[Congressional Record Volume 162, Number 111 (Monday, July 11, 2016)]
[House]
[Pages H4581-H4582]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




            U.S. TERRITORIES INVESTOR PROTECTION ACT OF 2016

  Mr. HURT of Virginia. Mr. Speaker, I move to suspend the rules and 
pass the bill (H.R. 5322) to amend the Investment Company Act of 1940 
to terminate an exemption for companies located in Puerto Rico, the 
Virgin Islands, and any other possession of the United States.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                               H.R. 5322

       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 ``U.S. Territories Investor 
     Protection Act of 2016''.

     SEC. 2. TERMINATION OF EXEMPTION.

       (a) In General.--Section 6(a) of the Investment Company Act 
     of 1940 (15 U.S.C. 80a-6(a)) is amended by striking paragraph 
     (1).
       (b) Effective Date and Safe Harbor.--
       (1) Effective date.--Except as provided in paragraph (2), 
     the amendment made by subsection (a) shall take effect on the 
     date of the enactment of this Act.
       (2) Safe harbor.--With respect to a company that is exempt 
     under section 6(a)(1) of the Investment Company Act of 1940 
     (15 U.S.C. 80a-6(a)(1)) on the day before the date of the 
     enactment of this Act, the amendment made by subsection (a) 
     shall take effect on the date that is three years after the 
     date of the enactment of this Act.
       (3) Extension of safe harbor.--The Securities and Exchange 
     Commission, by rule and regulation upon its own motion, or by 
     order upon application, may conditionally or unconditionally, 
     under section 6(c) of the Investment Company Act of 1940 (15 
     U.S.C. 80a-6(c)), further delay the effective date for a 
     company described in paragraph (2) for a maximum of three 
     years following the initial three-year period if, before the 
     end of the initial three-year period, the Commission 
     determines that such a rule, regulation, motion, or order is 
     necessary or appropriate in the public interest and for the 
     protection of investors.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Virginia (Mr. Hurt) and the gentlewoman from New York (Ms. Velazquez) 
each will control 20 minutes.
  The Chair recognizes the gentleman from Virginia.


                             General Leave

  Mr. HURT of Virginia. 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 Virginia?
  There was no objection.
  Mr. HURT of Virginia. Mr. Speaker, I yield myself such time as I may 
consume.
  Mr. Speaker, I rise in support of H.R. 5322, the U.S. Territories 
Investor Protection Act, and thank the gentlewoman from New York (Ms. 
Velazquez) for her leadership on this issue.
  This measure would amend the Investment Company Act of 1940 to 
terminate an exemption for investment companies located in Puerto Rico, 
the Virgin Islands, and any other possession of the United States. 
Under current law, such companies are exempt from registration under 
the Investment Company Act if their shares are sold exclusively to 
residents of the territory in which they are located.
  This bill is about leveling the playing field, and it ensures that 
investment companies in Puerto Rico, Guam, and elsewhere are subject to 
the same rules as their mainland counterparts. Moreover, when the 
Investment Company Act was enacted, it was difficult and cost 
prohibitive for the SEC to travel to, inspect, and provide oversight 
for these companies. Now modern technologies allow the SEC to 
seamlessly gather information, and it is time that we update this law.
  When this measure was considered during the recent Committee on 
Financial Services markup, it received unanimous support, passing out 
of the committee by a vote of 59-0. Mr. Speaker, I ask that my 
colleagues support this bill.
  I reserve the balance of my time.
  Ms. VELAZQUEZ. Mr. Speaker, I yield myself such time as I may 
consume.
  The Investment Company Act of 1940 governs investment companies such 
as mutual funds, closed-end funds, unit investment trusts, and 
exchange-traded funds. Its purpose is to protect investors in such 
funds and to provide for impartial oversight of these companies.
  Among other things, the 1940 act regulates the type of activities 
that such companies can undertake and establishes standards for their 
conduct. In doing so, it describes investment companies' functions and 
their structure; regulates various transactions among affiliated 
persons; limits the amount of leverage they can undertake; outlines 
accounting, recordkeeping, and auditing requirements of funds; and 
describes how securities may be redeemed and repurchased. These matters 
sound technical, but they provide fundamental protections for investors 
in U.S. investment companies.
  Due to a historical artifact, however, all funds that are located and 
organized in and sold only to residents of U.S. territories are 
exempted from the 1940 act. The reason for such an exemption was that, 
at the time the act was being considered in 1940, the U.S. territories 
were deemed to be too distant from Washington, D.C., thus making travel 
to them cost prohibitive. Obviously, the cost of air travel is no 
longer cost prohibitive and not a reason to exempt territories from the 
1940 act.
  As a result of this exemption, investment companies located in U.S. 
territories can sell products to the residents and not be subject to 
the oversight, disclosure, and conflict-of-interest requirements that 
such companies located in the mainland U.S. are subject to.

