[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 423 Engrossed Amendment House (EAH)]

                In the House of Representatives, U. S.,

                                                       October 5, 1994.
      Resolved, That the bill from the Senate (S. 423) entitled ``An 
Act to provide for recovery of costs of supervision and regulation of 
investment advisers and their activities, and for other purposes'', do 
pass with the following

                               AMENDMENT:

        Strike out all after the enacting clause and insert:

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Investment Advisers Amendments of 
1994''.

SEC. 2. ADDITIONAL RESOURCES FOR INVESTMENT ADVISER SUPERVISION.

    (a) Fees for Registrants and Applicants.--The Investment Advisers 
Act of 1940 (15 U.S.C. 80b-1 et seq.) is amended by inserting after 
section 203 the following new section:

                 ``fees for registrants and applicants

    ``Sec. 203A. (a) In General.--The Commission is authorized, in 
accordance with this section, to collect fees to recover the costs of 
registration, supervision, and regulation of investment advisers and 
their activities. Any such fees shall be collected, and shall be 
available, only to the extent provided in advance in appropriations 
Acts. No appropriations Act may authorize fees to be collected under 
this section during any fiscal year after fiscal year 1995, unless the 
amount appropriated by such Act for such costs for such fiscal year 
equals or exceeds the aggregate amount that may reasonably be expected 
to be collected by such fees. Any such fees shall be deposited as an 
offsetting collection to the Commission's appropriation and may remain 
available for such purposes for the succeeding fiscal year. The costs 
covered by such fees shall be limited to the costs of Commission 
expenses for registration, examinations, and surveys of persons 
registered or required to register under this title.
    ``(b) Time for Payment.--
            ``(1) New registrants.--At the time of filing an 
        application for registration under this title, the applicant 
        shall pay to the Commission the fee specified in subsection 
        (c). No part of such fee shall be refunded to the applicant. 
        The filing of an application for registration under this title 
        shall not be deemed to have occurred unless the application is 
        accompanied by the fee required under subsection (c).
            ``(2) Ongoing registrants.--Each investment adviser, the 
        registration of which is effective on the last day of its 
        fiscal year, shall pay the Commission the fee specified in 
        subsection (c). Such payment shall be made not later than 90 
        days after the end of its fiscal year, or at such other time as 
        the Commission, by rule, shall determine, unless its 
        registration has been withdrawn, canceled, or revoked prior to 
        that date. No part of such fee shall be refunded to the 
        investment adviser.
    ``(c) Cost-Based Schedule of Fees.--For any fiscal year for which 
fees are authorized to be collected by an appropriations Act, the 
amount of any fees due from investment advisers in accordance with 
subsection (b) shall be determined according to the following schedule:

``Assets under management                                      Fee due:
    Less than $10,000,000.........................                 $300
    $10,000,000 or more, but less than $25,000,000                 $500
    $25,000,000 or more, but less than $50,000,000               $1,000
    $50,000,000 or more, but less than                           $2,500
        $100,000,000.
    $100,000,000 or more, but less than                          $4,000
        $250,000,000.
    $250,000,000 or more, but less than                          $5,000
        $500,000,000.
    $500,000,000 or more..........................              $7,000.
    ``(d) Suspension for Failure To Pay.--The Commission, by order, may 
suspend the registration of any investment adviser if it finds, after 
notice, that such investment adviser has failed to pay when due any fee 
required by this section. The Commission shall reinstate such 
registration upon payment of the fee (and any penalty due), if such 
suspension was based solely on the failure to pay the fee.
    ``(e) Definition of Assets Under Management.--As used in this 
section, the term `assets under management' means the client assets 
with respect to which an investment adviser provides continuous and 
regular supervisory or management services.
    ``(f) Rulemaking.--The Commission may adopt such rules as are 
necessary to carry out this section.''.
    (b) Effective Date.--The amendments made by this section shall 
become effective--
            (1) in the case of section 203A(f) of the Investment 
        Advisers Act of 1940 (as added by this section), upon the date 
        of enactment of this Act; and
            (2) in the case of subsections (a) through (e) of section 
        203A of the Investment Advisers Act of 1940 (as added by this 
        section), upon the adoption by the Securities and Exchange 
        Commission of implementing rules in accordance with section 
        203A(f) of such Act.

SEC. 3. SURVEYS.

