[Congressional Record (Bound Edition), Volume 161 (2015), Part 8]
[House]
[Pages 11446-11448]
[From the U.S. 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.
  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

[[Page 11447]]

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.

[[Page 11448]]


  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 
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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