas Government Code, as enacted by Senate Bill 1059,
78th Legislature, Regular Session, 2003. Senate Bill 1059, 78th Legislature,
Regular Session, adopts Government Code, new Chapter 2263, regarding ethics
and disclosure requirements for outside financial advisors and service providers.
New Government Code, §2263.004, requires the governing body of a state
governmental entity by rule to adopt standards of conduct applicable to financial
advisors or service providers who provide financial services to the state
governmental body or advise the state governmental body in connection with
the management or investment of state funds. These provisions of Senate Bill
1059 were effective September 1, 2003.
Proposed new §151.75(a) outlines the definitions applicable to this
section. Proposed new §151.75(b) addresses the applicability of the section
to financial advisors or service providers who render important investment
or funds management advice to the comptroller with respect to state funds.
Proposed new §151.75(c) outlines disclosure requirements for financial
advisors or service providers, including a requirement to file an annual statement
with TDCJ and the state auditor. Proposed new §151.75(d) outlines standards
of conduct for financial advisors or service providers, which are in addition
to any standards required by any contracts or service agreements. Finally,
proposed new §151.75(e) provides that a contract is voidable by TDCJ
if a financial advisor or service provider violates a standard of conduct
outlined in this section.
Brad Livingston, Chief Financial Officer for TDCJ, has determined that
for the first five years the new rule will be in effect, enforcing or administering
the rule does not have foreseeable implications related to costs or revenues
for state or local government. Mr. Livingston has also determined that there
will be no economic impact on persons required to comply with the new rule.
There will be no effect on small and micro-businesses.
The anticipated public benefit as a result of enforcing the new rule will
be to provide additional information to affected entities regarding new legislative
requirements with respect to standards of conduct and required disclosures
applicable to financial advisors or service providers who provide financial
services to TDCJ or advise TDCJ in connection with the management or investment
of state funds.
Comments should be directed to Carl Reynolds, General Counsel, Texas Department
of Criminal Justice, P.O. Box 13084, Austin, Texas 78711, Carl.Reynolds@tdcj.state.tx.us.
Written comments from the general public should be received within 30 days
of the publication of this proposal.
The new rule is proposed under Texas Government Code, §2263.004.
Cross Reference to Statutes: Texas Government Code §2263.004.
§151.75.Standards of Conduct for Financial Advisors.
(a)
Definitions. The following words and terms, when used in
this section shall have the following meanings, unless the context clearly
indicates otherwise.
(1)
TDCJ--The Texas Department of Criminal Justice, and any
division or entity within TDCJ or managed by TDCJ.
(2)
Financial advisor or service provider--Includes a person
or business entity who acts as a financial advisor, financial consultant,
money manager, investment manager, or broker.
(b)
Applicability.
(1)
This section applies in connection with the management
or investment of any state funds managed or invested by TDCJ under the Texas
Constitution or other law, including Government Code, Chapters 404 and 2256,
without regard to whether the funds are held in the state treasury.
(2)
This section applies to financial advisors or service providers
who are not employees of TDCJ, who provide financial services to or advise
TDCJ in connection with the management or investment of state funds, and who:
(A)
may reasonably be expected to receive, directly or indirectly,
more than $10,000 in compensation from TDCJ during a fiscal year; or
(B)
render important investment or funds management advice
to TDCJ.
(3)
The standards adopted in this section are intended to identify
professional and ethical standards by which all financial advisors or service
providers must abide in addition to the professional and ethical standards
that may already be imposed on financial advisors or service providers under
any contracts or service agreements with TDCJ.
(c)
Disclosure Requirements.
(1)
A financial advisor or service provider shall disclose
in writing to TDCJ and to the state auditor:
(A)
any relationship the financial advisor has with any party
to a transaction with TDCJ, other than a relationship necessary to the investment
or fund management services that the financial advisor performs for TDCJ,
if the relationship could reasonably be expected to diminish the financial
advisor's independence of judgment in the performance of the person's responsibilities
to TDCJ; and
(B)
all direct or indirect pecuniary interests the financial
advisor has in any party to a transaction with TDCJ, if the transaction is
connected with any financial advice or service the financial advisor provides
to TDCJ in connection with the management or investment of state funds.
(2)
The financial advisor or service provider shall disclose
a relationship described by paragraph (1) of this subsection without regard
to whether the relationship is a direct, indirect, personal, private, commercial,
or business relationship.
