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116th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 116-123
======================================================================
SEC DISCLOSURE EFFECTIVENESS TESTING ACT
_______
June 20, 2019.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Ms. Maxine Waters of California, from the Committee on Financial
Services, submitted the following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 1815]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 1815) to require the Securities and Exchange
Commission, when developing rules and regulations about
disclosures to retail investors, to conduct investor testing,
including a survey and interviews of retail investors, and for
other purposes, having considered the same, report favorably
thereon with an amendment and recommend that the bill as
amended do pass.
CONTENTS
Page
Purpose and Summary.............................................. 3
Background and Need for Legislation.............................. 3
Section-by-Section Analysis...................................... 5
Hearings......................................................... 5
Committee Consideration.......................................... 5
Committee Votes.................................................. 6
Statement of Oversight Findings and Recommendations of the
Committee...................................................... 8
Statement of Performance Goals and Objectives.................... 8
New Budget Authority and CBO Cost Estimate....................... 8
Committee Cost Estimate.......................................... 8
Unfunded Mandate Statement....................................... 11
Advisory Committee............................................... 11
Application of Law to the Legislative Branch.....................
Earmark Statement................................................ 11
Duplication of Federal Programs.................................. 11
Changes to Existing Law.......................................... 11
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``SEC Disclosure Effectiveness Testing
Act''.
SEC. 2. DISCLOSURE TESTING.
(a) In General.--Section 23(a) of the Securities Exchange Act of 1934
(15 U.S.C. 78w(a)) is amended by adding at the end the following:
``(4) Investor Testing.--
``(A) In general.--The Commission shall engage in investor
testing prior to issuing any rule or regulation which
designates documents or information to be disclosed under the
securities laws, if such documents or information--
``(i) are primarily used by retail investors, as
determined by the Commission; and
``(ii) are intended to be used by retail investors to
make informed investment decisions or to understand the
investments held by the retail investor.
``(B) Contents.--Investor testing conducted pursuant to
subparagraph (A) shall include the following:
``(i) Qualitative testing in the form of one-on-one
cognitive interviews of retail investors about
documents or information, or samples of such documents
or information, to be provided.
``(ii) A nationwide survey of retail investors,
designed to complement the interviews under clause (i),
on--
``(I) the usefulness of such documents or
information, or samples of such documents or
information;
``(II) the proposed format of such documents
or information, or samples of such documents or
information; and
``(III) delivery preferences of such
documents or information, or samples of such
documents or information.
``(iii) Analysis and publication in the Federal
Register of the results of the survey and interviews.
``(iv) An opportunity for the public to comment on
such results published in the Federal Register.
``(C) Substantive changes.--If the Commission, in the period
between engaging in investor testing and publishing a final
rule, makes substantive changes to such rule that the
Commission determines would have a significant impact on retail
investors, the Commission shall again engage in investor
testing.
``(D) Public availability of retail testing results.--The
Commission shall make the data and results of any investor
testing performed pursuant to this paragraph available to the
public.''.
(b) Participation of Investor Advocate.--Section 4(g) of the
Securities Exchange Act of 1934 (15 U.S.C. 78d(g)) is amended--
(1) in paragraph (4)--
(A) in subparagraph (D)(ii), by striking ``and'' at
the end;
(B) by redesignating subparagraph (E) as subparagraph
(F); and
(C) by inserting after subparagraph (D) the
following:
``(E) engage in investor testing--
``(i) as necessary to carry out the functions
of the Office; and
``(ii) under section 23(a)(4), if the
Commission determines it appropriate; and'';
and
(2) by adding at the end the following:
``(9) Publication of data and results of investor testing.--
With respect to any investor testing carried out by the
Investor Advocate pursuant to paragraph (4)(E), the Investor
Advocate may make the data and results of such investor testing
available to the public, and without further review or editing
by the Commission.''.
(c) Prior Rules.--
(1) In general.--For any final rule or regulation issued by
the Securities and Exchange Commission (in this subsection
referred to as the ``Commission'') before the date of the
enactment of this Act that would be subject to investor testing
under section 23(a)(4) of the Securities Exchange Act of 1934,
had such rule been issued on or after the date of enactment of
this Act, the Commission shall perform investor testing with
respect to such rule or regulation that includes the contents
described in such section 23(a)(4).
(2) Schedule.--The Commission shall, not later than 6 months
after the date of the enactment of this Act, establish a
schedule for completing any investor testing required under
paragraph (1) that prioritizes testing of any final rules and
regulations that designate documents or information central to
retail investor decision making.
(3) Report.--The Commission shall issue a report to Congress
each year containing the following:
(A) The status of any investor testing required under
paragraph (1).
(B) The results of any investor testing completed
under paragraph (1).
(C) Any priorities the Commission has, based on
results of investor testing required by paragraph (1),
for--
(i) revising or eliminating any final rule or
regulation designating documents or information
to be provided to retail investors; and
(ii) revising any other final rule or
regulation to supplement revised or eliminated
rules designating documents or information to
be provided to retail investors.
Purpose and Summary
H.R. 1815, the SEC Disclosure Effectiveness Testing Act,
would build on efforts by the Securities and Exchange
Commission (SEC) to engage in investor testing by requiring the
SEC to conduct usability testing of new disclosures that are
primarily used by retail investors and are intended to help
them make investment decisions or understand their investments.
It would also require the SEC to review and test the usability
of its existing disclosures for retail investors, such as
mutual fund disclosures. Such reviews and tests would be
required prior to the SEC adopting a final rulemaking. The bill
would also provide the SEC's Investor Advocate with the
authority to conduct investor testing and allow such testing to
meet the requirements of the bill. The Investor Advocate would
be able to make the testing results and data public.
Background and Need for Legislaton
On April 18, 2018 the SEC proposed a three-part regulatory
package, consisting of: (1) a ``best interest'' standard of
conduct for brokers pursuant to Section 913(f) of Dodd-Frank
(``Regulation Best Interest'' or ``Reg BI''); (2) guidance on
the fiduciary standard of conduct for investment advisers; and,
(3) a relationship disclosure document for brokers and
investment advisers (``Form CRS'').\1\ Form CRS is a 5-page
document designed to inform retail investors about the
relationships and services the brokerage firm or investment
adviser offers, the standard of conduct and costs associated
with those services, specific conflicts of interest, and
whether the firm and its financial professionals have
reportable legal or disciplinary events. The SEC then engaged
in investor testing of proposed Form CRS, which consisted of a
nationwide online survey of 1,800 individuals and 31
qualitative in-depth interviews in Denver and Pittsburgh.
