[Congressional Record Volume 163, Number 74 (Monday, May 1, 2017)]
[House]
[Pages H2981-H2983]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
U.S. TERRITORIES INVESTOR PROTECTION ACT OF 2017
Mr. HILL. Mr. Speaker, I move to suspend the rules and pass the bill
(H.R. 1366) 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.
[[Page H2982]]
The Clerk read the title of the bill.
The text of the bill is as follows:
H.R. 1366
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 2017''.
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 3 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 3 years
following the initial 3-year period if, before the end of the
initial 3-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
Arkansas (Mr. Hill) and the gentlewoman from New York (Ms. Velazquez)
each will control 20 minutes.
The Chair recognizes the gentleman from Arkansas.
General Leave
Mr. HILL. 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 materials on this bill.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Arkansas?
There was no objection.
Mr. HILL. Mr. Speaker, I yield myself such time as I may consume.
Today I rise in support of H.R. 1366, the U.S. Territories Investor
Protection Act, and I thank my friend and colleague from New York for
her exceptional efforts in designing and bringing this bill to us
today.
H.R. 1366 repeals a provision in the Investment Company Act of 1940
that exempts investment companies in Puerto Rico, Guam, and other U.S.
territories from registering with the Securities and Exchange
Commission, the SEC, so that they have to play by the same rules as
their mainland counterparts.
When Congress first enacted the Investment Company Act in the 1940s,
a nonregistration exemption for investment companies in the
noncontiguous territories made a lot of sense as it was extremely
expensive and difficult for the SEC to send staff to travel to these
territories and inspect the local companies. In fact, Mr. Speaker, back
in the 1940s, Eastern Air Lines bragged of their 6-hour-and-10-minute
service between New York and San Juan one way for $1,700 in today's
money. So, in fact, it was challenging to get to the territories.
But with all the significant advances in technology and travel, these
logistical barriers no longer exist. As such, this bill repeals this
archaic exemption and provides a reasonable and safe harbor to allow
those companies currently subject to the exemption to transition.
Similar legislation passed the House in the last Congress by voice
vote, and, earlier this year, H.R. 1366 passed the House Financial
Services Committee by a unanimous vote.
Mr. Speaker, I urge my colleagues to support this bill, and I reserve
the balance of my time.
{time} 1700
Ms. VELAZQUEZ. Mr. Speaker, I yield myself such time as I may
consume.
Mr. Speaker, I rise in support of H.R. 1366, legislation that will
close a loophole in our securities laws and better protect the
investors and retirees of the U.S. territories.
The Investment Company Act of 1940 governs investment companies, such
as mutual funds, closed-end funds, and ETFs. Its purpose is to protect
investors and provide oversight of these companies. In doing so, it
regulates various transactions among affiliates, sets leverage limits,
outlines recordkeeping requirements, and describes how securities may
be redeemed.
These matters sound technical, but they provide fundamental
protections to most U.S. investors. I say ``most'' because, due to a
historical artifact, all funds located in and sold only to residents of
U.S. territories are exempted.
The reason is, in 1940, territories like Puerto Rico were considered
to be too distant from Washington, D.C. Obviously, modern air travel
makes that a nonissue today, as regulators routinely travel to Hawaii
and Alaska to conduct oversight. In addition, many of these financial
products are now traded electronically, truly eliminating the need to
visit in person.
The consequence of exemption falls squarely on the residents of U.S.
territories. Investment companies can sell products to them without the
important oversight, disclosure, and conflict-of-interest requirements
to which mainland companies are subject.
As a result, many investors and retirees have been subject to
investment losses, some resulting from behavior that would have been
prohibited if the 1940 act applied to the island's investment
companies.
To address this matter, H.R. 1366, 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.
I would like to point out that this bill is identical to legislation
that passed the House last Congress twice with overwhelming bipartisan
support.
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. Earlier this
year, past SEC Chair White testified that the exemption should be
removed.
I want to thank Congressman Duffy and Congressman MacArthur, two of
my colleagues from the Puerto Rico Task Force, for cosponsoring this
bill. I also want to thank Puerto Rico's new Member of Congress,
Jenniffer Gonzalez-Colon, for cosponsoring it as well; and Senators
Hatch and Menendez, who have put forward a companion bill in the
Senate. All of this support means a great deal to me and to those
investors on the island.
