[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4618 Introduced in House (IH)]







109th CONGRESS
  1st Session
                                H. R. 4618

  To amend the Securities Exchange Act of 1934 to establish rules and 
 procedures for the delegation of compliance and inspections authority 
 to the operating divisions of the Securities and Exchange Commission, 
                        and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           December 17, 2005

  Mr. Fossella (for himself and Mr. Castle) introduced the following 
    bill; which was referred to the Committee on Financial Services

_______________________________________________________________________

                                 A BILL


 
  To amend the Securities Exchange Act of 1934 to establish rules and 
 procedures for the delegation of compliance and inspections authority 
 to the operating divisions of the Securities and Exchange Commission, 
                        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 ``Compliance, Examinations, and 
Inspections Restructuring Act of 2005''.

SEC. 2. ORGANIZATION AND CONDUCT OF THE DIVISIONS AND OFFICES OF THE 
              SECURITIES AND EXCHANGE COMMISSION.

     Section 4 of the Securities Exchange Act of 1934 (15 U.S.C. 78d) 
is amended by adding at the end the following new subsections:
    ``(g) Divisions and Offices of the Commission.--
            ``(1) Compliance, inspections, and examinations.--The 
        authority that the Commission has to conduct inspections and 
        examinations of registered brokers or dealers (15 U.S.C. 
        78q(b)), registered investment companies (15 U.S.C. 80a-30(b)), 
        and registered investment advisers (15 U.S.C. 80b-4) shall be 
        vested in the administrative divisions or offices to which the 
        Commission has delegated pursuant to section 4A of this Act the 
        authority to administer its responsibilities under this Act, 
        the Investment Company Act of 1940 (15 U.S.C. 80a), and the 
        Investment Advisers Act of 1940 (15 U.S.C. 80b). The Commission 
        shall report to Congress pursuant to section 21(a) of this Act 
        no less frequently than every 5 years from the enactment of 
        this subsection, and shall in that report state its views on 
        the continuing efficacy, effectiveness, and efficiency of 
        requiring the administrative divisions or offices to conduct 
        inspections and examinations of registered brokers or dealers, 
        registered investment companies, and registered investment 
        advisers.
            ``(2) Closure of open matters.--Not less frequently than 
        every 120 days during a period in which an enforcement division 
        or office of the Commission with respect to a formal or 
        informal inquiry, or an administrative division or office of 
        the Commission with respect to an inspection or examination, is 
        conducting an inquiry or inspection, that division or office 
        shall notify in writing the person who is the subject of that 
        inquiry or inspection to inform such person of the status of 
        the inquiry or inspection. When that division or office has 
        completed its inquiry or inspection, that division or office 
        shall, within 10 days of completing that inquiry or inspection, 
        notify in writing the person who was the subject of that 
        inquiry or inspection that the inquiry or inspection has been 
        completed.
            ``(3) Sweep examinations or inspections.--
                    ``(A) Notice and approval.--Before an 
                administrative division or office of the Commission may 
                conduct an inspection of registered brokers or dealers, 
                registered investment companies, or registered 
                investment advisers, it shall provide written 
                notification in such form determined by the Chairman. 
                Before an administrative division or office of the 
                Commission may conduct a sweep examination of 
                registered brokers or dealers, registered investment 
                companies, or registered investment advisers, it shall 
                seek authority from the Commission to conduct such a 
                sweep examination or inspection in the same manner and 
                subject to the same procedures that the enforcement 
                divisions or offices of the Commission must follow in 
                seeking the authority to conduct a formal investigation 
                or inquiry regarding a registered brokers or dealer, a 
                registered investment company, or a registered 
                investment adviser.
                    ``(B) Content.--An administrative division or 
                office of the Commission shall confine the content of a 
                sweep examination or inspection to those existing books 
                and records that the registered broker or dealer, 
                registered investment company, or registered investment 
                adviser is required to keep and maintain under 
                applicable rules and regulations, and may not require 
                the creation of a new document or the calculation or 
                presentation of data that is not required to be kept or 
                maintained under applicable rules and regulations.
            ``(4) Definitions.--For purposes of this subsection, the 
        following definitions shall apply:
                    ``(A) Confidential communication.--The term 
                `confidential communication' shall mean any transfer of 
                information, regardless of the form or format in which 
                the information is communicated to an officer or 
                employee of a compliance and inspections office, about 
                a registered broker or dealer, registered investment 
                company, or registered investment adviser by an officer 
                or employee of a registered broker or dealer, 