---------------------------------------------------------------------------
\1\SEC, Form CRS Relationship Summary; Amendments to Form ADV;
Required Disclosures in Retail Communications and Restrictions on the
use of Certain Names or Titles, 83 Fed. Reg. 21416 (Apr. 18, 2018) (to
be codified at 17 C.F.R. pt. 240, available at: https://
www.federalregister.gov/documents/2018/05/09/2018-08583/form-crs-
relationship-summary-amendments-to-form-adv-required-disclosures-in-
retail-communications; SEC, Proposed Commission Interpretation
Regarding Standard of Conduct for Investment Advisers; Request for
Comment on Enhancing Investment Adviser Regulation, 83 Fed. Reg. 21203)
(Apr. 18, 2018) (to be codified at 17 C.F.R. pt. 275), available at:
https://www.federalregister.gov/documents/2018/05/09/2018-08679/
proposed-commission-interpretation-regarding-standard-of-conduct-for-
investment-advisers-request-for; SEC, Regulation Best Interest, 83 Fed.
Reg. 21574 (Apr. 18, 2018 (to be codified at 17 C.F.R. pt. 240),
available at: https://www.federalregister.gov/documents/2018/05/09/
2018-08582/regulation-best-interest.
---------------------------------------------------------------------------
On November 7, 2018, the SEC's Investor Advocate issued a
report on the testing conducted by the RAND Corporation.\2\
According to the report, ``[n]early 90 percent of survey
respondents opined that the [Form CRS] would help them make
more informed decisions about investment accounts and
services.''\3\ However, ``interview discussions revealed that
there were areas of confusion for participants, including
differences between types of accounts or financial
professionals.''\4\
---------------------------------------------------------------------------
\2\RAND Relationship Summary, supra note 11.
\3\RAND Relationship Summary, supra note 11, at 36.
\4\RAND Relationship Summary, supra note 11, at 42.
---------------------------------------------------------------------------
Also, on November 7, 2018, the SEC's Investor Advisory
Committee (IAC) issued recommendations on the SEC proposed Reg
BI, advisor guidance, and Form CRS. Among other things, the IAC
recommended that the SEC conduct usability testing of the
disclosures in Form CRS ``and, if necessary, revise them to
ensure that they enable investors to make an informed choice
among different types of providers and accounts.''\5\ The IAC
also noted that the extensive feedback it had received and the
comment letters to the SEC suggested that ``Form CRS, as
currently proposed, is unlikely to achieve its intended purpose
of reducing investor confusion and supporting informed
decisions.''\6\
---------------------------------------------------------------------------
\5\Sec. & Exch. Comm'n, Recommendation of the Investor as Purchaser
Subcommittee Regarding Proposed Regulation Best Interest, Form CRS, and
Investment Advisers Act Fiduciary Guidance, available at: https://
www.sec.gov/spotlight/investor-advisory-committee-2012/iac110718-
investor-as-purchaser-subcommittee-recommendation.pdf [hereinafter SEC
Recommendation].
\6\SEC Recommendation, supra note 20.
---------------------------------------------------------------------------
On September 12, 2018, AARP, the Financial Planning
Coalition, and Consumer Federation of America sent a letter to
SEC Chairman Clayton detailing the results of their own
independent usability testing.\7\ Their testing consisted of
90-minute, one-on-one interviews with 16 investors from three
geographically diverse locations. The key findings of the
testing were that: (1) ``The overall level of comprehension was
poor;'' (2) Participants did not understand key differences in
the nature of services provided;'' (3) ``Most participants did
not understand disclosures regarding legal obligations;'' (4)
``Participants were deeply confused by the disclosure of fees
and costs;'' and, (5) ``Participants understood the existence,
but not the import, of conflicts of interest.''
---------------------------------------------------------------------------
\7\Letter from the AARP et al., to the SEC, Sept. 12, 2018,
available at: https://consumerfed.org/wp-content/uploads/2018/09/
letter-to-sec-from-aarp-cfa-fpc-regarding-crs-testing.pdf.
---------------------------------------------------------------------------
The SEC Disclosure Effectiveness Testing Act would build on
efforts to engage in investor testing by requiring the SEC to
conduct usability testing of any new disclosure if they are
primarily used by retail investors or intended to be used by
retail investors to make informed investment decisions or
understand their investments. It would also require the SEC to
review and test the usability of its existing disclosures for
retail investors, such as mutual fund disclosures. Such reviews
and tests would be required prior to the SEC adopting a final
rulemaking.
During a March 14, 2019 hearing before the Subcommittee on
Investor Protection, Entrepreneurship, and Capital Markets,
witnesses from the Certified Financial Planning Board of
Standards (CFP Board) and CFA expressed strong support for the
SEC Disclosure Effectiveness Testing Act. Former SEC Chairman
Harvey Pitt testified that the SEC had already conducted
investor testing, making the bill ``superfluous'' and ``would
likely be used by those with different objectives to hamstring
almost any rulemaking effort involving investor disclosures
that the Commission may consider.'' Mr. Lee Baker, President of
AARP Georgia, testified that the SEC's test results suggest
that ``there's more work to be done.''
Section-by-Section Analysis
Section 1. Short title
This section states that the title of the bill is the SEC
Disclosure Effectiveness Testing Act.
Section 2. Disclosure testing
Subsection (a) requires the SEC to engage in investor
testing prior to making any rule or regulation which designates
documents or information to be disclosed if they are primarily
used by retail investors or intended to be used by retail
investors to make informed investment decisions or understand
their investments. Such testing must include: qualitative
testing in the form of one-on-one cognitive interviews of
retail investors about documents or information, or samples of
such documents or information, to be provided; a nationwide
survey of retail investors, designed to complement the
interviews; analysis and publication in the Federal Register of
the results of the survey and interviews; and an opportunity
for the public to comment on such results published in the
Federal Register. Subsection (a) also requires the SEC to
retest any substantive changes that would have a significant
impact on investors.
Subsection (b) provides the SEC's Investor Advocate with
the authority to conduct investor testing and allows such
testing to meet the requirements of the bill. The Investor
Advocate would be able to make the testing results and data
public.
Subsection (c) requires the SEC to perform investor testing
of existing rules and regulations as of the date of this Act
which designates documents or information to be provided to a
retail investor. The SEC must establish a schedule for
completing this investor testing and report to Congress
annually on its progress.
