[House Report 107-192]
[From the U.S. Government Publishing Office]




107th Congress                                            Rept. 107-192
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 1

======================================================================



 
            FINANCIAL SERVICES ANTIFRAUD NETWORK ACT OF 2001

                                _______
                                

                 August 2, 2001.--Ordered to be printed

                                _______
                                

  Mr. Oxley, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 1408]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Financial Services, to whom was referred the 
bill (H.R. 1408) to safeguard the public from fraud in the 
financial services industry, to streamline and facilitate the 
antifraud information-sharing efforts of Federal and State 
regulators, and for other purposes, having considered the same, 
report favorably thereon with an amendment and recommend that 
the bill as amended do pass.

                                CONTENTS

                                                                   Page
Purpose and Summary..............................................    23
Background and Need for Legislation..............................    23
Hearings.........................................................    25
Committee Consideration..........................................    26
Committee Votes..................................................    26
Committee Oversight Findings.....................................    26
Performance Goals and Objectives.................................    26
New Budget Authority, Entitlement Authority, and Tax Expenditures    26
Committee Cost Estimate..........................................    27
Congressional Budget Office Estimate.............................    27
Federal Mandates Statement.......................................    29
Advisory Committee Statement.....................................    29
Constitutional Authority Statement...............................    29
Applicability to Legislative Branch..............................    29
Exchange of Committee Correspondence.............................    30
Section-by-Section Analysis of the Legislation...................    31
Changes in Existing Law Made by the Bill, as Reported............    42

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Financial Services 
Antifraud Network Act of 2001''.
  (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Purposes.

                       TITLE I--ANTIFRAUD NETWORK

             Subtitle A--Direction to Financial Regulators

Sec. 100. Creation and operation of the network.

     Subtitle B--Potential Establishment of Antifraud Subcommittee

Sec. 101. Establishment.
Sec. 102. Purposes of the Subcommittee.
Sec. 103. Chairperson; term of chairperson; meetings; officers and 
staff.
Sec. 104. Nonagency status.
Sec. 105. Powers of the Subcommittee.
Sec. 106. Agreement on cost structure.

                   Subtitle C--Regulatory Provisions

Sec. 111. Agency supervisory privilege.
Sec. 112. Confidentiality of information.
Sec. 113. Liability provisions.
Sec. 114. Authorization for identification and criminal background 
check.
Sec. 115. Definitions.
Sec. 116. Technical and conforming amendments to other acts.
Sec. 117. Audit of State insurance regulators.

               TITLE II--SECURITIES INDUSTRY COORDINATION

                  Subtitle A--Disciplinary Information

Sec. 201. Investment Advisers Act of 1940.
Sec. 202. Securities Exchange Act of 1934.

 Subtitle B--Preventing Migration of Rogue Financial Professionals to 
                        the Securities Industry

Sec. 211. Securities Exchange Act of 1934.
Sec. 212. Investment Advisers Act of 1940.

SEC. 2. PURPOSES.

  The purposes of this Act are--
          (1) to safeguard the public from fraud in the financial 
        services industry;
          (2) to streamline the antifraud coordination efforts of 
        Federal and State regulators and prevent failure to communicate 
        essential information;
          (3) to reduce duplicative information requests by, and other 
        inefficiencies of, financial services regulation;
          (4) to assist financial regulators in detecting patterns of 
        fraud, particularly patterns that only become apparent when 
        viewed across the full spectrum of the financial services 
        industry; and
          (5) to take advantage of Internet technology and other 
        advanced data-sharing technology to modernize the fight against 
        fraud in all of its evolving manifestations and permutations.

                       TITLE I--ANTIFRAUD NETWORK

             Subtitle A--Direction to Financial Regulators

SEC. 100. CREATION AND OPERATION OF THE NETWORK.

