Investment Advisers Modernization Act of 2016
This bill directs the Securities and Exchange Commission (SEC) to amend specified regulations for investment advisers as they apply to private equity firms and private investment funds.
(Sec. 2) The bill revises the disclaimer that, in the case of an investment adviser that is a partnership, an assignment shall not be deemed to result from the death, withdrawal, sale or transfer of minority interests to apply the disclaimer also to minority members, shareholders, for other equity owners of the investment adviser. Qualified clients of an investment adviser may consent to an assignment of the investment adviser contract at the time they enter into an advisory contract.
The Investment Advisers Act of 1940 is amended to repeal the requirement that advisers organized as partnerships notify the other party to an investment adviser contract every time there is a change in the composition of the partnership.
The SEC shall waive the application of specified antifraud prohibitions to advisers who advertise exclusively to:
(Sec. 3) The SEC must amend a certain regulation regarding Form PF which registered investment advisers with at least $150 million in private funds assets under management must file with the SEC to report information about the private funds that they manage. This amendment shall state that an investment adviser to a private fund is not required to report any information beyond that which is required by sections 1a and 1b of Form PF unless it is a large hedge fund adviser or a large liquidity fund adviser.
The SEC shall also amend the regulation requiring that client funds and securities of which an investment adviser has custody are verified by actual examination periodically by an independent public accountant.
The SEC shall amend the proxy voting regulation to waive its application to any voting authority exercised by an investment adviser regarding client securities that are not public securities.
(Sec. 4) On the other hand, the SEC may not:
(Sec. 5) This bill shall not apply to advisory services supplied to an investment company registered under the Investment Company Act of 1940.
(Sec. 6) Any regulation referred to in this bill includes any successor regulation.
[Congressional Bills 114th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5424 Introduced in House (IH)]
<DOC>
114th CONGRESS
2d Session
H. R. 5424
To amend the Investment Advisers Act of 1940 and to direct the
Securities and Exchange Commission to amend its rules to modernize
certain requirements relating to investment advisers, and for other
purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
June 9, 2016
Mr. Hurt of Virginia (for himself, Mr. Vargas, Mr. Foster, and Mr.
Stivers) introduced the following bill; which was referred to the
Committee on Financial Services
_______________________________________________________________________
A BILL
To amend the Investment Advisers Act of 1940 and to direct the
Securities and Exchange Commission to amend its rules to modernize
certain requirements relating to investment advisers, and for other
purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Investment Advisers Modernization
Act of 2016''.
SEC. 2. MODERNIZING CERTAIN REQUIREMENTS RELATING TO INVESTMENT
ADVISERS.
(a) Maintenance of Books and Records.--Not later than 90 days after
the date of the enactment of this Act, the Securities and Exchange
Commission shall amend section 275.204-2 of title 17, Code of Federal
Regulations, to provide that an investment adviser is not required to
maintain--
(1) any communications or materials (including
communications or materials made available in a secure
electronic or physical data room) used in connection with due
diligence for a prospective investment, if the communications
or materials are subject to a confidentiality agreement; or
(2) any written communications required by paragraph (a)(7)
of such section, if the communications are sent and received
only by supervised persons of the investment adviser.
(b) Investment Advisory Contracts.--
(1) Assignment.--
(A) Assignment defined.--Section 202(a)(1) of the
Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(1))
is amended by striking ``; but'' and all that follows
and inserting ``; but no assignment of an investment
advisory contract shall be deemed to result from the
death or withdrawal, or the sale or transfer of the
interests, of a minority of the members, partners,
shareholders, or other equity owners of the investment
adviser having only a minority interest in the business
of the investment adviser, or from the admission to the
investment adviser of one or more members, partners,
shareholders, or other equity owners who, after such
admission, shall be only a minority of the members,
partners, shareholders, or other equity owners and
shall have only a minority interest in the business.''.
(B) Consent to assignment by qualified clients.--
Section 205(a)(2) of the Investment Advisers Act of
1940 (15 U.S.C. 80b-5(a)(2)) is amended by inserting
before the semicolon the following: ``, except that if
such other party is a qualified client (as defined in
section 275.205-3 of title 17, Code of Federal
Regulations, or any successor thereto), such other
party may provide such consent at the time the parties
enter into, extend, or renew such contract''.
(2) Not required to provide for notification of change in
membership of partnership.--Section 205 of the Investment
Advisers Act of 1940 (15 U.S.C. 80b-5) is amended--
(A) in subsection (a)--
(i) in paragraph (1), by striking the
semicolon and inserting ``; or'';
(ii) in paragraph (2), by striking ``; or''
and inserting a period; and
(iii) by striking paragraph (3); and
(B) in subsection (d), by striking ``paragraphs (2)
and (3) of subsection (a)'' and inserting ``subsection
(a)(2)''.
