[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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