  (a) Sharing of Public Information.--The financial regulators shall, 
to the extent practicable and appropriate and in consultation with 
other relevant and appropriate agencies and parties--
          (1) develop procedures to provide for a network for the 
        sharing of antifraud information; and
          (2) coordinate to further improve upon the antifraud efforts 
        of the participants in the network as such participants deem 
        appropriate over time.
  (b) Minimum Requirements.--The procedures described in subsection (a) 
shall--
          (1) provide for the sharing of public final disciplinary and 
        formal enforcement actions taken by the financial regulators 
        that are accessible electronically relating to the conduct of 
        persons engaged in the business of conducting financial 
        activities that is fraudulent, dishonest, or involves a breach 
        of trust or relates to the failure to register with the 
        appropriate financial regulator as required by law;
          (2) include a plan for considering the sharing among the 
        participants of other relevant and useful antifraud information 
        relating to companies and other persons engaged in conducting 
        financial activities, to the extent practicable and appropriate 
        when adequate privacy, confidentiality, and security safeguards 
        governing access to, and the use of, such information have been 
        developed that--
                  (A) is accessible by the public; or
                  (B) pertains to information, that does not include 
                personally identifiable information on consumers, on--
                          (i) licenses and applications, financial 
                        affiliations and name-relationships, aggregate 
                        trend data, appraisals, or reports filed by a 
                        regulated entity with a participant; or
                          (ii) similar information generated by or for 
                        a participant if--
                                  (I) such information is being shared 
                                for the purpose of verifying an 
                                application or other report filed by a 
                                regulated entity; and
                                  (II) the participant determines such 
                                information is factual and 
                                substantiated; and
          (3) provide that, if a financial regulator takes an adverse 
        action against a person engaged in the business of conducting 
        financial activities on the basis of information described in 
        paragraph (1) or (2) that was received from another participant 
        through the network, the regulator shall--
                  (A) notify the person of the identity of the 
                participant from whom such information was received;
                  (B) provide the person with a specific and detailed 
                description of the information that was received from 
                the other participant through the network and would be 
                relied on in taking the adverse action; and
                  (C) notify the person of the right to a reasonable 
                opportunity to respond to such information.
  (c) Provisions Relating To Requirements.--
          (1) Time of notice.--The notice to any person, and the 
        opportunity to respond, under subsection (b)(3) shall be 
        provided to the person a reasonable period of time before any 
        final action against the person which is based on information 
        referred to in such paragraph is completed, unless the 
        financial regulator determines that such advance notice and 
        opportunity to respond is impracticable or inappropriate, in 
        which case the notice and opportunity to respond shall be 
        provided at the time of such final action.
          (2) Verification or substantiation of information.--With 
        respect to subsection (b)(3), a delay in the consideration of a 
        license, application, report, or other request for the purpose 
        of verifying or substantiating information relating to such 
        license, application, report, or other request shall not be 
        treated as an adverse action if the verification or 
        substantiation of such information is completed within a 
        reasonable time.
  (d) Implementation.--
          (1) Submission of plan.--Before the end of the 6-month period 
        beginning on the date of the enactment of this Act, the Federal 
        financial regulators shall submit to Congress a plan detailing 
        how the financial regulators (and any association representing 
        financial regulators) will meet the requirements of subsections 
        (a) and (b).
          (2) Deadline for implementation.--Before the end of the 2-
        year period beginning on the date of the enactment of this Act, 
        the financial regulators shall establish the network described 
        in subsections (a) and (b).
  (e) Financial Regulators Defined.--For the purposes of this section, 
the term ``financial regulators'' means the financial regulators 
described in subparagraphs (A) through (Q) of section 115(3).
  (f) Determination of Implementation of Subtitle B.--
          (1) In general.--The provisions of subtitle B shall take 
        effect only if the Secretary of the Treasury, or a designee of 
        the Secretary, before the end of the 30-day period beginning at 
        the end of the period referred to in--
                  (A) subsection (d)(1), does not determine that the 
                Federal financial regulators have submitted a plan 
                which substantially meets the requirements of such 
                subsection; or
                  (B) subsection (d)(2), does not determine that the 
                financial regulators have established a network that 
                substantially complies with the requirements of 
                subsections (a) and (b).
          (2) Scope of application.--This subtitle shall cease to apply 
        as of the date subtitle B takes effect.
  (g) Use of Centralized Databases.--
          (1) In general.--A financial regulator shall be deemed to 
        have met the requirements of subsection (b)(1) if--
                  (A) the participants have access to a centralized 
                database that contains information on public final 
                disciplinary or formal enforcement actions similar to 
                that described in such subsection; or
                  (B) the financial regulator makes the information 
                described in such subsection available to the public 
                over the Internet.
          (2) State supervisors.--It is the sense of the Congress that 
        the National Association of Insurance Commissioners, the 
        Conference of State Bank Supervisors, the American Council of 
        State Savings Supervisors, the National Association of State 
        Credit Union Supervisors, and the North American Securities 
        Administrators Association should develop model guidelines for 
        regulators intheir respective regulated financial industries, 
where appropriate, to promote uniform standards for sharing information 
with the network under this section.
