[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[S. 3614 Introduced in Senate (IS)]

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115th CONGRESS
  2d Session
                                S. 3614

To amend the Investment Advisers Act of 1940 to require proxy advisory 
firms to register as investment advisers under that Act, and for other 
                               purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           November 13, 2018

Mr. Reed (for himself, Mr. Perdue, Ms. Heitkamp, Mr. Tillis, Mr. Jones, 
 and Mr. Kennedy) 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 Advisers Act of 1940 to require proxy advisory 
firms to register as investment advisers under that Act, 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 ``Corporate Governance Fairness Act''.

SEC. 2. PROXY ADVISORY FIRMS.

    The Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.) is 
amended--
            (1) in section 202(a) (15 U.S.C. 80b-2(a))--
                    (A) in paragraph (11)--
                            (i) in the matter preceding subparagraph 
                        (A), by inserting ``, and includes a proxy 
                        advisory firm'' after ``promulgates analyses or 
                        reports concerning securities''; and
                            (ii) in subparagraph (F), by striking ``on 
                        behalf of others;;'' and inserting ``on behalf 
                        of others or acts as a proxy advisory firm;'';
                    (B) by redesignating the second paragraph (29) as 
                paragraph (31); and
                    (C) by adding at the end the following:
            ``(32)(A) The term `proxy advisory firm'--
                    ``(i) subject to clause (ii), means any person that 
                is engaged in the business of providing proxy voting 
                research, analysis, ratings, or recommendations to 
                investors in issuers by means of written or oral 
                statements that are reasonably designed to meet the 
                objectives or needs of specific clients, investors, or 
                their accounts, including proxy voting research, 
                analysis, ratings, or recommendations that are tailored 
                to or reflect particular proxy voting guidelines 
                developed or selected by investors; and
                    ``(ii) does not include any person described in 
                clause (i) that, together with the parent, 
                subsidiaries, and affiliates of the person, receives on 
                a consolidated basis in a fiscal year gross receipts 
                from the clients of the person in an amount that is not 
                more than $5,000,000, as adjusted annually by the 
                Commission to reflect the percentage change for the 
                previous calendar year in the gross domestic product of 
                the United States, as calculated by the Bureau of 
                Economic Analysis of the Department of Commerce, except 
                that a person described in this clause may choose to be 
                considered a proxy advisory firm for the purposes of 
                this Act.
            ``(B) Notwithstanding any other provision of law or 
        regulation--
                    ``(i) for the purposes of this Act, a proxy 
                advisory firm may not be considered to be excluded from 
                the definition of the term `investment adviser' under 
                paragraph (11) because of the application of 
                subparagraph (D) of that paragraph; and
                    ``(ii) only the Commission, under subparagraph (H) 
                of paragraph (11), may designate a proxy advisory firm 
                as a person described in that subparagraph, except that 
                the Commission may not make such a designation if the 
                proxy advisory firm is described in any of paragraphs 
                (1) through (9) of section 203(e).'';
            (2) in section 203 (15 U.S.C. 80b-3), by adding at the end 
        the following:
    ``(o) Rule of Construction.--Nothing in subsections (b) through (n) 
may be construed to exempt a proxy advisory firm from the application 
of the provisions of subsection (a).'';
            (3) in section 203A(a)(1) (15 U.S.C. 80b-3a(a)(1))--
                    (A) in subparagraph (A), by striking ``or'' at the 
                end;
                    (B) in subparagraph (B), by striking the period at 
                the end and inserting ``; or''; and
                    (C) by adding at the end the following:
                    ``(C) is a proxy advisory firm.'';
            (4) in section 204 (15 U.S.C. 80b-4)--
                    (A) by redesignating the second subsection (d) 
                (relating to records of persons with custody or use) as 
                subsection (e); and
                    (B) by adding at the end the following:
    ``(f) Examination of Records of Proxy Advisory Firms.--
            ``(1) Periodic and special examinations.--The Commission--
                    ``(A) shall--
                            ``(i) beginning not later than 1 year after 
                        the date of enactment of this subsection, 
                        conduct periodic inspections of the records of 
                        proxy advisory firms in accordance with a 
                        schedule established by the Commission; and
                            ``(ii) when conducting each inspection 
                        under clause (i), review--
