[Congressional Record Volume 161, Number 109 (Tuesday, July 14, 2015)]
[House]
[Pages H5140-H5142]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SBIC ADVISERS RELIEF ACT OF 2015
Mr. LUETKEMEYER. Mr. Speaker, I move to suspend the rules and pass
the bill (H.R. 432) to amend the Investment Advisers Act of 1940 to
prevent duplicative regulation of advisers of small business investment
companies.
The Clerk read the title of the bill.
The text of the bill is as follows:
H.R. 432
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 ``SBIC Advisers Relief Act of
2015''.
SEC. 2. ADVISERS OF SBICS AND VENTURE CAPITAL FUNDS.
Section 203(l) of the Investment Advisers Act of 1940 (15
U.S.C. 80b-3(l)) is amended--
(1) by striking ``No investment adviser'' and inserting the
following:
``(1) In general.--No investment adviser''; and
(2) by adding at the end the following:
``(2) Advisers of sbics.--For purposes of this subsection,
a venture capital fund includes an entity described in
subparagraph (A), (B), or (C) of subsection (b)(7) (other
than an entity that has elected to be regulated or is
regulated as a business development company pursuant to
section 54 of the Investment Company Act of 1940).''.
SEC. 3. ADVISERS OF SBICS AND PRIVATE FUNDS.
Section 203(m) of the Investment Advisers Act of 1940 (15
U.S.C. 80b-3(m)) is amended by adding at the end the
following:
``(3) Advisers of sbics.--For purposes of this subsection,
the assets under management of a private fund that is an
entity described in subparagraph (A), (B), or (C) of
subsection (b)(7) (other than an entity that has elected to
be regulated or is regulated as a business development
company pursuant to section 54 of the Investment Company Act
of 1940) shall be excluded from the limit set forth in
paragraph (1).''.
SEC. 4. RELATIONSHIP TO STATE LAW.
Section 203A(b)(1) of the Investment Advisers Act of 1940
(15 U.S.C. 80b-3a(b)(1)) is amended--
(1) in subparagraph (A), by striking ``or'' at the end;
(2) in subparagraph (B), by striking the period at the end
and inserting ``; or''; and
(3) by adding at the end the following:
``(C) that is not registered under section 203 because that
person is exempt from registration as provided in subsection
(b)(7) of such section, or is a supervised person of such
person.''.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Missouri (Mr. Luetkemeyer) and the gentlewoman from California (Ms.
Maxine Waters) each will control 20 minutes.
The Chair recognizes the gentleman from Missouri.
General Leave
Mr. LUETKEMEYER. Mr. Speaker, I ask unanimous consent that all
Members may have 5 legislative days in which to revise and extend their
remarks and include extraneous material on this bill.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Missouri?
There was no objection.
Mr. LUETKEMEYER. Mr. Speaker, I yield myself such time as I may
consume.
[[Page H5141]]
I rise today in support of H.R. 432, the SBIC Advisers Relief Act.
This legislation allows for commonsense changes that will ultimately
allow for greater small business capital formation and job creation.
The SBIC Advisers Relief Act streamlines the registration and
reporting requirements for advisers to small business investment
companies, or SBICs. These are advisers to investment funds that make
long-term investments in United States small businesses and have to the
tune of more than $63 billion since 1958.
SBICs are heavily regulated and closely supervised by the U.S. Small
Business Administration, and they have been for more than 55 years. The
existing regulatory regime surrounding SBICs includes an in-depth
examination of management, strong investment rules, numerous operation
requirements, recordkeeping, examination and reporting mandates, and
conflict of interest rules. These entities and the management of these
entities are anything but unregulated.
This robust regulatory framework has been well-recognized by
Congress. The intent of Congress in including certain exemptions in
Dodd-Frank was to reduce the regulatory burden on smaller funds and
SBICs. However, the law has resulted in some unintended consequences
that need to be addressed.
The SBIC Advisers Relief Act does three things:
One, it allows advisers that jointly advise SBICs and venture funds
to be exempt from registration, combining two separate exemptions that
exist: one for advisers of SBICs and a separate one for advisers of
venture funds;
Two, it excludes SBIC assets from the SEC's assets under management
threshold calculation; and
Three, it exempts from State regulation advisers of SBIC funds with
less than $90 million in assets under management, leaving those
entities to be regulated by the SBA, as they are today.
Mr. Speaker, I think we can all agree that these changes are common
sense. This legislation is not only broadly bipartisan, but it also
includes changes suggested by the SEC.
Most importantly, the bill is comprised of sensible provisions that
prevent redundant regulatory mandates and allow for greater investment
in America's small businesses.
