Financial Exploitation Prevention Act of 2023
This bill addresses the redemption of securities involving the potential financial exploitation of an adult by allowing an open-end investment company to elect to comply with certain procedures. (Open-end investment management companies offer securities in pooled investment vehicles such as mutual funds.)
Specifically, the bill allows for the delay of the redemption of a security issued by an open-end investment management company if the company reasonably believes the redemption involves the financial exploitation of an individual age 65 or older or an individual age 18 or older who is unable to protect his or her own interests.
The company may initially delay the redemption for up to 15 days and, upon making a determination of exploitation, may delay the redemption an additional 10 days. In the event of delay, the company must hold the amounts related to the redemption in a demand deposit account.
Additionally, the Securities and Exchange Commission must make legislative and regulatory recommendations to address the financial exploitation of these adults.
[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[S. 1481 Introduced in Senate (IS)]
<DOC>
118th CONGRESS
1st Session
S. 1481
To amend the Investment Company Act of 1940 to postpone the date of
payment or satisfaction upon redemption of certain securities in the
case of the financial exploitation of specified adults, and for other
purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
May 9, 2023
Mr. Hagerty (for himself and Mr. Tester) introduced the following bill;
which was read twice and referred to the Committee on Banking, Housing,
and Urban Affairs
_______________________________________________________________________
A BILL
To amend the Investment Company Act of 1940 to postpone the date of
payment or satisfaction upon redemption of certain securities in the
case of the financial exploitation of specified adults, 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 ``Financial Exploitation Prevention
Act of 2023''.
SEC. 2. REDEMPTION OF CERTAIN SECURITIES POSTPONED.
(a) In General.--Section 22 of the Investment Company Act of 1940
(15 U.S.C. 80a-22) is amended by adding at the end the following:
``(h) Requirements With Respect to Non-Institutional Direct At-Fund
Accounts.--
``(1) Election.--
``(A) In general.--A registered open-end investment
company and a transfer agent described in paragraph (2)
may elect to comply with the requirements under
paragraph (2) and subsection (i) by notifying the
Commission of that election.
``(B) Effect of election.--Paragraph (2) and
subsection (i) shall only apply to a registered open-
end investment company and a transfer agent that have
made an election under subparagraph (A).
``(2) Requirements.--In the case of a customer who is a
holder of a non-institutional account held directly with a
registered open-end investment company and serviced by a
transfer agent (commonly known as a `direct-at-fund account'),
the company and transfer agent shall--
``(A) request from that customer the name and
contact information of at least 1 individual who--
``(i) is, at the time of that request, an
adult; and
``(ii) may be contacted with respect to
that account;
``(B) document and retain the information received
under subparagraph (A); and
``(C) disclose to that customer in writing
(including through electronic delivery) that such
company or transfer agent may contact an individual
specified under subparagraph (A) with respect to the
account of that customer to--
``(i) address possible financial
exploitation of that customer;
``(ii) confirm the contact information or
health status of that customer; or
``(iii) identify any legal guardian,
executor, trustee, or holder of a power of
attorney with respect to the customer.
``(i) Redemption of Certain Securities Postponed.--
``(1) In general.--Notwithstanding subsection (e), a
registered open-end investment company or a transfer agent
acting on behalf of such a company may postpone the date of
payment or satisfaction upon redemption of any redeemable
security in accordance with its terms for more than seven days
after the tender of such security to such company or its agent
designated for that purpose for redemption if such company or
agent reasonably believes that--
``(A) that redemption is requested by a security
holder who is a specified adult; and
``(B) financial exploitation has occurred, is
occurring, or has been attempted with respect to that
redemption.
``(2) Duration.--
``(A) In general.--Except as provided in
subparagraphs (B) and (C), a registered open-end
investment company or a transfer agent acting on behalf
of such company may postpone the date of payment or
satisfaction upon redemption of a redeemable security
under paragraph (1) for a period of not more than 15
business days.
``(B) Extension upon determination of
exploitation.--The period described in subparagraph (A)
may be extended by an additional 10 business days if
the registered open-end investment company or a
transfer agent acting on behalf of such a company--
``(i) reasonably believes that--
``(I) the redemption is requested
by a security holder who is a specified
adult; and
``(II) financial exploitation has
occurred, is occurring, or has been
attempted with respect to such
redemption;
``(ii) subject to subparagraph (D), not
later than 2 days after making a determination
under clause (i), notifies the individuals
specified by that security holder under
subsection (h)(2)(A) in writing (including
through electronic delivery) of the extension
of the period described in subparagraph (A)
under this subparagraph and the reason for that
extension;
``(iii) initiates an internal review of the
facts and circumstances relating to the
determination under clause (i);
``(iv) holds amounts relating to the
delayed payment or satisfaction upon redemption
of the redeemable security in a demand deposit
account; and
``(v) documents and retains records related
to carrying out clause (iv) and includes those
records in the first required account statement
of the security holder provided after the date
on which the determination is made under clause
(i).