Hearings
For the purposes of section 103(i) of H. Res. 6 for the
116th Congress, the Subcommittee on Investor Protection,
Entrepreneurship, and Capital Markets of the Committee on
Financial Services held a hearing to consider H.R. 1815
entitled ``Putting Investors First? Examining the SEC's Best
Interest Rule'' on Thursday, March 14, 2019. Testifying before
the Subcommittee was Susan MacMichael John, CFP President,
Financial Focus, Inc.; Dina Isola, Investment Advisor
Representative, Ritholtz Wealth Management; Barbara Roper,
Director of Investor Protection, Consumer Federation of
America; Lee Baker, President, AARP Georgia State; and the
Honorable Harvey L. Pitt, Chief Executive Officer, Kalorama
Partners.
Committee Consideration
The Committee on Financial Services met in open session on
March 26-28, 2019, and ordered H.R. 1815 to be reported
favorably to the House with an amendment in the nature of a
substitute by a vote of 33 yeas and 26 nays, a quorum being
present.
Committee Votes and Roll Call Votes
In compliance with clause 3(b) of Rule XIII of the Rules of
the House of Representatives, the Committee advises that the
following roll call votes occurred during the Committee's
consideration of H.R. 1815.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Statement of Oversight Findings and Recommendations of the Committee
In compliance with clause 3(c)(1) of rule XIII and clause
2(b)(1) of rule X of the Rules of the House of Representatives,
the Committee's oversight findings and recommendations are
reflected in the descriptive portions of this report.
Statement of Performance Goals and Objectives
Pursuant to clause (3)(c) of rule XIII of the Rules of the
House of Representatives, the goals of H.R. 1815 are to ensure
that the SEC implements usability testing of new disclosures
that are primarily used by retail investors.
New Budget Authority and CBO Cost Estimate
Pursuant to clause 3(c)(2) of rule XIII of the Rules of the
House of Representatives and section 308(a) of the
Congressional Budget Act of 1974, and pursuant to clause
3(c)(3) of rule XIII of the Rules of the House of
Representatives and section 402 of the Congressional Budget Act
of 1974, the Committee has received the following estimate for
H.R. 1815 from the Director of the Congressional Budget Office:
Committee Cost Estimate
Clause 3(d)(1) of rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison of the
costs that would be incurred in carrying out H.R. 1815.
However, clause 3(d)(2)(B) of that rule provides that this
requirement does not apply when the committee has included in
its report a timely submitted cost estimate of the bill
prepared by the Director of the Congressional Budget Office
under section 402 of the Congressional Budget Act.
U.S. Congress,
Congressional Budget Office,
Washington, DC, June 19, 2019.
Hon. Maxine Waters,
Chairwoman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Madam Chairwoman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 1815, the SEC
Disclosure Effectiveness Testing Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is David Hughes.
Sincerely,
Phillip L. Swagel,
Director.
Enclosure.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Bill summary: Financial professionals such as broker-
dealers and investment advisors are required by the Securities
and Exchange Commission (SEC) to disclose a variety of
documents and other information to retail investors.\1\
Disclosures are designed to educate retail investors about
financial choices, standards of care, fiduciary relationships,
and other aspects of investing.\2\ H.R. 1815 would require the
SEC to test the usability of any disclosure that it mandates
through a final rule to be provided to retail investors by
broker dealers or investment advisors. Those usability tests
would be required before the SEC adopts final rules governing
such disclosures. If proposed disclosures undergo substantive
changes before the final rule is promulgated, an additional
usability test would be required. Disclosures previously
mandated before of the bill's enactment also would require a
usability test.
---------------------------------------------------------------------------
\1\Retail investors are individuals without advanced investment
knowledge who buy and sell securities, exchange traded funds, or mutual
funds, frequently with the advice of broker-dealers and investment
advisors.
\2\For example, the SEC recently adopted a final rule mandating
that broker-dealers and investment advisors disclose their financial
services they offered, standards of conduct, fees and costs, conflicts
of interest, and disciplinary history to retail investors. Under the
rule, retail investors are entitled to a disclosure at the beginning of
the relationship and an additional disclosure following a material
change to the relationship. See Form CRS Relationship Summary;
Amendments to Form ADV, 17 C.F.R. Sec. 200, 240, 249, 275, and 279
(June 5, 2019).
---------------------------------------------------------------------------
Each usability test would include the following:
One-on-one interviews with retail investors
to assess their understanding of the disclosure in
question;
A nationwide survey of retail investors to
assess the usefulness of the disclosure;
An analysis of the interview and survey
results, which would be published in the Federal
Register; and
An opportunity for public comment on those
published results.
Estimated Federal cost: The estimated budgetary effect of
H.R. 1815 is shown in Table 1. The costs of the legislation
fall within budget function 370 (commerce and housing credit).
Basis of estimate: CBO estimates that implementing H.R.
1815 would have a gross cost to the SEC of $156 million over
the 2019-2024 period. However, the SEC is authorized to collect
fees each year to offset its annual appropriation. Assuming
appropriation actions consistent with that authority, CBO
expects that implementing H.R. 1815 would lead to a net
decrease in spending of $8 million because the collection of
fees would initially outpace spending on usability testing.
TABLE 1--ESTIMATED INCREASES IN SPENDING SUBJECT TO APPROPRIATION UNDER H.R. 1815
----------------------------------------------------------------------------------------------------------------
By fiscal year, millions of dollars--
------------------------------------------------------------------
2019 2020 2021 2022 2023 2024 2019-2024
----------------------------------------------------------------------------------------------------------------
Testing of Proposed Documents
Estimated Authorization.................. 0 27 28 29 30 31 145
Estimated Outlays........................ 0 20 28 29 30 31 138
Testing of Prior Documents
Estimated Authorization.................. 0 * 4 5 5 5 19
Estimated Outlays........................ 0 * 3 5 5 5 18
Additional Fee Collections
Estimated Authorization.................. 0 -27 -32 -34 -35 -36 -164
Estimated Outlays........................ 0 -27 -32 -34 -35 -36 -165
Total Changes
Estimated Authorization.............. 0 0 0 0 0 0 0
Estimated Outlays.................... 0 -7 -1 0 0 0 -8
----------------------------------------------------------------------------------------------------------------
*= between -$500,000 and $500,000.
Using information from the SEC on the quantity of proposed
rules that involve disclosures to retail investors, CBO
estimates that the agency would test the usability of an
average of 18 disclosures each year over the 2020-2024 period.
Each test would require the work of three employees, at a cost
of $250,000 per employee, and contractor support at a cost of
$600,000. CBO estimates that some retesting would be required
because of substantive changes to proposed disclosures before
final promulgation. In total, CBO estimates, the SEC would
conduct 95 investor tests over the next five years, at a gross
cost of $138 million, including the cost of publishing data and
results.
Under H.R. 1815, the SEC would establish a schedule in 2020
to test disclosures mandated by final rules in place before the
bill's enactment. Testing on those disclosures would probably
begin in 2021. CBO estimates that three such disclosures would
be tested each year from 2021 to 2024, at a gross cost of $18
million over the 2020-2024 period.