  (h) Financial Regulator Control of Access.--
          (1) In general.--Except as provided in paragraph (4), each 
        participant that allows access to its databases or information 
        by other participants through the network may establish 
        parameters for controlling or limiting such access, including 
        the regulation of--
                  (A) the type or category of information that may be 
                accessed by other participants and the extent to which 
                any such type or category of information may be 
                accessed;
                  (B) the participants that may have access to the 
                database or any specific type or category of 
                information in the database (whether for reasons of 
                cost reimbursement, data security, efficiency, or 
                otherwise); and
                  (C) the disclosure by any other participant of any 
                type or category of information that may be accessed by 
                the participant.
          (2) Procedures.--A participant may establish the parameters 
        described in paragraph (1) by regulation, order, or guideline 
        or on a case-by-case basis.
          (3) Disclaimer.--
                  (A) In general.--Each participant shall ensure that 
                any transfer of information through the network under 
                this section, other than information described in 
                paragraphs (1) and (2) of subsection (b), from such 
                participant to another participant is subject to a 
                disclaimer that the information accessed may be 
                unsubstantiated and may not be relied on as the basis 
                for denying any application or license.
                  (B) Regulatory flexibility.--Each financial regulator 
                may develop guidelines, as the regulator determines to 
                be appropriate, governing the location, wording, and 
                frequency of disclaimers under this paragraph and the 
                manner in which any such disclaimer shall be made.
          (4) Final disciplinary and formal enforcement actions not 
        subject to limitation.--This subsection, and standards or 
        procedures adopted by any participant under this subsection, 
        shall not apply with respect to information described in 
        paragraphs (1) and (2) of subsection (b).
          (5) No effect on public or company access.--No provision of 
        this section shall replace, supersede, or otherwise affect 
        access to any databases maintained by any Federal or State 
        regulator, or any entity representing any such regulator, which 
        are accessible by the public or persons engaged in the business 
        of conducting financial activities.
  (i) Eligibility Requirements for State Securities Administrators.--
          (1) In general.--No State securities administrator shall be 
        eligible to be a participant and access the network unless--
                  (A) such State securities administrator participates 
                in a centralized database for broker-dealers, broker-
                dealer agents, investment advisers, and investment 
                advisor representatives, registered or required to be 
                registered, as designated by the North American 
                Securities Administrators Association; and
                  (B) such State securities administrator requires the 
                broker-dealer, broker-dealer agent, investment adviser, 
                or investment adviser representative, currently 
                registered or required to be registered, to file any 
                application, amendment to an application, or a renewal 
                of an application through the centralized registration 
                database.
          (2) Time delay for participation in databases.--The 
        provisions of paragraph (1) shall not become effective until 3 
        years after the date of enactment of this Act.
  (j) Eligibility Requirements for State Insurance Commissioners.--
          (1) Participation in databases.--No State insurance 
        commissioner shall be eligible to access the network unless 
        such commissioner participates with other State insurance 
        commissioners--
                  (A) in a centralized database addressing disciplinary 
                or enforcement actions taken against persons engaged in 
                the business of insurance, such as the Regulatory 
                Information Retrieval System maintained by the National 
                Association of Insurance Commissioners or any network 
                or database designated by such Association as a 
                successor to such System; and
                  (B) in centralized databases addressing, with respect 
                to persons engaged in the business of insurance--
                          (i) corporate and other business affiliations 
                        or relationships, such as the Producer Database 
                        maintained by the National Association of 
                        Insurance Commissioners or any network or 
                        database designated by such Association as a 
                        successor to such Database; and
                          (ii) consumer complaints, such as the 
                        Complaints Database maintained by the National 
                        Association of Insurance Commissioners or any 
                        network or database designated by such 
                        Association as a successor to such Database.
          (2) Time delay for participation in databases.--The 
        provisions of subparagraph (1)(B) of this section shall not 
        become effective until 3 years after the date of enactment of 
        this Act.
          (3) Accreditation.--No State insurance commissioner shall be 
        eligible to access the network unless the State insurance 
        department which such commissioner represents meets 1 of the 
        following accreditation requirements at the time of access to 
        the network:
                  (A) Is accredited by the National Association of 
                Insurance Commissioners.
                  (B) Has an application for accredited status pending 
                with the National Association of Insurance 
                Commissioners.
                  (C) Has a determination by the Subcommittee in effect 
                that such State insurance department meets or exceeds 
                the standards established by the National Association 
                of Insurance Commissioners for accreditation.
  (k) Standards.--Each financial regulator shall consider developing 
guidelines for participants on--
          (1) how to denote which types of information are to receive 
        different levels of confidentiality protection; and
          (2) how entities or associations that act as agents for 
        financial regulators should denote such agency status when 
        acting in that capacity.
  (l) Other Sharing Arrangements Not Affected.--No provision of this 
section shall be construed as limiting or otherwise affecting the 
authority of a financial regulator to provide any person, including 
another participant, access to any information in accordance with any 
provision of law other than this Act.