The Financial Services Committee has thoroughly examined this
bipartisan legislation in both a legislative hearing and a markup. H.R.
432 passed the committee by a vote of 53-0 in May. Identical
legislation passed the House last year by a voice vote.
I want to thank the gentlewoman from New York (Mrs. Carolyn B.
Maloney) for her help on the bill.
I urge support of H.R. 432, and I reserve the balance of my time.
Ms. MAXINE WATERS of California. Mr. Speaker, I yield myself such
time as I may consume.
Mr. Speaker, I am once again pleased to support this bill related to
small business capital formation. This legislation has broad bipartisan
support and clarifies the intent of Congress when we passed Dodd-Frank.
H.R. 432, which Representatives Luetkemeyer and Maloney worked on in
a bipartisan fashion, exempts advisers to small business investment
companies, or SBICs, from registration with the SEC in cases where they
are inappropriately being required to do so.
Under the Dodd-Frank Act, Congress explicitly exempted advisers to
SBIC funds and advisers to venture capital funds from registration.
However, the SEC has interpreted the language in the act as still
requiring registration if a fund's adviser advises both.
{time} 1415
This, to me, is not consistent with the act, and I applaud the
authors of this bill for solving this problem.
This bill would also exclude SBIC fund assets from the calculation of
fund assets triggering the $150 million registration threshold, another
provision I believe is reasonable.
The SBIC program was created in 1958 to help small businesses grow.
It is a self-funded program and has provided needed capital to
communities via the partnership between the Small Business
Administration and private businesses.
I am also comfortable with the exemptions provided in this
legislation because the SBA actively oversees SBICs, ensures
compliance, and restricts leverage. I am pleased that we are able to
work together in this committee to ensure the continued vitality of
this longstanding program.
Last Congress, I met with an SBIC located just outside of my
district, Escalate Capital Partners, which finances technology firms.
Since 2010, the firm has financed 27 companies and increased its
payroll by 2,000 jobs.
However, this firm is being inadvertently caught up in unnecessary
SEC registration because, with SBIC assets under management being
counted, it exceeds the $150 million exemption threshold we established
in Dodd-Frank.
Without undermining the key systemic risk and investment protection
requirements we established under Dodd-Frank, H.R. 432 provides
Escalate Capital Partners and similarly situated SBICs with targeted
relief.
So I applaud the bipartisan coauthors and urge Members to support
this bill.
I reserve the balance of my time.
Mr. LUETKEMEYER. Mr. Speaker, I yield such time as he may consume to
the gentleman from New Jersey (Mr. Garrett), a member of the Financial
Services Committee and distinguished chairman of the Capital Markets
and Government Sponsored Enterprises Subcommittee.
Mr. GARRETT. Mr. Speaker, I rise in support of H.R. 432, the SBIC
Advisers Relief Act.
First I want to say thank you to the gentleman from Missouri (Mr.
Luetkemeyer) for his hard work and leadership on this issue, among
others, and on the legislation, which passed out of the Financial
Services Committee unanimously this past May.
And what would it do? It would fix yet another unintended consequence
of the Dodd-Frank Act, an interpretation of the bill that would require
unnecessary and costly registration of investment advisers who all play
a very critical role in our economy today.
You see, the Dodd-Frank Act amended the private fund exemption under
the Advisers Act to include an explicit exemption for advisers to both
venture capital funds as well as advisers to Small Business Investment
Companies, SBICs.
Whatever the merits of changing the private fund exemption in this
way, Congress very clearly intended to exempt advisers to such funds
from the burdens and the added costs associated with yet another SEC
registration.
Unfortunately, due to the way the legislation text has been
interpreted, someone who happens to advise both a venture capital fund
and, also, an SBIC is being required now to also register with the SEC.
This makes absolutely no sense and is clearly contradictory to the
statutory language.
There is no valid argument or reason to require an adviser to
register simply because they happen to advise both a venture capital
fund and an SBIC. You see, such a requirement would not in any way
enhance investor protection or promote capital formation.
It is also important to note that SBICs are already overseen and
examined by the Small Business Administration; so registration with the
SEC would not only be unnecessary, but duplicative as well.
So why is all of this important? Why do we have the legislation here
today? Well, according to the Small Business Investor Alliance, initial
registration costs with the SEC are estimated to be in excess of
$100,000 a year and annual costs can run up to $250,000 a year. That is
money. That is money that could otherwise be used for salaries and
hiring more people and in helping the economy.