Pay-As-You Go considerations: None.
Increase in Long-Term deficits: None.
Mandates: If the SEC increased fees to offset the costs of
implementation, H.R. 1815 would raise the cost of an existing
mandate on private entities required to pay those assessments.
CBO estimates that, on average, the annual incremental cost of
the mandate would be less than $35 million--well below the
annual threshold established in the Unfunded Mandates Reform
Act for private-sector mandates ($164 million in 2019, adjusted
annually for inflation).
Estimate prepared by: Federal costs: David Hughes;
Mandates: Rachel Austin.
Estimate reviewed by: Kim Cawley, Chief, Natural and
Physical Resources Cost Estimates Unit; Susan Willie, Chief,
Mandates Unit; H. Samuel Papenfuss, Deputy Assistant Director
for Budget Analysis; Theresa Gullo, Assistant Director for
Budget Analysis.
Unfunded Mandate Statement
Pursuant to Section 423 of the Congressional Budget and
Impoundment Control Act (as amended by Section 101(a)(2) of the
Unfunded Mandates Reform Act, Pub. L. 104-4), the Committee
adopts as its own the estimate of federal mandates regarding
H.R. 1815, as amended, prepared by the Director of the
Congressional Budget Office.
Advisory Committee
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Application of Law to the Legislative Branch
Pursuant to section 102(b)(3) of the Congressional
Accountability Act, Pub. L. No. 104-1, H.R. 1815, as amended,
does not apply to terms and conditions of employment or to
access to public services or accommodations within the
legislative branch.
Earmark Statement
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 1815 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as described in clauses 9(e), 9(f), and 9(g) of rule
XXI.
Duplication of Federal Programs
Pursuant to clause 3(c)(5) of rule XIII of the Rules of the
House of Representatives, the Committee states that no
provision of H.R.1815 establishes or reauthorizes a program of
the Federal Government known to be duplicative of another
federal program, a program that was included in any report from
the Government Accountability Office to Congress pursuant to
section 21 of Public Law 111-139, or a program related to a
program identified in the most recent Catalog of Federal
Domestic Assistance.
Changes to Existing Law
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, H.R. 1815, as reported, are shown as follows:
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, and existing law in which no
change is proposed is shown in roman):
SECURITIES EXCHANGE ACT OF 1934
TITLE I--REGULATION OF SECURITIES EXCHANGES
* * * * * * *
securities and exchange commission
Sec. 4. (a) There is hereby established a Securities and
Exchange Commission (hereinafter referred to as the
``Commission'') to be composed of five commissioners to be
appointed by the President by and with the advice and consent
of the Senate. Not more than three of such commissioners shall
be members of the same political party, and in making
appointments members of different political parties shall be
appointed alternately as nearly as may be practicable. No
commissioner shall engage in any other business, vocation, or
employment than that of serving as commissioner, nor shall any
commissioner participate, directly or indirectly, in any stock-
market operations or transactions of a character subject to
regulation by the Commission pursuant to this title. Each
commissioner shall hold office for a term of five years and
until his successor is appointed and has qualified, except that
he shall not so continue to serve beyond the expiration of the
next session of Congress subsequent to the expiration of said
fixed term of office, and except (1) any commissioner appointed
to fill a vacancy occurring prior to the expiration of the term
for which his predecessor was appointed shall be appointed for
the remainder of such term, and (2) the terms of office of the
commissioners first taking office after the enactment of this
title shall expire as designated by the President at the time
of nomination, one at the end of one year, one at the end of
two years, one at the end of three years, one at the end of
four years, and one at the end of five years, after the date of
the enactment of this title.
(b) Appointment and Compensation of Staff and Leasing
Authority.--
(1) Appointment and compensation.--The Commission
shall appoint and compensate officers, attorneys,
economists, examiners, and other employees in
accordance with section 4802 of title 5, United States
Code.
(2) Reporting of information.--In establishing and
adjusting schedules of compensation and benefits for
officers, attorneys, economists, examiners, and other
employees of the Commission under applicable provisions
of law, the Commission shall inform the heads of the
agencies referred to under section 1206 of the
Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (12 U.S.C. 1833b) and Congress
of such compensation and benefits and shall seek to
maintain comparability with such agencies regarding
compensation and benefits.
(3) Leasing authority.--Nothwithstanding any other
provision of law, the Commission is authorized to enter
directly into leases for real property for office,
meeting, storage, and such other space as is necessary
to carry out its functions, and shall be exempt from
any General Services Administration space management
regulations or directives.
(c) Notwithstanding any other provision of law, in accordance
with regulations which the Commission shall prescribe to
prevent conflicts of interest, the Commission may accept
payment and reimbursement, in cash or in kind, from non-Federal
agencies, organizations, and individuals for travel,
subsistence, and other necessary expenses incurred by
Commission members and employees in attending meetings and
conferences concerning the functions or activities of the
Commission. Any payment or reimbursement accepted shall be
credited to the appropriated funds of the Commission. The
amount of travel, subsistence, and other necessary expenses for
members and employees paid or reimbursed under this subsection
may exceed per diem amounts established in official travel
regulations, but the Commission may include in its regulations
under this subsection a limitation on such amounts.
(d) Notwithstanding any other provision of law, former
employers of participants in the Commission's professional
fellows programs may pay such participants their actual
expenses for relocation to Washington, District of Columbia, to
facilitate their participation in such programs, and program
participants may accept such payments.
(e) Notwithstanding any other provision of law, whenever any
fee is required to be paid to the Commission pursuant to any
provision of the securities laws or any other law, the
Commission may provide by rule that such fee shall be paid in a
manner other than in cash and the Commission may also specify
the time that such fee shall be determined and paid relative to
the filing of any statement or document with the Commission.
(f) Reimbursement of Expenses for Assisting Foreign
Securities Authorities.--Notwithstanding any other provision of
law, the Commission may accept payment and reimbursement, in
cash or in kind, from a foreign securities authority, or made
on behalf of such authority, for necessary expenses incurred by
the Commission, its members, and employees in carrying out any
investigation pursuant to section 21(a)(2) of this title or in
providing any other assistance to a foreign securities
authority. Any payment or reimbursement accepted shall be
considered a reimbursement to the appropriated funds of the
Commission.
(g) Office of the Investor Advocate.--
(1) Office established.--There is established within
the Commission the Office of the Investor Advocate (in
this subsection referred to as the ``Office'').