     Subtitle B--Potential Establishment of Antifraud Subcommittee

SEC. 101. ESTABLISHMENT.

  (a) In General.--Unless the determinations described in section 
100(f) are made, after the applicable date described in such section 
there shall be established within the President's Working Group on 
Financial Markets (as established by Executive Order No. 12631) a 
subcommittee to be known as the ``Antifraud Subcommittee'' (hereafter 
in this title referred to as the ``Subcommittee'') which shall consist 
of the following members:
          (1) The Secretary of the Treasury, or a designee of the 
        Secretary.
          (2) The Chairman of the Securities and Exchange Commission or 
        a designee of the Chairman.
          (3) A State insurance commissioner designated by the National 
        Association of Insurance Commissioners, or a designee of such 
        commissioner.
          (4) The Chairman of the Commodity Futures Trading Commission 
        or a designee of such Chairman.
          (5) A designee of the Chairman of the Federal Financial 
        Institutions Examination Council.
  (b) Financial Liaisons.--The following shall serve as liaisons 
between the Subcommittee and the agencies represented by each such 
liaison:
          (1) A representative of each Federal banking agency appointed 
        by the head of each such agency.
          (2) A representative of the National Credit Union 
        Administration appointed by the National Credit Union 
        Administration Board.
          (3) A representative of the Farm Credit Administration, 
        appointed by the Farm Credit Administration Board.
          (4) A representative of the Federal Housing Finance Board, 
        appointed by such Board.
          (5) A representative of the Office of Federal Housing 
        Enterprise Oversight of the Department of Housing and Urban 
        Development appointed by the Director of such Office.
          (6) A representative of the Appraisal Subcommittee of the 
        Financial Institutions Examination Council.
          (7) A representative of State bank supervisors designated by 
        the Conference of State Bank Supervisors.
          (8) A representative of State savings association supervisors 
        designated by the American Council of State Savings 
        Supervisors.
          (9) A representative of State credit union supervisors 
        designated by the National Association of State Credit Union 
        Supervisors.
          (10) A representative of State securities administrators 
        designated by the North American Securities Administrators 
        Association.
          (11) A representative of the National Association of 
        Securities Dealers appointed by the National Association of 
        Securities Dealers.
          (12) A representative of the National Futures Association 
        appointed by the National Futures Association.
          (13) Any other financial liaison as the Subcommittee may 
        provide to represent any other financial regulator or foreign 
        financial regulator, including self-regulatory agencies or 
        organizations that maintain significant databases on persons 
        engaged in the business of conducting financial activities, 
        designated in the manner provided by the Subcommittee.
  (c) Other Liaisons.--
          (1) Law enforcement liaisons.--The following shall serve as 
        liaisons between the Subcommittee and the agencies represented 
        by each such liaison:
                  (A) A representative of the Department of Justice 
                appointed by the Attorney General.
                  (B) A representative of the Federal Bureau of 
                Investigation appointed by the Director of such Bureau.
                  (C) A representative of the United States Secret 
                Service appointed by the Director of such Service.
                  (D) A representative of the Financial Crimes 
                Enforcement Network (as established by the Secretary of 
                the Treasury) appointed by the Secretary of the 
                Treasury.
          (2) Subcommittee appointed liaisons.--The Subcommittee may 
        provide for any other liaison to represent any other regulator, 
        including self-regulatory agencies or organizations that 
        maintain databases on persons engaged in the business of 
        conducting financial activities, designated in the manner 
        provided by the Subcommittee.
  (d) Vacancy.--If, for any reason, the position of any member of or 
liaison to the Subcommittee is not filled within a reasonable period of 
time after being created or becoming vacant, the President shall 
appoint an individual to fill the position after consulting the agency 
or entity to be represented by such member or liaison, and to the 
extent possible, shall appoint such individual from a list of possible 
representatives submitted by such agency or entity.
  (e) Reorganization Authority.--
          (1) In general.--If the President disbands or otherwise 
        significantly modifies the Working Group referred to in 
        subsection (a), the President shall provide for the 
        continuation of the Subcommittee's coordination functions.
          (2) Member and liaison withdrawal.--If the President 
        materially alters the structure or duties of the Subcommittee, 
        any member of or liaison to the Subcommittee may withdraw from 
        the Subcommittee.

SEC. 102. PURPOSES OF THE SUBCOMMITTEE.

