[Congressional Record Volume 169, Number 118 (Tuesday, July 11, 2023)]
[House]
[Pages H3184-H3185]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
AMENDING THE INVESTMENT ADVISERS ACT OF 1940 TO CODIFY CERTAIN
SECURITIES AND EXCHANGE COMMISSION NO-ACTION LETTERS THAT EXCLUDE
BROKERS AND DEALERS COMPENSATED FOR CERTAIN RESEARCH SERVICES FROM THE
DEFINITION OF INVESTMENT ADVISER
Mrs. WAGNER. Madam Speaker, I move to suspend the rules and pass the
bill (H.R. 2622) to amend the Investment Advisers Act of 1940 to codify
certain Securities and Exchange Commission no-action letters that
exclude brokers and dealers compensated for certain research services
from the definition of investment adviser, and for other purposes, as
amended.
The Clerk read the title of the bill.
The text of the bill is as follows:
H.R. 2622
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. EXTENSION OF NO-ACTION LETTER; STUDY.
(a) Findings.--Congress finds the following:
(1) The Securities and Exchange Commission staff first
granted temporary no-action relief in 2017, prior to the
implementation of European rules designed to protect European
investors from excessive costs and conflicts of interest.
(2) The Commission staff did not engage in any meaningful
cost-benefit analysis of the issues raised by the no-action
relief requested either prior to or following the granting of
no-action relief in 2017.
(3) The Commission staff revised and extended the temporary
no-action relief in 2019, again without any meaningful cost-
benefit analysis of the issues raised by the no-action relief
requested prior to or following the granting of the relief.
(4) There are currently approximately 15,300 registered
investment advisers, including affiliates that provide the
vast majority of investment research.
(5) The Commission has received complaints from investors
and investor advocacy groups expressing concerns with the no-
action relief, as it currently exists.
(6) The Commission has received concerns from broker-
dealers related to the potential expiration of the no-action
relief.
(b) Extension of No-action Letter.--The Commission shall
provide an additional 6-month extension of the October 26,
2017, Securities Industry and Financial Markets Association,
SEC Staff No-Action Letter, set to expire on July 3, 2023.
(c) Study Required.--After the announcement extending the
expiration date of the no-action letter under subsection (b),
the Commission shall conduct, through notice and comment, a
study of the impact of allowing the no-action letter's
expiration or maintenance of the no-action letter, and give
due regard to any comments received in conducting the study.
The Commission or delegated staff shall report their findings
and conclusions, including findings related to the expiration
of the no-action relief, to the Committee on Financial
Services of the House of Representatives and the Committee on
Banking, Housing, and Urban Affairs of the Senate.
(d) Contents of Study.--The study required under subsection
(c) shall include potential impacts on the research market
for smaller issuers, including--
(1) the availability of such research, including--
(A) the number and types of firms who provide such
research;
(B) the volume of such research over time; and
(C) competition in the research market;
(2) any unique challenges faced by minority-owned, women-
owned, and veteran owned small issuers in obtaining research
coverage;
(3) the impact on the availability of research coverage for
small issuers due to Commission rules;
(4) a cost-benefit analysis of regulatory options that will
support research coverage of small entities and increase
transparency in the cost of research provided by broker-
dealers;
(5) the impact of the no-action relief on investors in
registered investment companies and exempt investment funds,
pension funds, endowments, and other asset owners, investment
advisers, broker-dealers that provide both investment
research and trading services, independent investment
advisers that do not provide trading services, broker-dealers
that do not provide investment research, and other market
participants, including issuers of securities; and
(6) the potential impacts of the expiration of the no-
action relief on investors in registered investment companies
and exempt investment funds, pension funds, endowments,
investment advisers, and other asset owners, broker-dealers
that provide both investment research and trading services,
independent investment advisers that do not provide trading
services, broker-dealers that do not provide investment
research, and other market participants, including issuers of
securities.
The SPEAKER pro tempore. Pursuant to the rule, the gentlewoman from
Missouri (Mrs. Wagner) and the gentleman from California (Mr. Sherman)
each will control 20 minutes.