(3)
A financial advisor or service provider shall file annually
a statement with TDCJ and with the state auditor. The statement must disclose
each relationship and pecuniary interest described by paragraph (1) of this
subsection or, if no relationship or pecuniary interest described by that
subsection existed during the disclosure period, the statement must affirmatively
state that fact.
(4)
The annual statement must be filed not later than April
15 on a form prescribed by TDCJ. The statement must cover the reporting period
of the previous calendar year.
(5)
The financial advisor or service provider shall promptly
file a new or amended statement with TDCJ and with the state auditor whenever
there is new information to report under paragraph (1) of this subsection.
(d)
Standards of Conduct.
(1)
Compliance.
(A)
These standards are intended to be in addition to, and
not in lieu of, a financial advisor's or service provider's obligations under
its contract or service agreement with TDCJ. In the event of a conflict between
a financial advisor's obligations under these standards and under its contract
or services agreement, the standard that imposes a stricter ethics or disclosure
requirement controls.
(B)
A financial advisor or service provider shall be knowledgeable
about these standards, keep current with revisions to these standards, and
abide by the provisions set forth in these standards.
(C)
In all professional activities a financial advisor or service
provider shall perform services in accordance with applicable laws, rules
and regulations of governmental agencies and other applicable authorities,
including TDCJ, and in accordance with any established policies of TDCJ.
(2)
Qualification Standards.
(A)
A financial advisor or service provider shall render opinions
or advice, or perform professional services only in those areas in which the
financial advisor has competence based on education, training or experience.
In areas where a financial advisor is not qualified, the financial advisor
shall seek the counsel of qualified individuals or refer TDCJ to such persons.
(B)
A financial advisor or service provider shall keep informed
of developments in the field of financial planning and investments and participate
in continuing education throughout the financial advisor's relationship with
TDCJ in order to improve professional competence in all areas in which the
financial advisor is engaged.
(3)
Integrity.
(A)
A financial advisor or service provider has an obligation
to observe standards of professional conduct in the course of providing advice,
recommendations and other services performed for TDCJ. A financial advisor
shall perform professional services with honesty, integrity, skill, and care.
In the course of professional activities, a financial advisor shall not engage
in conduct involving dishonesty, fraud, deceit or misrepresentation, or knowingly
make a false or misleading statement to a client, employer, employee, professional
colleague, governmental, or other regulatory body or official, or any other
person or entity.
(B)
A financial advisor or service provider's relationship
with a third party shall not be used to obtain illegal or improper treatment
from such third party on behalf of TDCJ.
(4)
Objectivity. A financial advisor or service provider will
maintain objectivity and be free of conflicts of interest in discharging its
responsibilities. A financial advisor will remain independent in fact and
appearance when providing financial planning and investment advisory services
to TDCJ.
(5)
Prudence. A financial advisor or service provider shall
exercise reasonable and prudent professional judgment in providing professional
services to TDCJ.
(6)
Competence. A financial advisor or service provider shall
strive to continually improve its competence and the quality of services,
and discharge its responsibilities to the best of its ability.
(7)
Conflicts of Interest.
(A)
If a financial advisor or service provider is aware of
any significant conflict between the interests of TDCJ and the interests of
another person, the financial advisor shall advise TDCJ of the conflict and
shall also include appropriate qualifications or disclosures in any related
communication.
(B)
A financial advisor or service provider shall not perform
professional services involving an actual or potential conflict of interest
with TDCJ unless the financial advisor's ability to act fairly is unimpaired,
there has been full disclosure of the conflict to TDCJ, and TDCJ has expressly
agreed in writing to the performance of the services by the financial advisor.
(8)
Confidentiality.
(A)
A financial advisor or service provider shall not disclose
to another person any confidential information obtained from TDCJ or regarding
TDCJ's investments unless authorized to do so by TDCJ in writing or required
to do so by law.
(B)
For the purposes of this subsection, "confidential information"
refers to information not in the public domain of which the financial advisor
or service provider becomes aware during the course of rendering professional
services to TDCJ. It may include information of a proprietary nature, information
that is excepted from disclosure under the Public Information Act, Government
Code, Chapter 552, or information restricted from disclosure under any contract
or service agreement with TDCJ.
(e)
Contract Voidable. A contract under which a financial advisor
or service provider renders financial services or advice to TDCJ is voidable
by TDCJ if the financial advisor violates a standard of conduct outlined in
this section.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on January 16, 2004.
TRD-200400385
Carl Reynolds
General Counsel
Texas Department of Criminal Justice
Earliest possible date of adoption: March 7, 2004
For further information, please call: (512) 463-0422