  (a) In General.--The purposes of the Subcommittee are as follows:
          (1) Coordinate access by the participants to antifraud 
        databases of various regulators, by facilitating the 
        establishment, maintenance, and use of a network of existing 
        antifraud information maintained by such regulators with 
        respect to persons engaged in the business of conducting 
        financial activities.
          (2) Coordinate access by each participant to such network in 
        a manner that allows the participant to review, at a minimal 
        cost, existing information in the databases of other 
        regulators, as a part of licensure, change of control, or 
        investigation, concerning any person engaged in the business of 
        conducting financial activities.
          (3) Coordinate information sharing, where appropriate, among 
        State, Federal, and foreign financial regulators, and law 
        enforcement agencies, where sufficient privacy and 
        confidentiality safeguards exist.
          (4) Consider coordinating development by participants of a 
        networked name-relationship index for persons engaged in the 
        business of conducting financial activities using information 
        from the databases of regulators, to the extent such 
        information is available.
          (5) Advise participants on coordinating their antifraud 
        databases with the network.
          (6) Coordinate development of guidelines by participants for 
        ensuring appropriate privacy, confidentiality, and security of 
        shared information, including tracking systems or testing 
        audits, as appropriate.
  (b) Criteria for Network With Respect to Any Person Engaged in the 
Business of Conducting Financial Activities.--
          (1) Final disciplinary and formal enforcement actions.--Each 
        financial regulator that is represented by a member of the 
        Subcommittee under section 101(a) or by a financial liaison to 
        the Subcommittee under section 101(b) shall allow any 
        participant access, through the network, to any public final 
        disciplinary or formal enforcement action by such regulator 
        which is accessible electronically relating to the conduct of 
        persons engaged in the business of conducting financial 
        activities that is fraudulent or dishonest, involves a breach 
        of trust, or relates to the failure to register with the 
        appropriate financial regulator as required by law.
          (2) Sense of the congress on other information.--It is the 
        sense of the Congress that the financial regulators should 
        consider sharing through the network other relevant and useful 
        antifraud information relating to companies and other persons 
        engaged in conducting financial activities, to the extent 
        practicable and appropriate when adequate privacy, 
        confidentiality, and security safeguards governing access to 
        and the use of such information have been developed that--
                  (A) is accessible by the public; or
                  (B) consists of information, that does not include 
                personally identifiable information on consumers, on--
                          (i) licenses and applications, financial 
                        affiliations and name-relationships, aggregate 
                        trend data, or reports filed by a regulated 
                        entity with the participant; or
                          (ii) similar information generated by or for 
                        a participant if--
                                  (I) such information is being shared 
                                for the purpose of verifying an 
                                application or other report filed by a 
                                regulated entity; and
                                  (II) the participant determines such 
                                information is factual and 
                                substantiated; and
          (3) Notice and response.--If a financial regulator takes an 
        adverse action against a person engaged in the business of 
        conducting financial activities on the basis of information 
        described in paragraph (1) or (2) that was received from 
        another participant through the network, the regulator shall--
                  (A) notify the person of the identity of the 
                participant from whom such information was received;
                  (B) provide the person with a specific and detailed 
                description of the information that was received from 
                the other participant through the network and would be 
                relied on in taking the adverse action; and
                  (C) notify the person of the right to a reasonable 
                opportunity to respond to such information.
          (4) Provisions relating to requirements.--
                  (A) Time of notice.--Any notice to any person, and an 
                opportunity to respond, under paragraph (3) shall be 
                provided to the person a reasonable period of time 
                before any final action against the person which is 
                based on information referred to in such paragraph is 
                completed, unless the financial regulator determines 
                that such advance notice and opportunity to respond is 
                impracticable or inappropriate, in which case the 
                notice and opportunity to respond shall be provided at 
                the time of such final action.
                  (B) Verification or substantiation of information.--
                With respect to information referred to in paragraph 
                (3), a delay in the consideration of a license, 
                application, report, or other request for the purpose 
                of verifying or substantiating information relating to 
                such license, application, report, or other request 
                shall not be treated as an adverse action if the 
                verification or substantiation of such information is 
                completed within a reasonable time.
          (5) Use of centralized databases.--
                  (A) In general.--A financial regulator shall be 
                deemed to have met the requirements of paragraph (1) if 
                the Subcommittee determines that the participants have 
                access to a centralized database that contains 
                information on public final disciplinary or formal 
                enforcement actions similar to that described in 
                paragraph (1) or if the financial regulator makes the 
                information described in paragraph (1) available to the 
                public over the Internet.
                  (B) Factors for determination.--The Subcommittee 
                shall make the determination under subparagraph (A) on 
                an ongoing basis, consideringboth short-term costs and 
technological limitations, as well as the need for long-term 
comprehensive coverage, and other appropriate factors.
                  (C) State supervisors.--It is the sense of the 
                Congress that the National Association of Insurance 
                Commissioners, the Conference of State Bank 
                Supervisors, the American Council of State Savings 
                Supervisors, the National Association of State Credit 
                Union Supervisors, and the North American Securities 
                Administrators Association should develop model 
                guidelines for regulators in their respective regulated 
                financial industries, where appropriate, to promote 
                uniform standards for sharing information with the 
                network under this section.
  (c) Financial Regulator Control of Access.--
          (1) In general.--Except as provided in paragraph (4), each 
        participant that allows access to its databases or information 
        by other participants through the network may establish 
        parameters for controlling or limiting such access, including 
        the regulation of--
                  (A) the type or category of information that may be 
                accessed by other participants and the extent to which 
                any such type or category of information may be 
                accessed;
                  (B) the participants that may have access to the 
                database or any specific type or category of 