                registered investment company, or registered investment 
                adviser regarding whether the broker or dealer, 
                investment company, or investment adviser is in 
                compliance with applicable provisions of this Act, the 
                Securities Act of 1933, the Investment Company Act of 
                1940, or the Investment Advisers Act of 1940, wherein 
                the officer or employee transferring such information 
                reasonably believes in good faith that the information 
                being communicated to an officer or employee of a 
                compliance and inspections office of the Commission--
                            ``(i) is not information required to be 
                        made publicly available by any applicable 
                        Federal law or regulation; or
                            ``(ii) is information regarding any book, 
                        record, or other information in the possession 
                        of, or maintained on behalf of, the registered 
                        broker or dealer, registered investment 
                        company, or registered investment adviser that 
                        is subject to the examination and inspection 
                        authority of the Commission.
                    ``(B) Sweep examination.--Not later than 60 days 
                after the date of enactment of this subsection, the 
                Commission shall define the term `sweep examination' 
                for purposes of this subsection.
                    ``(C) Enforcement division.--The term `enforcement 
                division' means the divisions or offices to which the 
                Commission has delegated pursuant to section 4A of this 
                Act the authority to investigate and to enforce the 
                provisions of this Act, the Investment Company Act of 
                1940 (15 U.S.C. 80a-41), and the Investment Advisers 
                Act of 1940 (15 U.S.C. 80b-9).
    ``(h) Ombudsman.--
            ``(1) Appointment.--Not later than 180 days after the date 
        of enactment of this section, the Chairman of the Securities 
        and Exchange Commission shall appoint an Ombudsman who shall 
        report directly to the Chairman.
            ``(2) Duties of ombudsman.--The Ombudsman appointed under 
        subsection (a) shall--
                    ``(A) ensure safeguards exist to encourage persons 
                who are issuers registered brokers or dealers, 
                registered investment companies, or registered 
                investment advisers to present questions to the 
                Commission regarding compliance with the securities 
                laws;
                    ``(B) maintain privilege of confidential 
                communications between such persons and the Ombudsman;
                    ``(C) advise and guide such persons through the 
                process of self-reporting, ensuring appropriate and due 
                credit is given to the registrant upon self-reporting; 
                and
                    ``(D) act as a liaison between the agency and such 
                persons with respect to any problem such registrant may 
                have in dealing with the agency resulting from the 
                regulatory activities of the agency.
            ``(3) Limitation.--In carrying out the duties under 
        paragraph (1), the Ombudsman shall utilize personnel of the 
        Commission to the extent practicable. Nothing in this section 
        is intended to replace, alter, or diminish the activities of 
        any ombudsman or similar office in any other agency.
            ``(4) Disclosure of confidential communications.--
        Notwithstanding any other provision of this subsection, in 
        those circumstances where the most senior officer of the 
        enforcement division or office of the Commission has made a 
        formal recommendation in writing to the Commission that it 
        exercise its authority in section 21(d)(1) to seek an 
        injunction against a registered broker or dealer, its authority 
        in section 42(d) of the Investment Company Act of 1940 to seek 
        an injunction against a registered investment company, or its 
        authority in section 209(d) of the Investment Advisers Act of 
        1940 to seek an injunction against a registered investment 
        adviser, the Ombudsman or an employee of the Ombudsman shall 
        disclose to the officers and employees of any other division or 
        office any confidential communications received from an officer 
        or employee of a registered broker or dealer, a registered 
        investment company, or a registered investment adviser pursuant 
        to the provisions of Section 24(b).
            ``(5) Report.--Each year, the Ombudsman shall submit a 
        report to the Commission for inclusion in the annual report 
        that describes the activities, and evaluates the effectiveness 
        of the Ombudsman during the preceding year. In that report, the 
        Ombudsman shall include solicited comments and evaluations from 
        registrants in regards to the effectiveness of the 
        Ombudsman.''.

SEC. 3. SENSE OF CONGRESS.

    It is the sense of Congress that the Securities and Exchange 
Commission should develop and publish guidelines setting forth 
explicitly the benefit that an issuer the securities of which are 
registered under section 12 of the Securities Exchange Act of 1934, a 
registered broker-dealer, a registered investment company, or a 
registered investment adviser shall receive if it self-reports to an 
administrative division or office of the Commission or to an 
enforcement division or office of the Commission an apparent violation 
of law, rules, or regulations applicable to it and is subsequently the 
respondent in a civil injunctive action or administrative proceeding 
brought by the Commission with respect to the matter that was self-
reported.
                                 <all>