    The Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.) is 
amended by inserting after section 222 the following new section:

                               ``surveys

    ``Sec. 223. (a) Surveys of Unregistered Persons.--
            ``(1) In general.--The Commission shall, not later than 3 
        years after the date of enactment of this section, and 
        thereafter as appropriate, provide for the conduct of a survey 
        to determine the extent of, and reasons for, the failure of 
        persons to register as required by this title.
            ``(2) Actions based on survey.--The Commission shall, on 
        the basis of the results of the survey conducted under 
        paragraph (1), establish objectives for the reduction or 
        elimination of any failures identified therein and shall 
        include in any annual reports to the Congress under section 
        23(b) of the Securities Exchange Act of 1934 submitted after 
        completion of the first survey--
                    ``(A) a statement of such objectives;
                    ``(B) an evaluation of the success in attaining 
                those objectives during the preceding year; and
                    ``(C) such recommendations as the Commission 
                considers appropriate to assist in the attainment of 
                those objectives.
            ``(3) Patterns of noncompliance.--If the survey conducted 
        under paragraph (1) identifies any pattern of noncompliance 
        with the registration requirements of this title and the rules 
        issued under this title, the Commission shall undertake such 
        rulemaking proceedings as may be necessary to correct such 
        patterns of noncompliance.
    ``(b) Provisions Not Limitation.--The provisions of this section 
shall not be construed to limit the authority of the Commission to 
issue rules under this title, to conduct an examination or 
investigation at any time, or to institute proceedings under this title 
or any other provision of law.''.

SEC. 4. DESIGNATION OF SELF-REGULATORY ORGANIZATIONS.

    The Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.) is 
amended by inserting after section 223 (as added by section 3 of this 
Act) the following new section:

             ``designation of self-regulatory organizations

    ``Sec. 224. (a) Designation To Conduct Examinations.--
            ``(1) In general.--The Commission may by rule, consistent 
        with the public interest, the protection of investors, and the 
        purposes of this title, designate one or more self-regulatory 
        organizations registered with the Commission under section 6 or 
        15A of the Securities Exchange Act of 1934, to conduct periodic 
        examinations of its members, and affiliates of members, that 
        are registered or required to register under this title, to 
        determine compliance with applicable provisions of this title 
        and the rules and regulations issued under this title. Any such 
        rule shall specify the minimum scope and frequency for such 
        examinations and shall, to the extent consistent with the 
        protection of investors, be designed to avoid unnecessary 
        regulatory duplication or undue regulatory burdens.
            ``(2) Authority of organization.--Any self-regulatory 
        organization designated under paragraph (1) may discipline the 
        members and affiliates of members described in parargraph (1) 
        for violations of the applicable provisions of this title and 
        the rules and regulations issued under this title pursuant to 
        the standards and procedures set forth in sections 6, 15A, and 
        19 of the Securities Exchange Act of 1934.
            ``(3) Penalties.--Any money penalties imposed by a self-
        regulatory organization for violations of this title shall not 
        exceed those contained in section 203(i).
    ``(b) Limitations.--
            ``(1) Primary business limitation.--The Commission shall 
        not exercise the designation authority contained in subsection 
        (a) with respect to a member or affiliate of a member if the 
        primary business of the member and its affiliates is investment 
        advisory activities.
            ``(2) Limitation with respect to affiliates of members.--
        The Commission shall not exercise the authority contained in 
        subsection (a) with respect to an affiliate of a member of a 
        self-regulatory organization if--
                    ``(A) the primary business of the affiliate is 
                investment advisory activities;
                    ``(B) the affiliate is an affiliate of the member 
                solely as a result of the adviser's (or an associated 
                person of the adviser's) registration with the member 
                as a registered representative; and
                    ``(C) the affiliate is a registered representative 
                of the member solely to enable the adviser to execute 
                transactions that are incidental to the investment 
                adviser's primary business;
        unless the Commission determines, in accordance with such other 
        criteria as the Commission establishes by rule, that such 
        exercise of designation authority is consistent with the public 
        interest, the protection of investors, the purposes of this 
        title, and the objectives of the Commission's investment 
        adviser examination program.
            ``(3) Limitation with respect to savings association 
        affiliates of members.--The Commission shall not exercise the 
        authority contained in subsection (a) with respect to an 
        affiliate of a member of a self-regulatory organization if the 
        affiliate is a savings association, as such term is defined in 
        section 3(b)(1) of the Federal Deposit Insurance Act (12 U.S.C. 
        1813(b)(1)).
            ``(4) Definitional rules.--For purposes of this subsection, 
        the Commission may, by rule, establish criteria for defining 
        the terms `primary business' and `incidental to the investment 
        adviser's primary business'.
    ``(c) Authority To Impose Fees.--
            ``(1) In general.--Any self-regulatory organization 
        designated by the Commission to perform the examinations 
        specified in subsection (a) shall have the authority to collect 
        fees in accordance with this subsection.
            ``(2) Limitation.--The total fee paid by a registered 
        investment adviser under this subsection shall not exceed an 
        amount determined in accordance with rules prescribed by the 
        Commission. Such rules shall require that the fees collected by 
        a self-regulatory organization under this subsection--
                    ``(A) cover only the costs of the self-regulatory 
                organization's expenses for examinations conducted 
                pursuant to subsection (a);
                    ``(B) as to any investment adviser, bear a 
                reasonable relationship to the costs of conducting an 
                examination of that adviser pursuant to subsection (a); 
                and
                    ``(C) not exceed such portion of the fee authorized 
                under section 203A as the Commission determines is 
                allocable to the Commission's expenses for conducting 
                such an examination.
            ``(3) Reduction of section 203a fees.--The amount of any 
        fee that a registered investment adviser is required to pay to 
        the Commission under section 203A with respect to any fiscal 
        year shall be reduced by the amount paid to a self-regulatory 
        organization in accordance with this subsection with respect to 
        such fiscal year.
    ``(d) Effective Date of Rule.--A rule issued by the Commission 
under this section shall become effective not earlier than 90 days 
after the date on which the Commission submits to the House of 
Representatives and the Senate a report--
            ``(1) containing the text of the proposed rule and the 
        reasons therefor;
            ``(2) describing the procedures to be used to coordinate 
        the collection of fees by the Commission under section 203A and 
        by a self-regulatory organization under the rule; and
            ``(3) containing such other information as may be necessary 
        to describe the implementation and enforcement of the rule.
    ``(e) Definition.--For purposes of this section, the term 
`affiliate' means any person directly or indirectly controlling, 
controlled by, or under common control with a member of a self-
regulatory organization.''.