                information in the database (whether for reasons of 
                cost reimbursement, data security, efficiency, or 
                otherwise); and
                  (C) the disclosure by any other participant of any 
                type or category of information that may be accessed by 
                the participant.
          (2) Procedures.--A participant may establish the parameters 
        described in paragraph (1) by regulation, order, or guideline 
        or on a case-by-case basis.
          (3) Disclaimer.--
                  (A) In general.--Each participant shall ensure that 
                any transfer of information through the network under 
                this section, other than information described in 
                paragraphs (1) and (2) of subsection (b), from such 
                participant to another participant is subject to a 
                disclaimer that the information accessed may be 
                unsubstantiated and may not be relied on as the basis 
                for denying any application or license.
                  (B) Subcommittee flexibility.--The Subcommittee may 
                prescribe such guidelines as the Subcommittee 
                determines to be appropriate governing the location, 
                wording, and frequency of disclaimers under this 
                paragraph and the manner in which any such disclaimer 
                shall be made.
          (4) Final disciplinary and formal enforcement actions not 
        subject to limitation.--This subsection, and standards or 
        procedures adopted by any participant under this subsection, 
        shall not apply with respect to information described in 
        paragraphs (1) and (2) of subsection (b).
          (5) No effect on public or company access.--No provision of 
        this section shall replace, supersede, or otherwise affect 
        access to any databases maintained by any Federal or State 
        regulator, or any entity representing any such regulator, which 
        are accessible by the public or persons engaged in the business 
        of conducting financial activities.
  (d) Eligibility Requirements for State Securities Administrators.--
          (1) In general.--No State securities administrator shall be 
        eligible to be a participant and access the network unless--
                  (A) such State securities administrator participates 
                in a centralized database for broker-dealers, broker-
                dealer agents, investment advisers, and investment 
                advisor representatives, registered or required to be 
                registered, as designated by the North American 
                Securities Administrators Association; and
                  (B) such State securities administrator requires the 
                broker-dealer, broker-dealer agent, investment adviser, 
                or investment adviser representative, currently 
                registered or required to be registered, to file any 
                application, amendment to an application, or a renewal 
                of an application through the centralized registration 
                database.
          (2) Time delay for participation in databases.--The 
        provisions of paragraph (1) shall not become effective until 3 
        years after the date of enactment of this Act.
  (e) Eligibility Requirements for State Insurance Commissioners.--
          (1) Participation in databases.--No State insurance 
        commissioner shall be eligible to access the network unless 
        such commissioner participates with other State insurance 
        commissioners--
                  (A) in a centralized database addressing disciplinary 
                or enforcement actions taken against persons engaged in 
                the business of insurance, such as the Regulatory 
                Information Retrieval System maintained by the National 
                Association of Insurance Commissioners or any network 
                or database designated by such Association as a 
                successor to such System; and
                  (B) in centralized databases addressing, with respect 
                to persons engaged in the business of insurance--
                          (i) corporate and other business affiliations 
                        or relationships, such as the Producer Database 
                        maintained by the National Association of 
                        Insurance Commissioners or any network or 
                        database designated by such Association as a 
                        successor to such Database; and
                          (ii) consumer complaints, such as the 
                        Complaints Database maintained by the National 
                        Association of Insurance Commissioners or any 
                        network or database designated by such 
                        Association as a successor to such Database.
          (2) Time delay for participation in databases.--The 
        provisions of subparagraph (1)(B) of this section shall not 
        become effective until 3 years after the date of enactment of 
        this Act.
          (3) Accreditation.--No State insurance commissioner shall be 
        eligible to access the network unless the State insurance 
        department which such commissioner represents meets 1 of the 
        following accreditation requirements at the time of access to 
        the network:
                  (A) Is accredited by the National Association of 
                Insurance Commissioners.
                  (B) Has an application for accredited status pending 
                with the National Association of Insurance 
                Commissioners.
                  (C) Has a determination by the Subcommittee in effect 
                that such State insurance department meets or exceeds 
                the standards established by the National Association 
                of Insurance Commissioners for accreditation.
  (f) Subcommittee Standards.--The Subcommittee shall consider 
developing guidelines for participants on--
          (1) how to denote which types of information are to receive 
        different levels of confidentiality protection; and
          (2) how entities or associations that act as agents for 
        financial regulators should denote such agency status when 
        acting in that capacity.
  (g) Reporting and Feasibility Requirements and Review of Optimal 
Networking Methods.--
          (1) Report.--Before the end of the 180-day period beginning 
        on the date this subtitle takes effect in accordance with 
        section 101(a), and again before the end of the 2-year period 
        beginning on such date, the Subcommittee shall submit a report 
        to the Congress regarding the methods the regulators plan to 
        use to network information, and a description of any 
        impediments to (or recommended additional legislation for) 
        facilitating the appropriate sharing of such information.
          (2) Timeframe for networking.--
                  (A) In general.--The networking of information 
                required under subsection (b)(1) shall be established 
                before the end of the 2-year period beginning on the 
                date this subtitle takes effect, unless the 
                Subcommittee determines, in conjunction with the 
                liaisons, that such a network cannot be established 
                within such time period in a practicable and cost-
                effective manner.
                  (B) Reports on efforts if timeframe is not met.--If 
                the Subcommittee makes such a determination, the 
                Subcommittee shall report annually to the Congress on 
                its efforts to coordinate the sharing of appropriate 
                information among the regulators until the networking 
                requirements are fulfilled.
  (h) Other Sharing Arrangements Not Affected.--No provision of this 
section shall be construed as limiting or otherwise affecting the 
authority of a financial regulator or other member or liaison of the 
Subcommittee to provide any person, including another participant, 
access to any information in accordance with any provision of law other 
than this Act.
  (i) No New Databases or Expenditures Mandated.--In implementing this 
Act, the Subcommittee shall not have any authority to require a member 
or liaison to create a new database or otherwise incur significant 
costs in modifying existing databases for the networking of 
information.