(2) Investor advocate.--
(A) In general.--The head of the Office shall
be the Investor Advocate, who shall--
(i) report directly to the Chairman;
and
(ii) be appointed by the Chairman, in
consultation with the Commission, from
among individuals having experience in
advocating for the interests of
investors in securities and investor
protection issues, from the perspective
of investors.
(B) Compensation.--The annual rate of pay for
the Investor Advocate shall be equal to the
highest rate of annual pay for other senior
executives who report to the Chairman of the
Commission.
(C) Limitation on service.--An individual who
serves as the Investor Advocate may not be
employed by the Commission--
(i) during the 2-year period ending
on the date of appointment as Investor
Advocate; or
(ii) during the 5-year period
beginning on the date on which the
person ceases to serve as the Investor
Advocate.
(3) Staff of office.--The Investor Advocate, after
consultation with the Chairman of the Commission, may
retain or employ independent counsel, research staff,
and service staff, as the Investor Advocate deems
necessary to carry out the functions, powers, and
duties of the Office.
(4) Functions of the investor advocate.--The Investor
Advocate shall--
(A) assist retail investors in resolving
significant problems such investors may have
with the Commission or with self-regulatory
organizations;
(B) identify areas in which investors would
benefit from changes in the regulations of the
Commission or the rules of self-regulatory
organizations;
(C) identify problems that investors have
with financial service providers and investment
products;
(D) analyze the potential impact on investors
of--
(i) proposed regulations of the
Commission; and
(ii) proposed rules of self-
regulatory organizations registered
under this title; [and]
(E) engage in investor testing--
(i) as necessary to carry out the
functions of the Office; and
(ii) under section 23(a)(4), if the
Commission determines it appropriate;
and
[(E)] (F) to the extent practicable, propose
to the Commission changes in the regulations or
orders of the Commission and to Congress any
legislative, administrative, or personnel
changes that may be appropriate to mitigate
problems identified under this paragraph and to
promote the interests of investors.
(5) Access to documents.--The Commission shall ensure
that the Investor Advocate has full access to the
documents of the Commission and any self-regulatory
organization, as necessary to carry out the functions
of the Office.
(6) Annual reports.--
(A) Report on objectives.--
(i) In general.--Not later than June
30 of each year after 2010, the
Investor Advocate shall submit to the
Committee on Banking, Housing, and
Urban Affairs of the Senate and the
Committee on Financial Services of the
House of Representatives a report on
the objectives of the Investor Advocate
for the following fiscal year.
(ii) Contents.--Each report required
under clause (i) shall contain full and
substantive analysis and explanation.
(B) Report on activities.--
(i) In general.--Not later than
December 31 of each year after 2010,
the Investor Advocate shall submit to
the Committee on Banking, Housing, and
Urban Affairs of the Senate and the
Committee on Financial Services of the
House of Representatives a report on
the activities of the Investor Advocate
during the immediately preceding fiscal
year.
(ii) Contents.--Each report required
under clause (i) shall include--
(I) appropriate statistical
information and full and
substantive analysis;
(II) information on steps
that the Investor Advocate has
taken during the reporting
period to improve investor
services and the responsiveness
of the Commission and self-
regulatory organizations to
investor concerns;
(III) a summary of the most
serious problems encountered by
investors during the reporting
period;
(IV) an inventory of the
items described in subclause
(III) that includes--
(aa) identification
of any action taken by
the Commission or the
self-regulatory
organization and the
result of such action;
(bb) the length of
time that each item has
remained on such
inventory; and
(cc) for items on
which no action has
been taken, the reasons
for inaction, and an
identification of any
official who is
responsible for such
action;
(V) recommendations for such
administrative and legislative
actions as may be appropriate
to resolve problems encountered
by investors; and
(VI) any other information,
as determined appropriate by
the Investor Advocate.
(iii) Independence.--Each report
required under this paragraph shall be
provided directly to the Committees
listed in clause (i) without any prior
review or comment from the Commission,
any commissioner, any other officer or
employee of the Commission, or the
Office of Management and Budget.
(iv) Confidentiality.--No report
required under clause (i) may contain
confidential information.
(7) Regulations.--The Commission shall, by
regulation, establish procedures requiring a formal
response to all recommendations submitted to the
Commission by the Investor Advocate, not later than 3
months after the date of such submission.
(8) Ombudsman.--
(A) Appointment.--Not later than 180 days
after the date on which the first Investor
Advocate is appointed under paragraph
(2)(A)(i), the Investor Advocate shall appoint
an Ombudsman, who shall report directly to the
Investor Advocate.
(B) Duties.--The Ombudsman appointed under
subparagraph (A) shall--
(i) act as a liaison between the
Commission and any retail investor in
resolving problems that retail
investors may have with the Commission
or with self-regulatory organizations;
(ii) review and make recommendations
regarding policies and procedures to
encourage persons to present questions
to the Investor Advocate regarding
compliance with the securities laws;
and
(iii) establish safeguards to
maintain the confidentiality of
communications between the persons
described in clause (ii) and the
Ombudsman.
(C) Limitation.--In carrying out the duties
of the Ombudsman under subparagraph (B), the
Ombudsman shall utilize personnel of the
Commission to the extent practicable. Nothing
in this paragraph shall be construed as
replacing, altering, or diminishing the
activities of any ombudsman or similar office
of any other agency.
(D) Report.--The Ombudsman shall submit a
semiannual report to the Investor Advocate that
describes the activities and evaluates the
effectiveness of the Ombudsman during the
preceding year. The Investor Advocate shall
include the reports required under this section
in the reports required to be submitted by the
Inspector Advocate under paragraph (6).
(9) Publication of data and results of investor
testing.--With respect to any investor testing carried
out by the Investor Advocate pursuant to paragraph
(4)(E), the Investor Advocate may make the data and
results of such investor testing available to the
public, and without further review or editing by the
Commission.
(h) Examiners.--
(1) Division of trading and markets.--The Division of
Trading and Markets of the Commission, or any successor
organizational unit, shall have a staff of examiners
who shall--
(A) perform compliance inspections and
examinations of entities under the jurisdiction
of that Division; and
(B) report to the Director of that Division.
(2) Division of investment management.--The Division
of Investment Management of the Commission, or any
successor organizational unit, shall have a staff of
examiners who shall--
(A) perform compliance inspections and
examinations of entities under the jurisdiction
of that Division; and
(B) report to the Director of that Division.
(i) Securities and Exchange Commission Reserve Fund.--
(1) Reserve fund established.--There is established
in the Treasury of the United States a separate fund,
to be known as the ``Securities and Exchange Commission
Reserve Fund'' (referred to in this subsection as the
``Reserve Fund'').