The Chair recognizes the gentlewoman from Missouri.
General Leave
Mrs. WAGNER. Madam 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
gentlewoman from Missouri?
There was no objection.
Mrs. WAGNER. Madam Speaker, I yield myself such time as I may
consume.
I rise in support of H.R. 2622, a bill that would ensure broker-
dealers can continue to provide investment research to Europe. This
research is incredibly important for smaller and midsize public
companies that rely on our capital markets.
I thank my colleagues from both sides of the aisle, Representatives
Sessions and Gottheimer, for finding common ground and coming to a
sensible agreement to ensure that policies enacted by the European
Union's Markets in Financial Instruments Directive, MiFID, do not
needlessly burden U.S. broker-dealers.
H.R. 2622 extends an SEC no-action letter originally issued in 2017,
and extended again in 2019, for another 6 months, granting U.S. broker-
dealers much-needed relief and giving the SEC time to properly study
the impact of the no-action letter's expiration.
Widespread dissemination of research by U.S. broker-dealers to
investment managers is critical to capital formation and to maintaining
the competitiveness and efficiency of the U.S. capital markets.
Moreover, non-U.S. and global investment managers rely on the excellent
research conducted and provided by U.S. broker-dealers to inform their
decisionmaking and fulfill their fiduciary duties to U.S. investors.
Unfortunately, the EU's MiFID II threatens to disrupt the current
[[Page H3185]]
broker-dealer research market by requiring separate payments for
research services and trade execution. This small change would capture
U.S. broker-dealers receiving unbundled payments for research services
and put them under the Investment Advisers Act, subjecting them to an
entirely new regulatory regime.
The SEC no-action letter, which H.R. 2622 extends, permits broker-
dealers to accept separate cash payments from investment advisers
without adding new, burdensome regulatory requirements.
Studies have shown that since MiFID II was introduced, there has been
a reduction in the availability of research. Many broker-dealers have
said that they will significantly curtail or eliminate their research
services altogether if this no-action letter expires. Plus, as of last
month, several European Union member states are seeking to reverse
MiFID II.
Madam Speaker, to ensure the continued availability of investment
research and better understand the consequences of allowing the SEC no-
action letter to expire, I urge my colleagues to support H.R. 2622, and
I reserve the balance of my time.
Mr. SHERMAN. Madam Speaker, I yield myself such time as I may
consume.
I rise in support of H.R. 2622, sponsored by the gentleman from
Texas. To put this in context, we have one regulatory scheme to deal
with broker-dealers and another to deal with registered investment
advisers.
Traditionally in the United States, a broker-dealer is only
registered as a broker-dealer, subject to that regulatory scheme, and
the broker-dealer not only executes transactions but also gives advice
and does research.
Our friends in Europe have required that under certain circumstances,
a broker-dealer must charge separately for the research and advice on
the one hand and for the execution of the transaction on the other.
Following that pattern would ordinarily cause that broker-dealer to
be subject to that second regulatory scheme, the regulatory scheme for
registered investment advisers. It is appropriate that since 2017 the
SEC has had a no-action letter, saying that if broker-dealers under
these circumstances do not register as investment advisers, the staff
of the SEC will recommend to the board that it take no action, no
enforcement action. Basically, it is a pass for the broker-dealer to
follow the European rules but not register as a registered investment
adviser, continuing to be subject to regulation only as a broker-
dealer.
Now, this bill in its original form would have made this no-action
letter, this pass permanent, but several investor groups expressed
concerns about that original version of the bill. For example, a joint
letter from the Council of Institutional Investors, the CFA Institute,
and others argued against taking that approach without further thought.
During the committee markup, the gentleman from New Jersey (Mr.
Gottheimer) offered an amendment to change this bill from the permanent
exemption to instead only relief for 6 months. It requires the SEC to
study the impact of letting the no-action letter expire, something that
the Financial Services Committee is very interested in understanding.
The bill would also review other tangential issues, including
conflicts of interest and the provision of financial services by
middle-market financial intermediaries.