In conclusion, it is important to keep in mind that the small
businesses that we are talking about often don't have an array of
lawyers or compliance specialists to deal with registration and
oversight from the SEC. Oftentimes these are businesses that only have
a handful of employees.
Again, I thank the gentleman from Missouri (Mr. Luetkemeyer) and all
my colleagues on the other side of the aisle on the Financial Services
Committee who support this. I urge passage of the underlying bill.
Ms. MAXINE WATERS of California. Mr. Speaker, I yield such time as
she may consume to the gentlewoman from New York (Mrs. Carolyn B.
Maloney).
Mrs. CAROLYN B. MALONEY of New York. I thank the ranking member for
[[Page H5142]]
yielding and for her leadership on this committee and in so many other
areas.
Mr. Speaker, I rise today in support of H.R. 432, the SBIC Advisers
Relief Act. And I am pleased to be an original sponsor of this bill
along with my colleague, the gentleman from Missouri (Mr. Luetkemeyer),
a tremendous leader on the Financial Services Committee not only on
this bill, but in so many other areas.
The SBIC Advisers Relief Act fixes a truly unintended consequence of
Dodd-Frank. Under Dodd-Frank, an investment adviser that only advises a
venture capital fund is exempt from SEC registration.
Likewise, an investment adviser that only advises Small Business
Investment Companies, or SBICs, is also exempt. But an investment
adviser that advises both a venture capital fund and an SBIC is not
exempt for some reason.
This makes no sense, and it provides no additional protections for
investors. Moreover, it discourages investment advisers who may have
experience advising successful venture capital funds that have invested
in larger, more mature enterprises from bringing their expertise to
SBICs who want to invest in similar startups. This ultimately restricts
small businesses' access to much-needed investment capital.
Our bill fixes this problem by clarifying that investment advisers
that advise both venture funds and SBICs are also exempt from SEC
registration.
This fix does not pose any investor protection concerns because SBICs
are already subject to strict oversight by the Small Business
Administration, which supports SBICs by providing a guarantee on funds
used by SBICs to invest in other small businesses.
The SBIC program has a long history of success and has provided
early-stage financing for companies that have since grown to become
worldwide icons, such as Apple, Intel, and Staples.
This bill is identical to a bill that passed the House by voice vote
last Congress, and it passed unanimously in the Financial Services
Committee earlier this year. I, therefore, urge my colleagues to
support H.R. 432.
Mr. LUETKEMEYER. Mr. Speaker, I yield such time as he may consume to
the gentleman from Arkansas (Mr. Hill), who is a member of the
Financial Services Committee.
Mr. HILL. I thank Chairman Luetkemeyer.
Mr. Speaker, I rise today in support of H.R. 432, the SBIC Advisers
Relief Act. This commonsense bill eliminates costly, confusing, and
duplicative regulations by State and Federal governments on Small
Business Investment Companies, SBICs, like Diamond State Ventures and
McLarty Capital Partners in Little Rock, Arkansas, by correcting the
unintended consequence of drafting in the Dodd-Frank Act.
Diamond State, which was named SBIC of the year in 2011 by the Small
Business Administration, has made over 18 investments in small
businesses in my State, employing over 2,300 Arkansans and investing
over $40 million in Arkansas businesses.
SBICs are already heavily regulated by the SBA and provide
significant, long-term investments in small businesses across the USA.
While Dodd-Frank exempted advisers that solely advise SBIC funds from
registering with the SEC, it was silent on the concept of State
regulation of Federally licensed SBIC funds, creating confusion and
requiring this action today. It is going to save money, legal fees,
accounting fees, and make our SBICs much more cost-effective.
With that, I thank Chairman Luetkemeyer and our colleagues for their
work on this issue and urge my colleagues to support the bill.
Ms. MAXINE WATERS of California. Mr. Speaker, I have no additional
speakers.
I yield back the balance of my time.
Mr. LUETKEMEYER. Mr. Speaker, I just want to thank the gentlewoman
from New York (Mrs. Carolyn B. Maloney) for her hard work in helping
cosponsor this bill, Ranking Member Waters, as well as the gentleman
from Arkansas (Mr. Hill) and the gentleman from New Jersey (Mr.
Garrett) for their support and kind words. I ask for support for H.R.
432.
I yield back the balance of my time.
The SPEAKER pro tempore (Mr. Duncan of Tennessee). The question is on
the motion offered by the gentleman from Missouri (Mr. Luetkemeyer)
that the House suspend the rules and pass the bill, H.R. 432.
The question was taken; and (two-thirds being in the affirmative) the
rules were suspended and the bill was passed.
A motion to reconsider was laid on the table.
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