(2) Reserve fund amounts.--
(A) In general.--Except as provided in
subparagraph (B), any registration fees
collected by the Commission under section 6(b)
of the Securities Act of 1933 (15 U.S.C.
77f(b)) or section 24(f) of the Investment
Company Act of 1940 (15 U.S.C. 80a-24(f)) shall
be deposited into the Reserve Fund.
(B) Limitations.--For any 1 fiscal year--
(i) the amount deposited in the Fund
may not exceed $50,000,000; and
(ii) the balance in the Fund may not
exceed $100,000,000.
(C) Excess fees.--Any amounts in excess of
the limitations described in subparagraph (B)
that the Commission collects from registration
fees under section 6(b) of the Securities Act
of 1933 (15 U.S.C. 77f(b)) or section 24(f) of
the Investment Company Act of 1940 (15 U.S.C.
80a-24(f)) shall be deposited in the General
Fund of the Treasury of the United States and
shall not be available for obligation by the
Commission.
(3) Use of amounts in reserve fund.--The Commission
may obligate amounts in the Reserve Fund, not to exceed
a total of $100,000,000 in any 1 fiscal year, as the
Commission determines is necessary to carry out the
functions of the Commission. Any amounts in the reserve
fund shall remain available until expended. Not later
than 10 days after the date on which the Commission
obligates amounts under this paragraph, the Commission
shall notify Congress of the date, amount, and purpose
of the obligation.
(4) Rule of construction.--Amounts collected and
deposited in the Reserve Fund shall not be construed to
be Government funds or appropriated monies and shall
not be subject to apportionment for the purpose of
chapter 15 of title 31, United States Code, or under
any other authority.
(j) Office of the Advocate for Small Business Capital
Formation.--
(1) Office established.--There is established within
the Commission the Office of the Advocate for Small
Business Capital Formation (hereafter in this
subsection referred to as the ``Office'').
(2) Advocate for small business capital formation.--
(A) In general.--The head of the Office shall
be the Advocate for Small Business Capital
Formation, who shall--
(i) report directly to the
Commission; and
(ii) be appointed by the Commission,
from among individuals having
experience in advocating for the
interests of small businesses and
encouraging small business capital
formation.
(B) Compensation.--The annual rate of pay for
the Advocate for Small Business Capital
Formation shall be equal to the highest rate of
annual pay for other senior executives who
report directly to the Commission.
(C) No current employee of the commission.--
An individual may not be appointed as the
Advocate for Small Business Capital Formation
if the individual is currently employed by the
Commission.
(3) Staff of office.--The Advocate for Small Business
Capital Formation, after consultation with the
Commission, may retain or employ independent counsel,
research staff, and service staff, as the Advocate for
Small Business Capital Formation determines to be
necessary to carry out the functions of the Office.
(4) Functions of the advocate for small business
capital formation.--The Advocate for Small Business
Capital Formation shall--
(A) assist small businesses and small
business investors in resolving significant
problems such businesses and investors may have
with the Commission or with self-regulatory
organizations;
(B) identify areas in which small businesses
and small business investors would benefit from
changes in the regulations of the Commission or
the rules of self-regulatory organizations;
(C) identify problems that small businesses
have with securing access to capital, including
any unique challenges to minority-owned small
businesses, women-owned small businesses, and
small businesses affected by hurricanes or
other natural disasters;
(D) analyze the potential impact on small
businesses and small business investors of--
(i) proposed regulations of the
Commission that are likely to have a
significant economic impact on small
businesses and small business capital
formation; and
(ii) proposed rules that are likely
to have a significant economic impact
on small businesses and small business
capital formation of self-regulatory
organizations registered under this
title;
(E) conduct outreach to small businesses and
small business investors, including through
regional roundtables, in order to solicit views
on relevant capital formation issues;
(F) to the extent practicable, propose to the
Commission changes in the regulations or orders
of the Commission and to Congress any
legislative, administrative, or personnel
changes that may be appropriate to mitigate
problems identified under this paragraph and to
promote the interests of small businesses and
small business investors;
(G) consult with the Investor Advocate on
proposed recommendations made under
subparagraph (F); and
(H) advise the Investor Advocate on issues
related to small businesses and small business
investors.
(5) Access to documents.--The Commission shall ensure
that the Advocate for Small Business Capital Formation
has full access to the documents and information of the
Commission and any self-regulatory organization, as
necessary to carry out the functions of the Office.
(6) Annual report on activities.--
(A) In general.--Not later than December 31
of each year after 2015, the Advocate for Small
Business Capital Formation shall submit to the
Committee on Banking, Housing, and Urban
Affairs of the Senate and the Committee on
Financial Services of the House of
Representatives a report on the activities of
the Advocate for Small Business Capital
Formation during the immediately preceding
fiscal year.
(B) Contents.--Each report required under
subparagraph (A) shall include--
(i) appropriate statistical
information and full and substantive
analysis;
(ii) information on steps that the
Advocate for Small Business Capital
Formation has taken during the
reporting period to improve small
business services and the
responsiveness of the Commission and
self-regulatory organizations to small
business and small business investor
concerns;
(iii) a summary of the most serious
issues encountered by small businesses
and small business investors, including
any unique issues encountered by
minority-owned small businesses, women-
owned small businesses, and small
businesses affected by hurricanes or
other natural disasters and their
investors, during the reporting period;
(iv) an inventory of the items
summarized under clause (iii)
(including items summarized under such
clause for any prior reporting period
on which no action has been taken or
that have not been resolved to the
satisfaction of the Advocate for Small
Business Capital Formation as of the
beginning of the reporting period
covered by the report) that includes--
(I) identification of any
action taken by the Commission
or the self-regulatory
organization and the result of
such action;
(II) the length of time that
each item has remained on such
inventory; and
(III) for items on which no
action has been taken, the
reasons for inaction, and an
identification of any official
who is responsible for such
action;
(v) recommendations for such changes
to the regulations, guidance and orders
of the Commission and such legislative
actions as may be appropriate to
resolve problems with the Commission
and self-regulatory organizations
encountered by small businesses and
small business investors and to
encourage small business capital
formation; and
(vi) any other information, as
determined appropriate by the Advocate
for Small Business Capital Formation.
(C) Confidentiality.--No report required by
subparagraph (A) may contain confidential
information.
(D) Independence.--Each report required under
subparagraph (A) shall be provided directly to
the committees of Congress listed in such
subparagraph without any prior review or
comment from the Commission, any commissioner,
any other officer or employee of the
Commission, or the Office of Management and
Budget.
(7) Regulations.--The Commission shall establish
procedures requiring a formal response to all
recommendations submitted to the Commission by the
Advocate for Small Business Capital Formation, not
later than 3 months after the date of such submission.