SEC. 103. CHAIRPERSON; TERM OF CHAIRPERSON; MEETINGS; OFFICERS AND 
                    STAFF.

  (a) Chairperson.--
          (1) Selection.--The members of the Subcommittee shall select 
        the Chairperson from among the members of the Subcommittee.
          (2) Term.--The term of the Chairperson shall be 2 years.
  (b) Meetings.--The Subcommittee shall meet at the call of the 
Chairperson or a majority of the members when there is business to be 
conducted.
  (c) Quorum.--A majority of members of the Subcommittee shall 
constitute a quorum.
  (d) Majority Vote.--Decisions of the Subcommittee shall be made by 
the vote of a majority of the members of the Subcommittee.
  (e) Officers and Staff.--The Chairperson of the Subcommittee may 
appoint such officers and staff as may be necessary to carry out the 
purposes of the Subcommittee.

SEC. 104. NONAGENCY STATUS.

  The Subcommittee shall not be considered an advisory committee for 
purposes of the Federal Advisory Committee Act or as an agency for 
purposes of subchapter II of chapter 5 of title 5, United States Code.

SEC. 105. POWERS OF THE SUBCOMMITTEE.

  (a) In General.--The Subcommittee shall have such powers as are 
necessary to carry out the purposes of the Subcommittee under this 
title.
  (b) Information To Facilitate Coordination.--Each agency and entity 
represented by a member or liaison shall, to the extent permitted by 
law, provide the Subcommittee with a description of the types of 
databases maintained by the agency or entity to assist the Subcommittee 
in carrying out the purposes described in section 102(a).
  (c) Service of Members and Liaisons.--Members of and liaisons to the 
Subcommittee shall serve without additional compensation for their work 
on the Subcommittee.
  (d) Administrative and Technical Support.--The Subcommittee may 
request that any agency or entity represented by a member or liaison 
provide the Subcommittee with any administrative, technical, or other 
support service that the Subcommittee determines is necessary or 
appropriate for it to carry out the purposes described in section 
102(a).

SEC. 106. AGREEMENT ON COST STRUCTURE.

  (a) In General.--The Subcommittee shall determine, after consultation 
with the affected participants or their representatives, the means for 
providing for any costs the Subcommittee may incur in carrying out the 
purposes of this subtitle.
  (b) Consultation and Agreement on Fees and Contributions.--
Notwithstanding any other provision of this subtitle, the Subcommittee 
may not impose any fee or assessment on, or apportion any contribution 
against, any member or liaison under this section unless--
          (1) the Subcommittee consults with such member or liaison; 
        and
          (2) the member or liaison consents to the amounts, or to a 
        schedule, of such fees, assessments, or contributions.
  (c) Reimbursement of Participant Costs.--Before allowing access by 
the Subcommittee or a participant to any information described in 
section 102, other than access described in subsection (b)(1) of such 
section, a member or liaison may request the reimbursement of 
reasonable costs for providing such access.

                   Subtitle C--Regulatory Provisions

SEC. 111. AGENCY SUPERVISORY PRIVILEGE.