                                    ``(I) whether any proxy advisory 
                                firm, with respect to any statement 
                                made by the firm to a client of the 
                                proxy advisory firm, knowingly--
                                            ``(aa) made any false 
                                        statement to the client; or
                                            ``(bb) omitted to state a 
                                        material fact that would be 
                                        necessary to make the statement 
                                        to the client not misleading; 
                                        and
                                    ``(II) policies and programs 
                                regarding conflicts of interest at 
                                proxy advisory firms; and
                    ``(B) may conduct, in addition to the inspections 
                conducted under subparagraph (A), at any time and from 
                time to time, such additional, special, and other 
                examinations of proxy advisory firms and the records of 
                proxy advisory firms as the Commission may prescribe as 
                necessary and appropriate in the public interest and 
                for the protection of investors.
            ``(2) Availability of records.--A proxy advisory firm shall 
        make available to the Commission any copies or extracts from 
        the records described in subparagraph (A)(i) or (B) of 
        paragraph (1), as applicable, as may be prepared without undue 
        effort, expense, or delay, as the Commission or its 
        representatives may reasonably request.''; and
            (5) in section 211(h) (15 U.S.C. 80b-11(h))--
                    (A) by redesignating paragraphs (1) and (2) as 
                subparagraphs (A) and (B), respectively, and adjusting 
                the margins accordingly;
                    (B) in the matter preceding subparagraph (A), as so 
                redesignated, by striking ``The Commission'' and 
                inserting the following:
            ``(1) In general.--The Commission'';
                    (C) in paragraph (1), as so redesignated--
                            (i) in subparagraph (A), as so 
                        redesignated, by striking ``and'' at the end;
                            (ii) in subparagraph (B), as so 
                        redesignated, by striking the period at the end 
                        and inserting ``; and''; and
                            (iii) by adding at the end the following:
                    ``(C) not later than 2 years after the date of 
                enactment of the Corporate Governance Fairness Act, and 
                after consulting with all relevant stakeholders, 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 that--
                            ``(i) evaluates existing, as of the date on 
                        which the report is submitted--
                                    ``(I) policies and programs 
                                regarding conflicts of interest at 
                                proxy advisory firms; and
                                    ``(II) policies and procedures at 
                                proxy advisory firms that are designed 
                                to avoid knowingly making any false 
                                statement, or omitting to state a 
                                material fact, that would be necessary 
                                to make a statement to a client of the 
                                proxy advisory firm not misleading; and
                            ``(ii) examines whether any additional 
                        protection to investors under subparagraph (B) 
                        would be helpful to those investors, including 
                        policies and procedures that allow investors to 
                        consider, in a reasonably timely manner, 
                        material information that is necessary for the 
                        investors to--
                                    ``(I) make informed investment 
                                decisions; and
                                    ``(II) exercise any of the rights 
                                of the investors that are conferred by 
                                securities held by the investors.''; 
                                and
                    (D) by adding at the end the following:
            ``(2) Updates of proxy advisory firms report.--Not less 
        frequently than once every 5 years, beginning on the date on 
        which the Commission submits the report required under 
        paragraph (1)(C), the Commission shall submit to the 
        congressional committees described in that paragraph an updated 
        version of that report, which shall evaluate whether the 
        existing rules of the Commission, as of the date on which the 
        applicable updated report is submitted, sufficiently protect 
        investors, including the ability of investors to consider, in a 
        reasonably timely manner, material information that is 
        necessary for the investors to--
                    ``(A) make informed investment decisions; and
                    ``(B) exercise any of the rights of the investors 
                that are conferred by securities held by the 
                investors.''.
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