(8) Government-business forum on small business
capital formation.--The Advocate for Small Business
Capital Formation shall be responsible for planning,
organizing, and executing the annual Government-
Business Forum on Small Business Capital Formation
described in section 503 of the Small Business
Investment Incentive Act of 1980 (15 U.S.C. 80c-1).
(9) Rule of construction.--Nothing in this subsection
may be construed as replacing or reducing the
responsibilities of the Investor Advocate with respect
to small business investors.
* * * * * * *
rules, regulations, and orders; annual reports
Sec. 23. (a)(1) The Commission, the Board of Governors of the
Federal Reserve System, and the other agencies enumerated in
section 3(a)(34) of this title shall each have power to make
such rules and regulations as may be necessary or appropriate
to implement the provisions of this title for which they are
responsible or for the execution of the functions vested in
them by this title, and may for such purposes classify persons,
securities, transactions, statements, applications, reports,
and other matters within their respective jurisdictions, and
prescribe greater, lesser, or different requirements for
different classes thereof. No provision of this title imposing
any liability shall apply to any act done or omitted in good
faith in conformity with a rule, regulation, or order of the
Commission, the Board of Governors of the Federal Reserve
System, other agency enumerated in section 3(a)(34) of this
title, or any self-regulatory organization, notwithstanding
that such rule, regulation, or order may thereafter be amended
or rescinded or determined by judicial or other authority to be
invalid for any reason.
(2) The Commission and the Secretary of the Treasury, in
making rules and regulations pursuant to any provisions of this
title, shall consider among other matters the impact any such
rule or regulation would have on competition. The Commission
and the Secretary of the Treasury shall not adopt any such rule
or regulation which would impose a burden on competition not
necessary or appropriate in furtherance of the purposes of this
title. The Commission and the Secretary of the Treasury shall
include in the statement of basis and purpose incorporated in
any rule or regulation adopted under this title, the reasons
for the Commission's or the Secretary's determination that any
burden on competition imposed by such rule or regulation is
necessary or appropriate in furtherance of the purposes of this
title.
(3) The Commission and the Secretary, in making rules and
regulations pursuant to any provision of this title,
considering any application for registration in accordance with
section 19(a) of this title, or reviewing any proposed rule
change of a self-regulatory organization in accordance with
section 19(b) of this title, shall keep in a public file and
make available for copying all written statements filed with
the Commission and the Secretary and all written communications
between the Commission or the Secretary and any person relating
to the proposed rule, regulation, application, or proposed rule
change: Provided, however, That the Commission and the
Secretary shall not be required to keep in a public file or
make available for copying any such statement or communication
which it may withhold from the public in accordance with the
provisions of section 552 of title 5, United States Code.
(4) Investor testing.--
(A) In general.--The Commission shall engage in
investor testing prior to issuing any rule or
regulation which designates documents or information to
be disclosed under the securities laws, if such
documents or information--
(i) are primarily used by retail investors,
as determined by the Commission; and
(ii) are intended to be used by retail
investors to make informed investment decisions
or to understand the investments held by the
retail investor.
(B) Contents.--Investor testing conducted pursuant to
subparagraph (A) shall include the following:
(i) Qualitative testing in the form of one-
on-one cognitive interviews of retail investors
about documents or information, or samples of
such documents or information, to be provided.
(ii) A nationwide survey of retail investors,
designed to complement the interviews under
clause (i), on--
(I) the usefulness of such documents
or information, or samples of such
documents or information;
(II) the proposed format of such
documents or information, or samples of
such documents or information; and
(III) delivery preferences of such
documents or information, or samples of
such documents or information.
(iii) Analysis and publication in the Federal
Register of the results of the survey and
interviews.
(iv) An opportunity for the public to comment
on such results published in the Federal
Register.
(C) Substantive changes.--If the Commission, in the
period between engaging in investor testing and
publishing a final rule, makes substantive changes to
such rule that the Commission determines would have a
significant impact on retail investors, the Commission
shall again engage in investor testing.
(D) Public availability of retail testing results.--
The Commission shall make the data and results of any
investor testing performed pursuant to this paragraph
available to the public.
(b)(1) The Commission, the Board of Governors of the Federal
Reserve System, and the other agencies enumerated in section
3(a)(34) of this title shall each make an annual report to the
Congress on its work for the preceding year, and shall include
in each such report whatever information, data, and
recommendations for further legislation it considers advisable
with regard to matters within its respective jurisdiction under
this title.
(2) The appropriate regulatory agency for a self-regulatory
organization shall include in its annual report to the Congress
for each fiscal year, a summary of its oversight activities
under this title with respect to such self-regulatory
organization, including a description of any examination
conducted as part of such activities of any organization, any
material recommendation presented as part of such activities to
such organization for changes in its organization or rules, and
any such action by such organization in response to any such
recommendation.
(3) The appropriate regulatory agency for any class of
municipal securities dealers shall include in its annual report
to the Congress for each fiscal year a summary of its
regulatory activities pursuant to this title with respect to
such municipal securities dealers, including the nature of and
reason for any sanction imposed pursuant to this title against
any such municipal securities dealer.
(4) The Commission shall also include in its annual report to
the Congress for each fiscal year--
(A) a summary of the Commission's oversight
activities with respect to self-regulatory
organizations for which it is not the appropriate
regulatory agency, including a description of any
examination of any such organization, any material
recommendation presented to any such organization for
changes in its organization or rules, and any action by
any such organization in response to any such
recommendations;
(B) a statement and analysis of the expenses and
operations of each self-regulatory organization in
connection with the performance of its responsibilities
under this title, for which purpose data pertaining to
such expenses and operations shall be made available by
such organization to the Commission at its request;
(C) the steps the Commission has taken and the
progress it has made toward ending the physical
movement of the securities certificate in connection
with the settlement of securities transactions, and its
recommendations, if any, for legislation to eliminate
the securities certificate;
(D) the number of requests for exemptions from
provisions of this title received, the number granted,
and the basis upon which any such exemption was
granted;
(E) a summary of the Commission's regulatory
activities with respect to municipal securities dealers
for which it is not the appropriate regulatory agency,
including the nature of, and reason for, any sanction
imposed in proceedings against such municipal
securities dealers;
(F) a statement of the time elapsed between the
filing of reports pursuant to section 13(f) of this
title and the public availability of the information
contained therein, the costs involved in the
Commission's processing of such reports and tabulating
such information, the manner in which the Commission
uses such information, and the steps the Commission has
taken and the progress it has made toward requiring
such reports to be filed and such information to be
made available to the public in machine language;
(G) information concerning (i) the effects its rules
and regulations are having on the viability of small
brokers and dealers; (ii) its attempts to reduce any
unnecessary reporting burden on such brokers and
dealers; and (iii) its efforts to help to assure the
continued participation of small brokers and dealers in
the United States securities markets;
(H) a statement detailing its administration of the
Freedom of Information Act, section 552 of title 5,
United States Code, including a copy of the report
filed pursuant to subsection (d) of such section; and
(I) the steps that have been taken and the progress
that has been made in promoting the timely public
dissemination and availability for analytical purposes
(on a fair, reasonable, and nondiscriminatory basis) of
information concerning government securities
transactions and quotations, and its recommendations,
if any, for legislation to assure timely dissemination
of (i) information on transactions in regularly traded
government securities sufficient to permit the
determination of the prevailing market price for such
securities, and (ii) reports of the highest published
bids and lowest published offers for government
securities (including the size at which persons are
willing to trade with respect to such bids and offers).
