118 HR 500 IH: Financial Exploitation Prevention Act of 2023
U.S. House of Representatives
2023-01-25
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EN
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I
118th CONGRESS
1st Session
H. R. 500
IN THE HOUSE OF REPRESENTATIVES
January 25, 2023
Mrs. Wagner (for herself, Mr. Gottheimer, Mr. Steil, Mr. Huizenga, and Mr. Green of Texas) introduced the following bill; which was referred to the Committee on Financial Services
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.
1.

Short title
This Act may be cited as the “Financial Exploitation Prevention Act of 2023”.
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 under paragraph (2) may elect to comply with the requirements under paragraph (2) and subsection (i) by notifying the Commission of such 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 the 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 (a “direct-at-fund account”), the company and transfer agent shall—
(A)
request from such customer the name and contact information of at least one individual who—
(i)
is at the time of such request an adult; and
(ii)
may be contacted with respect to such account;
(B)
document and retain the information received pursuant to subparagraph (A); and
(C)
disclose to such customer in writing (including through electronic delivery) that such company or transfer agent may contact an individual specified pursuant to subparagraph (A) with respect to the account of such customer to—
(i)
address possible financial exploitation of such customer;
(ii)
confirm the contact information or health status of the customer; or
(iii)
identify any legal guardian, executor, trustee, or holder of a power of attorney of 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 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)
the 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 such 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 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 such 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 such extension;
(iii)
initiates an internal review of the facts and circumstances relating to the determination under clause (i);
(iv)
holds amounts related 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 such 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 company reasonably believes that an individual required to be notified under such subparagraph is, has been, or will subject the security holder who identified such 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 company shall be considered in compliance with subparagraph (B)(ii) if such 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 company shall establish procedures to carry out the requirements under this subsection, including procedures—
(i)
related to the identification and reporting of matters related 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 such 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 such company shall notify such company of—
(I)
each extension under subparagraph (B) authorized by such transfer agent;
(II)
each finding by the transfer agent under subparagraph (B)(i);
(III)
each notification under subparagraph (B)(ii) carried out by such 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 transfer agent acting on behalf of such 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 company shall—
(i)
document and retain records of—
(I)
each postponement of redemption under subparagraph (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 such records available to the Commission at the request of the Commission.
(3)

Specified adult defined
In this subsection, the term specified adult means—
(A)
an individual age 65 or older; or
(B)
an individual age 18 or older who a registered open-end investment company or a transfer agent acting on behalf of such company reasonably believes has a mental or physical impairment that renders the individual unable to protect the individual’s own interests.”.
(b)

Recommendations
(1)

In general
Not later than 1 year after the date of the enactment of this section, 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.