                              {time}  1415

  The outcome is that those located in the U.S. territories have been 
subject

[[Page H4582]]

to investment losses, some resulting from behavior that likely would 
have been prohibited if the act applied to the island's investment 
companies.
  To address this matter, H.R. 5322, the U.S. Territories Investor 
Protection Act, applies the 1940 act to currently exempt investment 
companies that are located, organized in, and sold to residents of 
these territories.
  In order to permit investment companies to comply with the 
legislation, it provides for a 3-year compliance period with an option 
at the approval of the SEC for an additional 3 years. This time period 
balances the need to bring the investor protections of the 1940 act to 
the territories with enough time for affected entities to fully 
understand and comply with the 1940 act.
  It is important to note that if investment companies need further 
relief from any specific requirement of the 1940 act, they are able to 
request such relief through the SEC under existing law.
  I want to thank Chairman Hensarling for working with me throughout 
the last 9 months in a productive manner. Such cooperation was critical 
to developing an approach that would apply the act in a manner 
sensitive to investors and investment companies.
  As a result, I believe the framework of this bill, when combined with 
current statutory mechanisms, will provide a sufficient time period for 
adjustment and compliance.
  I urge Members to support this legislation. This legislation will 
dramatically benefit investors in Puerto Rico. Those that call Puerto 
Rico home will now be subject to the same investor protection laws that 
those on the mainland are subject to. This is not only fair, but it is 
right, as many Puerto Ricans have lost their life savings in investment 
products offered only on the island.
  When it comes to Puerto Rico, it is important to realize that what we 
are doing is not creating a new law or imposing a Federal mandate on 
the island. We are simply closing the loophole that has prevented 
Puerto Ricans from enjoying the same protections as the rest of 
Americans.
  With the enactment of this bill, the 1940 act will be applied to 
Puerto Rico and other U.S. territories in the same exact manner it is 
applied to all 50 States. Investors and consumers in Puerto Rico 
deserve this, and this bill is long overdue.
  Not only will the 1940 act provide Puerto Rico's investors with much-
needed safeguards, but the current fiscal crisis on the island is 
creating budgetary challenges for the local government. Having 
additional Federal oversight of investment activity is now especially 
critical for the island's residents.
  In closing, I want to thank Chairman Hensarling again for his 
cooperation and bringing this important bill forward to the floor. I 
ask Members to support this bill.
  Mr. Speaker, I yield back the balance of my time.
  Mr. HURT of Virginia. Mr. Speaker, I yield myself such time as I may 
consume.
  Mr. Speaker, I would just like to reiterate what Ms. Velazquez has 
said and recognize her hard work on this issue. Clearly, the time is 
right that we recognize that Puerto Rico, Guam, other territories, and 
possessions of the United States must be afforded the same protections 
that the Securities and Exchange Commission provides through the laws 
of the United States.
  I also want to commend our chairman, Chairman Hensarling, for his 
leadership on this issue, recognizing that, in this instance and in 
many instances, he looks for opportunities for us to work together in a 
bipartisan way.
  So I commend this to my colleagues. I certainly want to remind the 
body that this passed out of committee with a unanimous 59-0 strong 
bipartisan vote. You can't get any stronger than that. I ask that my 
colleagues support this measure.
  Mr. Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from Virginia (Mr. Hurt) that the House suspend the rules and 
pass the bill, H.R. 5322.
  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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