(c) The Commission, by rule, shall prescribe the procedure
applicable to every case pursuant to this title of adjudication
(as defined in section 551 of title 5, United States Code) not
required to be determined on the record after notice and
opportunity for hearing. Such rules shall, as a minimum,
provide that prompt notice shall be given of any adverse action
or final disposition and that such notice and the entry of any
order shall be accompanied by a statement of written reasons.
(d) Cease-and-Desist Procedures.--Within 1 year after the
date of enactment of this subsection, the Commission shall
establish regulations providing for the expeditious conduct of
hearings and rendering of decisions under section 21C of this
title, section 8A of the Securities Act of 1933, section 9(f)
of the Investment Company Act of 1940, and section 203(k) of
the Investment Advisers Act of 1940.
* * * * * * *
MINORITY VIEWS
H.R. 1815, the SEC Disclosure Effectiveness Testing Act, is
a deliberate effort to delay the Securities and Exchange
Commission's (SEC) proposed rulemaking package that includes
Regulation Best Interest (``Reg BI'') and a new short-form
client relationship summary disclosure (``Form CRS''), despite
the SEC having already conducted investor testing on the
proposed Form CRS. Instead of explicitly targeting Reg BI and
Form CRS through narrowly tailored language, H.R. 1815 would
apply to all rules and regulations that ``designate documents
or information to be provided to a retail investor.'' In the
absence of a definition of ``documents or information'' for
retail investors, H.R. 1815 would apply to virtually any
investor disclosure, report, or form under the SEC's
jurisdiction. In a March 2019 letter written by former SEC
Chairman Harvey Pitt and former SEC Commissioners Paul Atkins
and Dan Gallagher, the signatories noted that ``all of the
SEC's corporate disclosure rules'' and many rules issued by
self-regulatory organizations (SROs) overseen by the SEC would
be subject to investor testing under this ``overly broad''
bill. As such, these former SEC officials warn that the bill
``underestimates the sheer number of rules'' relating to
disclosures for retail investors.
Moreover, H.R. 1815 includes a look-back provision
applicable to existing disclosure rules which requires the SEC
to conduct investor testing on similar disclosure rulemakings
finalized before enactment of the bill. Requiring investor
testing on all existing disclosure rulemakings ``would truly be
a monumental undertaking that would distract the SEC from its
core mission,'' as stated in the letter from the former SEC
commissioners and chairman.
Additionally, under H.R. 1815, if substantive changes are
made to a rule following investor testing, the SEC must then
perform additional investor testing on those changes. Such a
requirement is extremely problematic and unreasonable, as it
would entangle the SEC in a virtually infinite loop of changes
to proposed rulemakings followed by subsequent investor
testing. By creating a never-ending bureaucratic loop on such a
wide array of rulemakings, H.R. 1815 has the real possibility
of harming investors by preventing the SEC from finalizing
investor protection rulemakings as well as diverting the SEC's
resources from enforcement actions.
The investor testing required under H.R. 1815 would consist
of one-on-one cognitive interviews with retail investors about
the disclosures or information to be provided under the
rulemaking, a nationwide survey of retail investors on the
usefulness of such documents and the proposed format, and
analysis and publication of the results of the survey and
interviews. While establishing the exact methods to be employed
for the SEC's investor testing efforts may seem useful, it only
serves to underscore the uselessness of H.R. 1815, as the
investor testing the SEC already conducted for Form CRS
utilized the same processes and methods outlined in this bill.
Following the release of the proposed rulemaking package and in
connection with the SEC's efforts to help address investor
confusion about the nature of their relationships with
investment advisers and broker-dealers, in November of 2018 the
SEC published a report on investor testing conducted in
conjunction with the RAND Corporation. The investor testing
collected feedback on a sample Form CRS as would be used under
the proposed rulemaking package. The investor testing consisted
of a nationwide online survey of over 1,800 retail investors
and qualitative in-depth interviews of 31 retail investors in
Denver and Pittsburgh. Nearly 90% of survey respondents found
that the Relationship Summary would help them make more
informed decisions about investment accounts and services
according the report. Thankfully, the SEC did not need to wait
on Congress to advise the Commission on how to conduct
effective and sound investor testing. To the contrary, by
prescribing the same methods that the SEC applied to their
investor testing of Form CRS, H.R. 1815 demonstrates implicit
approval of the SEC's investor testing for Form CRS.
Committee Republicans believe investor testing is an
effective tool for designing smart and workable regulatory
frameworks. The SEC was forward thinking in conducting investor
testing for Form CRS. Committee Republicans are confident the
SEC will devote the necessary attention and consideration to
the findings of their investor testing, the input from the
seven retail investor roundtables, and the feedback from the
6,000 comment letters as they work to finalize Reg BI and Form
CRS. Thus, H.R. 1815 is completely unnecessary.
Reg BI and Form CRS are significant improvements on the
status quo for Mom and Pop investors. Any delay to this
important rulemaking package--an all but certain result under
H.R. 1815--is problematic, as it would only hurt retail
investors by not providing them with a heightened standard of
care for broker-dealers as well as not providing them with an
informative Form CRS.
Barry Loudermilk.
Ted Budd.
Bryan Steil.
John W. Rose.
Denver Riggleman.
Andy Barr.
Lee M. Zeldin.
Ann Wagner.
Bill Huizenga.
Bill Posey.
Tom Emmer.
Scott R. Tipton.
Sean P. Duffy.
Roger Williams.
French J. Hill.
Warren Davidson.
Anthony Gonzalez.
Alexander X. Mooney.
Frank D. Lucas.
Steve Stivers.
Blaine Luetkemeyer.
Patrick T. McHenry.
David Kustoff.
Pete T. King.
Lance Gooden.
[all]