(c) Advertising Rule.--
(1) In general.--Not later than 90 days after the date of
the enactment of this Act, the Commission shall amend section
275.206(4)-1 of title 17, Code of Federal Regulations, to
provide that paragraphs (a)(1) and (a)(2) of such section do
not apply to an advertisement that an investment adviser
publishes, circulates, or distributes solely to persons
described in paragraph (2) of this subsection.
(2) Persons described.--A person is described in this
paragraph if such person is, or the investment adviser
reasonably believes such person is--
(A) a qualified client (as defined in section
275.205-3 of title 17, Code of Federal Regulations),
determined as of the time of the publication,
circulation, or distribution of the advertisement
rather than immediately prior to or after entering into
the investment advisory contract referred to in such
section;
(B) a knowledgeable employee (as defined in section
270.3c-5 of title 17, Code of Federal Regulations) of
any private fund to which the investment adviser acts
as an investment adviser;
(C) a qualified purchaser (as defined in section
2(a) of the Investment Company Act of 1940 (15 U.S.C.
80a-2(a))); or
(D) an accredited investor (as defined in section
230.501 of title 17, Code of Federal Regulations),
determined as if the investment adviser were the issuer
of securities referred to in such section and the time
of the publication, circulation, or distribution of the
advertisement were the sale of such securities.
SEC. 3. REMOVING DUPLICATIVE BURDENS AND APPROPRIATELY TAILORING
CERTAIN REQUIREMENTS.
(a) Brochure Delivery.--Not later than 90 days after the date of
the enactment of this Act, the Commission shall amend section 275.204-
3(c) of title 17, Code of Federal Regulations, to provide that an
investment adviser is not required to deliver a brochure or brochure
supplement to a client that is a limited partnership, limited liability
company, or other pooled investment vehicle for which each limited
partner, member, or other equity owner has received, before purchasing
a security issued by the pooled investment vehicle, a prospectus,
private placement memorandum, or other offering document containing (to
the extent material to an understanding of the pooled investment
vehicle, the business of the pooled investment vehicle, and the
securities being offered by the pooled investment vehicle)
substantially the same information as would be required by Part 2A or
2B of Form ADV at the time of delivery of the brochure or brochure
supplement, as the case may be.
(b) Form PF.--Not later than 90 days after the date of the
enactment of this Act, the Commission shall amend section 275.204(b)-1
of title 17, Code of Federal Regulations, to provide that an investment
adviser to a private fund is not required to report any information
beyond that which is required by sections 1a and 1b of Form PF, unless
such investment adviser is a large hedge fund adviser or a large
liquidity fund adviser (as such terms are defined in such Form).
(c) Frequency of Transaction Reports by Access Persons.--Not later
than 90 days after the date of the enactment of this Act, the
Commission shall amend section 275.204A-1 of title 17, Code of Federal
Regulations, so as to provide that, in the case of an investment
adviser that acts as an investment adviser solely to one or more
clients that primarily own or hold securities that are not public
securities (regardless of whether such securities were public
securities at the time of acquisition by the client or clients), the
code of ethics required by such section shall require the access
persons of the investment adviser to submit the transaction reports
described in paragraph (b)(2) of such section at a frequency specified
by the investment adviser, but not less frequently than annually.
(d) Custody Rule.--Not later than 90 days after the date of the
enactment of this Act, the Commission shall amend section 275.206(4)-2
of title 17, Code of Federal Regulations, as follows:
(1) The Commission shall provide additional exceptions to
the independent verification requirement of paragraph (a)(4) of
such section for an investment adviser with respect to funds
and securities of a limited partnership (or a limited liability
company or other type of pooled investment vehicle), as
follows:
(A) An exception that applies if the outstanding
securities (other than short-term paper, as defined in
section 2(a) of the Investment Company Act of 1940 (15
U.S.C. 80a-2(a))) of the pooled investment vehicle are
beneficially owned exclusively by--
(i) the investment adviser;
(ii) affiliated persons of the investment
adviser;
(iii) supervised persons of the investment
adviser;
(iv) officers, directors, and employees of
the affiliated persons of the investment
adviser;
(v) family members and former family
members (as such terms are defined in section
275.202(a)(11)(G)-1 of title 17, Code of
Federal Regulations) of persons described in
clause (iii) or (iv); or
(vi) officers, directors, employees, or
affiliated persons of, or persons who provide,
have provided, or have entered into a contract
to provide services to--
(I) the investment adviser of the
pooled investment vehicle;
(II) one or more clients of the
investment adviser of the pooled
investment vehicle; or
(III) issuers from which the pooled
investment vehicle or any other client
of the investment adviser of the pooled
investment vehicle has acquired
securities, such as the portfolio
company of a private fund.
