[Congressional Record (Bound Edition), Volume 163 (2017), Part 5]
[House]
[Pages 6247-6248]
[From the U.S. 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.
  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

[[Page 6248]]

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).
  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.

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