SEC. 5. ADDITIONAL DISCLOSURE OBLIGATIONS OF INVESTMENT ADVISERS.

    (a) Disclosure Obligations.--Section 204 of the Investment Advisers 
Act of 1940 (15 U.S.C. 80b-4) is amended--
            (1) by striking the section heading and inserting the 
        following:

        ``periodic reports and other disclosure requirements'';

            (2) by inserting ``(a) Periodic and Other Reports.--'' 
        after ``Sec. 204.''; and
            (3) by adding at the end the following new subsections:
    ``(b) Review of Conflicts of Interest.--
            ``(1) Examination.--The Commission shall, not later than 1 
        year after the date of enactment of this subsection, examine 
        the nature of the conflicts of interest with an investment 
        adviser's fiduciary duties that may arise when an investment 
        adviser is compensated on the basis of commissions or fees from 
        the sale of investment products to clients or receives credits 
        toward non-cash compensation.
            ``(2) Rules.--On the basis of the examination conducted 
        under paragraph (1), the Commission shall prescribe any rules 
        that may be necessary and appropriate in the public interest or 
        for the protection of investors and consistent with the 
        purposes of this title to require that the existence and extent 
        of any material conflicts of interest between investment 
        advisers and their clients be fully disclosed. Such rules shall 
        take into account the rules applicable to registered brokers 
        and dealers and their associated persons under the Federal 
        securities laws (including the rules of self-regulatory 
        organizations registered thereunder).
    ``(c) Facilities for Filing Records and Reports; Access to 
Disciplinary and Other Information.--
            ``(1) Filing depositories.--The Commission, by rule, may 
        require any investment adviser--
                    ``(A) to file with the Commission any fee, 
                application, report, or notice required by this title 
                or by the rules issued under this title through any 
                entity designated by the Commission for that purpose; 
                and
                    ``(B) to pay all reasonable costs associated with--
                            ``(i) such filing; and
                            ``(ii) the maintenance of a process to 
                        receive and respond to inquiries under 
                        paragraph (2).
            ``(2) Response to inquiries.--
                    ``(A) In general.--An entity designated by the 
                Commission under paragraph (1) shall--
                            ``(i) establish and maintain a readily 
                        accessible telephonic or other electronic 
                        process to receive inquiries regarding 
                        disciplinary actions and proceedings involving 
                        investment advisers and persons associated with 
                        investment advisers; and
                            ``(ii) respond promptly to such inquiries.
                    ``(B) Fees.--An entity designated by the Commission 
                under paragraph (1) may charge a person, other than an 
                individual investor, reasonable fees for the cost of 
                providing written responses to inquiries.
                    ``(C) Liability.--An entity designated by the 
                Commission under paragraph (1) shall not be liable for 
                any action taken or omitted in good faith under this 
                paragraph.''.