``(C) Extension by government.--A State regulator,
administrative agency of competent jurisdiction, or
court of competent jurisdiction may extend the period
described in subparagraph (A).
``(D) Notification.--
``(i) Exception.--Subparagraph (B)(ii)
shall not apply if a registered open-end
investment company or transfer agent acting on
behalf of such a company reasonably believes
that an individual required to be notified
under that subparagraph is, has been, or will
subject the security holder who identified that
individual under subsection (h)(2)(A) to
financial exploitation.
``(ii) Reasonable efforts.--An open-end
investment company or transfer agent acting on
behalf of such a company shall be considered in
compliance with subparagraph (B)(ii) if that
company or transfer agent makes a reasonable
effort to contact the individuals specified by
a security holder under subsection (h)(2)(A).
``(E) Internal procedures.--An open-end investment
company or transfer agent acting on behalf of such a
company shall establish procedures to carry out the
requirements under this subsection, including
procedures--
``(i) relating to the identification and
reporting of matters relating to the financial
exploitation of specified adults;
``(ii) to determine whether to release or
reinvest delayed redemption proceeds, taking
into account the facts and circumstances of
each case, should the internal review under
subparagraph (B)(iii) support the reasonable
belief described in subparagraph (B)(i);
``(iii) identifying each employee of the
company or transfer agent with authority to
establish, extend, or terminate a period
described in paragraph (1) or subparagraph (A);
``(iv) in the case of a transfer agent,
that are reasonably designed to ensure that the
employees of the transfer agent comply with
this subsection; and
``(v) in the case of an open-end investment
company, establishing periodic reporting
requirements under which a transfer agent
acting on behalf of the company shall notify
the company of--
``(I) each extension under
subparagraph (B) authorized by the
transfer agent;
``(II) each finding by the transfer
agent under subparagraph (B)(i);
``(III) each notification under
subparagraph (B)(ii) carried out by the
transfer agent; and
``(IV) the results of each internal
review initiated by the transfer agent
under subparagraph (B)(iii).
``(F) Information included in certain statements.--
An open-end investment company shall include in each
prospectus or statement of additional information a
notification that the company or a transfer agent
acting on behalf of the company may postpone redemption
of certain securities under this subsection.
``(G) Record retention.--An open-end investment
company or transfer agent acting on behalf of such a
company shall--
``(i) document and retain records of--
``(I) each postponement of
redemption under subparagraphs (A),
(B), and (C);
``(II) each finding under
subparagraph (B)(i);
``(III) the name and position of
each employee described in subparagraph
(E)(iii);
``(IV) each notification carried
out under subparagraph (B)(ii); and
``(V) the results of each internal
review initiated under subparagraph
(B)(iii); and
``(ii) make the records described in clause
(i) available to the Commission at the request
of the Commission.
``(3) Specified adult defined.--In this subsection, the
term `specified adult' means an individual who--
``(A) is not younger than 65 years of age; or
``(B) is not younger than 18 years of age and who a
registered open-end investment company or a transfer
agent acting on behalf of such a company reasonably
believes has a mental or physical impairment that
renders the individual unable to protect the interests
of the individual.''.
(b) Recommendations.--
(1) In general.--Not later than 1 year after the date of
enactment of this Act, the Securities and Exchange Commission,
in consultation with the entities specified in paragraph (2),
shall submit to Congress a report that includes recommendations
regarding the regulatory and legislative changes necessary to
address the financial exploitation of security holders who are
specified adults (as defined in subsection (i)(3) of section 22
of the Investment Company Act of 1940 (15 U.S.C. 80a-22), as
added by this section).
(2) Consultation.--The entities specified in this paragraph
are as follows:
(A) The Commodity Futures Trading Commission.
(B) The Director of the Bureau of Consumer
Financial Protection.
(C) The Financial Industry Regulatory Authority.
(D) The North American Securities Administrators
Association.
(E) The Board of Governors of the Federal Reserve
System.
(F) The Comptroller of the Currency.
(G) The Federal Deposit Insurance Corporation.
<all>
Introduced in Senate
Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
Committee on Banking, Housing, and Urban Affairs. Hearings held.
Committee on Banking, Housing, and Urban Affairs. Hearings held.
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