With Mr. Gottheimer's amendment adopted, I think this bill is a
reasonable compromise, and I urge all of my colleagues to support the
bill.
Madam Speaker, I reserve the balance of my time.
Mrs. WAGNER. Madam Speaker, I yield such time as he may consume to
the gentleman from Texas (Mr. Sessions), the author of this piece of
legislation and my friend and colleague.
Mr. SESSIONS. Madam Speaker, I thank the chairwoman for the time, and
I appreciate the gentleman from California standing in support of this
bill, H.R. 2622.
In fact, this was a bipartisan agreement that we came to. The
gentleman from New Jersey (Mr. Gottheimer), and I worked on this, and
he included some language he felt was very important.
The bottom line is that the SEC will be required to extend MiFID II
relief and study its effects as part of long overdue and larger review
of the regulatory framework for investment research.
I believe this agreement that we passed in the House Financial
Services Committee on May 24 by a vote of 45-2 represents not just the
thinking and thought process, but it really meets the needs of the
investor community. For that reason, we believe that we are on the
floor today.
I thank the chairman of the committee, Mr. McHenry, for not only
bringing this but also for his leadership in a series of bills that we
will have on the floor today. Mr. McHenry has served well, and I
appreciate his service.
Mr. SHERMAN. Madam Speaker, I yield myself the balance of my time to
close.
There is an image in the country that nothing is getting done in
Washington, that we are tied up in partisan knots. As the gentleman
from Texas points out, this bill passed our committee 45-2. Congress
continues to function, although it is much more exciting for the press
to cover the fights than the progress.
The amended version of H.R. 2622 being considered on the floor today
represents a bipartisan compromise. It gives the SEC the time to
address potential concerns laid out by stockholders related to the no-
action letter for broker-dealers that offer research services from
needing to register as investment advisers.
It is a well-thought-out response to our current situation. I urge my
colleagues to support this bill and yield back the balance of my time.
Mrs. WAGNER. Madam Speaker, I would just simply urge my colleagues to
support H.R. 2622, and I yield back the balance of my time.
Ms. JACKSON LEE. Madam Speaker, I rise to speak in support of H.R.
2622, a bill to amend the Investment Advisers Act of 1940 to codify
certain Securities and Exchange Commission no-action letters that
exclude brokers and dealers compensated for certain research services
from the definition of investment adviser.
This bill provides statutory authority for specified Securities and
Exchange Commission (SEC) guidance allowing broker-dealers to receive
payments for research services provided to investment managers.
Under current law, broker-dealers that receive payments for
performing this service must register as investment advisors.
However, the SEC currently waives enforcement against these broker-
dealers.
The current no-action relief, which was temporarily granted in 2017
by the Securities and Exchange Commission (SEC), has received multiple
complaints from investors and advocacy groups who have expressed
reservations about the current no-action relief.
This bill helps to address these concerns, correct the defects of the
current no-action relief, and resolve issues regarding the potential
expiration of the current relief.
H.R. 2622 helps to strengthen American capital markets by providing
U.S. brokers and dealers relief from undue external security market
regulations and prevent a reduction in investment research that can
potentially harm investment managers and the retail investor customers
that they serve.
This bill also helps to further strengthen the standard conduct of
investment advisory by ensuring that the best interests of customers
are protected without regard to the financial and other private
interests of brokers and dealers.
H.R. 2622 ensure that the SEC provides secure framework of rules and
regulations that help to enhance investors' confidence in the system
and safeguards their investment by ensuring transparency of the
records.
This bill provides more concrete measures for the over 15,000
Registered Investment Advisors (RIAs) to effectively carry out their
primary duties of providing tailored financial advice to their clients,
management of investment portfolios, and other services to the public.
The SPEAKER pro tempore. The question is on the motion offered by the
gentlewoman from Missouri (Mrs. Wagner) that the House suspend the
rules and pass the bill, H.R. 2622, as amended.
The question was taken; and (two-thirds being in the affirmative) the
rules were suspended and the bill, as amended, was passed.
A motion to reconsider was laid on the table.
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