Finally, I want to thank Chairman Hensarling and Ranking Member
Waters for working with me throughout the last 2 years in a highly
productive manner. We met with stakeholders, heard their concerns, and
fine-tuned the bill. I am confident we developed an approach that would
apply the 1940 act in a manner that is sensitive to investors and
investment companies alike.
Mr. Speaker, I urge Members to support this bill, and I reserve the
balance of my time.
Mr. HILL. Mr. Speaker, I yield myself such time as I may consume.
I want to thank my friend from New York for her leadership and her
voice on behalf of Puerto Rico and the islands in this regard, and for
her long public service and particular leadership in this time of
important change in Puerto Rico.
Recently, Mr. Speaker, I had the opportunity to take an all-too-quick
trip to San Juan to assess the current economic conditions on the
island. It was too brief in that it was less than a day, which seems
completely unfair to any visitor to the beautiful island of Puerto
Rico.
I want to thank my host, our distinguished delegate from the
Commonwealth, Jenniffer Gonzalez-Colon for hosting me on that visit. I
thank her for her cosponsorship on this bill and her leadership on the
island here in Congress. We are grateful to have her as a new Member of
this body.
Mr. Speaker, I yield such time as she may consume to the gentlewoman
from Puerto Rico (Miss Gonzalez-Colon).
[[Page H2983]]
Miss GONZALEZ-COLON of Puerto Rico. Mr. Speaker, today I rise in
support of the U.S. Territories Investor Protection Act. I am a
cosponsor of this bill, and I thank Representative Velazquez for
introducing H.R. 1366 and the Members who have joined in supporting
this important legislation.
The U.S. Territories Investor Protection Act will close a loophole in
the current law. By passing this bill, Congress will bring to Puerto
Rico's investors the same protections enjoyed by investors residing in
the 50 States.
Under current law, investment funds that are located and organized in
the U.S. territories and sell to only residents of the territories are
exempted from the Investment Company Act of 1940, which governs
entities, such as mutual and exchange-traded funds.
Because of this exemption, investment companies located in the U.S.
territories can sell their products to territory residents while not
being subjected to the oversight, disclosure, and conflict-of-interest
requirements that govern investment companies located in the States. As
a result, investors residing in Puerto Rico and the other territories
have experienced investment losses, some of which likely would have
been prohibited had the 1940 act applied to the territories.
For example, UBS operating in Puerto Rico served as an adviser to
Puerto Rico's Employees Retirement System and, in 2008, led the
underwriting of a $2.9 billion bond issue for the government pension
agency. UBS then placed $1.7 billion of those funds into UBS-managed
mutual funds that UBS then sold exclusively to customers on the island.
This investment would have been forbidden by the Investment Company Act
if these funds were sold in the States.
The Puerto Rican investors holding these bonds have suffered massive
losses and are claiming that UBS did not properly disclose the risks of
these funds. On the island, hundreds of these customers have filed
arbitration claims with the Financial Industry Regulatory Authority and
seek more than $1.1 billion in damages. UBS continues to lose these
cases for failing its fiduciary responsibilities.
Today's vote on H.R. 1366 will help end such outrageous investment
abuse and gives Congress another opportunity to align the laws
governing Puerto Rico and the other territories with the laws governing
the 50 States.
H.R. 1366 will remove the territories' exemption and make the
Investment Company Act of 1940 apply to companies that are located,
organized in, and sell to residents of the territories.
Mr. Speaker, I urge my colleagues to vote in support of H.R. 1366,
the U.S. Territories Investor Protection Act.
Ms. VELAZQUEZ. Mr. Speaker, I yield myself such time as I may
consume.
Closing the U.S. territories loophole in the Investment Company Act
of 1940 will give millions of investors and retirees--mostly in Puerto
Rico--the peace of mind that their hard-earned money will receive the
same level of protection afforded to those on the mainland.
I want to thank the chairman, the ranking member, and all the
cosponsors for their hard work in bringing this bipartisan legislation
to the floor.
Mr. Speaker, I urge Members to support this bill, and I yield back
the balance of my time.
Mr. HILL. Mr. Speaker, I yield back the balance of my time.
The SPEAKER pro tempore (Mr. McClintock). The question is on the
motion offered by the gentleman from Arkansas (Mr. Hill) that the House
suspend the rules and pass the bill, H.R. 1366.
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.
____________________