(B) An exception that applies if the pooled
investment vehicle has been established to hold only
the securities of a single issuer in which one or more
pooled investment vehicles managed by the investment
adviser have acquired a controlling interest.
(2) Consistent with, and expanding on, IM Guidance Update
No. 2013-04, titled ``Privately Offered Securities under the
Investment Advisers Act Custody Rule'', published by the
Division of Investment Management of the Commission, the
Commission shall, with respect to the exception for certain
privately offered securities in paragraph (b)(2) of such
section--
(A) remove the requirement of clause (i)(B) of such
paragraph (relating to the uncertificated nature and
recordation of ownership of the securities); and
(B) remove the requirement of clause (ii) of such
paragraph (relating to audit and financial statement
distribution requirements with respect to securities of
pooled investment vehicles).
(e) Proxy Voting Rule.--Not later than 90 days after the date of
the enactment of this Act, the Commission shall amend section
275.206(4)-6 of title 17, Code of Federal Regulations, to provide that
such section does not apply to any voting authority with respect to
client securities that are not public securities.
SEC. 4. FACILITATING ROBUST CAPITAL FORMATION BY PREVENTING REGULATORY
MISMATCH.
The Commission may not--
(1) amend section 230.156 of title 17, Code of Federal
Regulations, to extend the provisions of such section to
offerings of securities issued by private funds; or
(2) adopt rules applicable to offerings of securities
issued by private funds that are substantially the same as the
provisions of such section.
SEC. 5. EXCLUSION OF ADVISORY SERVICES TO REGISTERED INVESTMENT
COMPANIES.
This Act shall not apply with respect to advisory services
provided, or proposed to be provided, to an investment company
registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et
seq.).
SEC. 6. REFERENCES TO REGULATIONS.
In this Act, any reference to a regulation shall be construed to
refer to such regulation or any successor thereto.
SEC. 7. DEFINITIONS.
In this Act:
(1) Public security.--The term ``public security'' means a
security issued by an issuer that--
(A) is required to submit reports under section
13(a) or 15(d) of the Securities Exchange Act of 1934
(15 U.S.C. 78m(a); 78o(d)); or
(B) has a security that is listed or traded on any
exchange or organized market operating in a foreign
jurisdiction.
(2) Terms defined in investment advisers act of 1940.--The
terms defined in section 202(a) of the Investment Advisers Act
of 1940 (15 U.S.C. 80b-2(a)) have the meanings given such terms
in such section.
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Reported (Amended) by the Committee on Financial Services. H. Rept. 114-698.
Reported (Amended) by the Committee on Financial Services. H. Rept. 114-698.
Placed on the Union Calendar, Calendar No. 540.
Rules Committee Resolution H. Res. 844 Reported to House. Rule provides for consideration of H.R. 2357 and H.R. 5424.
Rule H. Res. 844 passed House.
ORDER OF PROCEDURE - Mr. Hurt asked unanimous consent that the question of adopting a motion to recommit on H.R. 5424 may be subject to postponement as though under clause 8 of rule 20.
Considered under the provisions of rule H. Res. 844. (consideration: CR H5230-5239; text of measure as reported in House: CR H5230-5231)
Rule provides for consideration of H.R. 2357 and H.R. 5424.
DEBATE - The House proceeded with one hour of debate on H.R. 5424.
DEBATE - Pursuant to the provisions of H.Res. 844, the House proceeded with 10 minutes of debate on the Foster amendment.
Mrs. Torres moved to recommit with instructions to the Committee on Financial Services. (consideration: CR H5238-5239, H5244-5245; text: CR H5238-5239)
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DEBATE - The House proceeded with 10 minutes of debate on the Torres motion to recommit with instructions pending a reservation of a point of order. The instructions contained in the motion seek to require the bill to be reported back to the House with an amendment to add at the end of the bill a section pertaining to Report on Emergency Vehicle Response Times of Companies Owned by Private Funds. Subsequently, the reservation was removed.
The previous question on the motion to recommit with instructions was ordered without objection. (consideration: CR H5244)
POSTPONED PROCEEDINGS - At the conclusion of debate on the Torres motion to recommit, the Chair put the question on adoption of the motion and by voice vote, announced the noes had prevailed. Mrs. Torres demanded the yeas and nays and the Chair postponed further proceedings on the motion to recommit until later in the legislative day.
Considered as unfinished business. (consideration: CR H5244-5246)
On motion to recommit with instructions Failed by the Yeas and Nays: 176 - 232 (Roll no. 494).
Roll Call #494 (House)Passed/agreed to in House: On passage Passed by the Yeas and Nays: 261 - 145 (Roll no. 495).
Roll Call #495 (House)On passage Passed by the Yeas and Nays: 261 - 145 (Roll no. 495).
Roll Call #495 (House)Motion to reconsider laid on the table Agreed to without objection.
Received in the Senate and Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.