SEC. 6. COMPLETION OF RULEMAKING INITIATIVES REQUIRED.

    Section 204 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-
4), as amended by section 5, is amended by adding at the end the 
following new subsections:
    ``(d) Registration Form Revisions.--
            ``(1) Statements in annual reports.--The Commission shall 
        include in each of the first 3 annual reports submitted 
        pursuant to section 23(b) of the Securities Exchange Act of 
        1934 after the date of enactment of this subsection a statement 
        describing the status of--
                    ``(A) the Commission's proposals for the revision 
                of the form required for the registration of investment 
                advisers under this title;
                    ``(B) consultations with State securities 
                commissions and other State authorities concerning the 
                collection and dissemination of information contained 
                on such form; and
                    ``(C) the implementation of systems to collect and 
                disseminate such information to enforce compliance with 
                this title.
            ``(2) Analysis required.--The first statement required by 
        paragraph (1) shall include an analysis of the methods by which 
        the revisions of such registration form will result in--
                    ``(A) the timely and effective disclosure to 
                investment adviser clients of material facts concerning 
                the background, compensation, services, and practices 
                of the adviser; and
                    ``(B) the prominent disclosure to such clients of--
                            ``(i) any conflicts of interest;
                            ``(ii) methods available for securing 
                        additional information concerning the adviser 
                        and its employees;
                            ``(iii) remedies available with respect to 
                        disputes arising out of the advisory 
                        relationship; and
                            ``(iv) any conviction of the investment 
                        adviser or any person associated with the 
                        investment adviser within 10 years preceding 
                        the filing of any application for registration, 
                        or at any time thereafter, of any crime that is 
                        punishable by imprisonment for 1 or more years, 
                        or of a substantially equivalent crime by a 
                        foreign court of competent jurisdiction.''.

SEC. 7. BOND REQUIREMENT.

    Section 208 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-
8) is amended by adding at the end the following new subsection:
    ``(e)(1) The Commission may require, by rules and regulations for 
the protection of investors, any investment adviser registered under 
section 203 that--
            ``(A) is authorized to exercise investment discretion, as 
        defined in section 3(a)(35) of the Securities Exchange Act of 
        1934, with respect to an account;
            ``(B) has access to the securities or funds of a client; or
            ``(C) is an investment adviser of an investment company, as 
        defined in section 2(a)(20) of the Investment Company Act of 
        1940,
to obtain a bond from a reputable fidelity insurance company against 
larceny and embezzlement in such reasonable amounts and covering such 
officers, partners, directors, and employees of the investment adviser 
as the Commission may prescribe.
    ``(2) In implementing paragraph (1), the Commission shall 
consider--
            ``(A) the degree of risk to client assets that is involved;
            ``(B) the cost and availability of fidelity bonds;
            ``(C) existing fidelity bonding requirements;
            ``(D) any alternative means to protect client assets; and
            ``(E) the results, findings, and conclusions of the study 
        required by paragraph (3).
    ``(3) Before implementing paragraph (1), the Commission shall study 
(and shall make such study and its conclusions and findings available 
to the public)--
            ``(A) the availability of fidelity bonds, both for large-
        scale and small-scale investment advisers, and also for 
        investment advisers not located in urban areas; and
            ``(B) the impact of the provisions of paragraph (1) on the 
        competitive position of small-scale investment advisers.
    ``(4) If the Commission adopts any rule or regulation pursuant to 
paragraph (1), the Commission may, by rule, exempt any person or class 
of persons from the requirements of this subsection and the rules 
issued under this subsection, under such terms or conditions and for 
such period as the Commission shall prescribe. The Commission shall 
exempt any investment adviser from the requirements of this subsection 
if--
            ``(A) fidelity bonds are not readily or reasonably 
        available in the urban or rural areas in which such investment 
        adviser is located; or
            ``(B) the cost of obtaining a fidelity bond would have a 
        substantial adverse impact on such investment adviser's 
        competitive position.''.
103d CONGRESS

  2d Session

                                 S. 423

_______________________________________________________________________

                               AMENDMENT