  (a) Definitions.--For purposes of this section, the following 
definitions shall apply:
          (1) Supervisory process.--The term ``supervisory process'' 
        means any activity engaged in by a financial regulator to carry 
        out the official responsibilities of the financial regulator 
        with regard to the regulation or supervision of persons engaged 
        in the business of conducting financial activities, including 
        examinations, inspections, visitations, investigations, 
        consumer complaints, or any other regulatory or supervisory 
        activities.
          (2) Confidential supervisory information.--Subject to 
        paragraph (3), the term ``confidential supervisory 
        information'' means any of the following information which is 
        treated as, or considered to be, confidential information by a 
        financial regulator, regardless of the form or format in which 
        the information is created, conveyed, or maintained:
                  (A) Any report of examination, inspection, 
                visitation, or investigation, and information prepared 
                or collected by the financial regulator in connection 
                with the supervisory process, including--
                          (i) any file, work paper, or similar 
                        information;
                          (ii) any correspondence, communication, or 
                        information exchanged, in connection with the 
                        supervisory process, between a financial 
                        regulator and a person engaged in the business 
                        of conducting financial activities; and
                          (iii) any information, including any report, 
                        created by or on behalf of a person engaged in 
                        the business of conducting financial activities 
                        that is required by, or is prepared at the 
                        request of, a financial regulator in connection 
                        with the supervisory process.
                  (B) Any record to the extent it contains information 
                derived from any report, correspondence, communication 
                or other information described in subparagraph (A).
                  (C) Any consumer complaints filed with the financial 
                regulator by a consumer with respect to a person 
                engaged in the business of conducting financial 
                activities that have been identified by the financial 
                regulator as requiring confidential treatment to 
                protect the integrity of an investigation or the safety 
                of an individual.
          (3) Exclusions.--The term ``confidential supervisory 
        information'' shall not include--
                  (A) any book, record, or other information, in the 
                possession of, or maintained on behalf of, the person 
                engaged in the business of conducting financial 
                activities that--
                          (i) is not a report required by, or prepared 
                        at the request of, a financial regulator; and
                          (ii) is not, and is not derived from, 
                        confidential supervisory information that was 
                        created or prepared by a financial regulator; 
                        or
                  (B) any information required to be made publicly 
                available by--
                          (i) any applicable Federal law or regulation; 
                        or
                          (ii) in the case of confidential supervisory 
                        information created by a State financial 
                        regulator or requested from a person engaged in 
                        the business of conducting financial activities 
                        by a State financial regulator, any applicable 
                        State law or regulation that specifically 
                        refers to such type of information.
  (b) Financial Regulator Supervisory Privilege.--
          (1) Privilege established.--
                  (A) In general.--All confidential supervisory 
                information shall be privileged from disclosure to any 
                person except as provided in this section.
                  (B) Prohibition on unauthorized disclosures.--No 
                person in possession of confidential supervisory 
                information may disclose such information, in whole or 
                in part, without the prior authorization of the 
                financial regulator that created the information, or 
                requested the information from a person engaged in the 
                business of conducting financial activities, except for 
                a disclosure made in published statistical material 
                that does not disclose, either directly or when used in 
                conjunction with publicly available information, the 
                affairs of any person or other personally identifiable 
                information.
                  (C) Agency waiver.--The financial regulator that 
                created the confidential supervisory information, or 
                requested the confidential supervisory information from 
                a person engaged in the business of conducting 
                financial activities, may waive, in whole or in part, 
                in the discretion of the regulator, any privilege 
                established under this paragraph with respect to such 
                information.
          (2) Exceptions.--
                  (A) Access by governmental bodies.--
                          (i) Congress and general accounting office.--
                        No provision of paragraph (1) shall be 
                        construed as preventing access to confidential 
                        supervisory information by duly authorized 
                        committees of the Congress or the Comptroller 
                        General of the United States.
                          (ii) Financial regulator oversight.--No 
                        financial regulator which is described in 
                        subparagraph (P), (Q), or (R) of section 115(3) 
                        and is subject to the oversight of a Federal 
                        financial regulator may assert the privilege 
                        described in paragraph (1) to prevent access to 
                        confidential supervisory information by such 
                        Federal financial regulator.
                  (B) Privilege not waived.--If a financial regulator 
                provides access to confidential supervisory information 
                to the Congress, the Comptroller General, or another 
                financial regulator, such action shall not affect the 
                ability of the financial regulator to assert any 
                privilege associated with such information against any 
                other person.
  (c) Treatment of Foreign Supervisory Information.--In any proceeding 
before a Federal or State court of the United States, in which a person 
seeks to compel production or disclosure by a financial regulator of 
information or documents prepared or collected by a foreign financial 
regulator that would, had the information or document been prepared or 
collected by a financial regulator, be confidential supervisory 
information for purposes of this section, the information or document 
shall be privileged to the same extent that the information and 
documents of financial regulators are privileged under this title.
  (d) Other Privileges Not Waived by Disclosure to Financial 
Regulator.--The submission by a person engaged in the business of 
conducting financial activities of any information to a financial 
regulator or a foreign financial regulator in connection with the 
supervisory process of such financial regulator or foreign financial 
regulator shall not waive, destroy, or otherwise affect any privilege 
such person may claim with respect to such information under Federal or 
State law as to a party other than such financial regulator or foreign 
financial regulator.
  (e) Discovery and Disclosure of Information.--
          (1) Information available only from financial regulator.--
                  (A) In general.--No person (other than the financial 
                regulator that created the information or requested the 
                information from a person engaged in the business of 
                conducting financial activities) may disclose, in whole 
                or in part, any confidential supervisory information to 
                any person who seeks such information through subpoena, 
                discovery procedures, or otherwise.
                  (B) Procedure for requests submitted to financial 
                regulator.--
                          (i) In general.--Any request for discovery or 
                        disclosure of confidential supervisory 
                        information shall be made to the financial 
                        regulator that created the information, or 
                        requested the information from a person engaged 
                        in the business of conducting financial 
                        activities.
                          (ii) Procedure.--Upon receiving a request for 
                        confidential supervisory information, the 
                        financial regulator shall determine within a 
                        reasonable time period whether to disclose such 
                        information pursuant to procedures and criteria 
                        established by the financial regulator.
                  (C) Notification.--
                          (i) In general.--Before any financial 
                        regulator releases information that was 
                        requested from a person engaged in the business 
                        of conducting financial activities to a person 
                        under subparagraph (B), notice and a reasonable 
                        time for comment shall be provided to the 
                        person from whom such information was requested 
                        unless such information--
                                  (I) is being provided to another 
                                financial regulator, an agency or 
                                entity represented by a liaison to the 
                                Subcommittee, or a Federal, State, or 
                                foreign government (or any agency or 
                                instrumentality of any such government 
                                acting in any capacity);
                                  (II) is being sought for use in a 
                                criminal proceeding or investigation, 
                                or a regulatory, supervisory, 
                                enforcement, or disciplinary 
                                administrative proceeding, civil 
                                action, or investigation; or
                                  (III) was originally created, or 
                                included in information created, by the 
                                financial regulator.
                          (ii) Procedures and requirements.--A 
                        financial regulator may prescribe regulations, 
                        or issue orders, guidelines, or procedures, 
                        governing the notice and time period required 
                        by clause (i).
          (2) Federal court jurisdiction over disputes.--
                  (A) Removal authority.--In any action or proceeding 
                in which a party seeks to compel disclosure of 
                confidential supervisory information, a financial 
                regulator may, in its sole discretion, elect to remove 
                the matter relating to the disclosure issue to Federal 
                court, and, if the action is so removed, the 
                appropriate Federal court shall have exclusive 
                jurisdiction over such matter.
                  (B) Judicial review.--Judicial review of the final 
                action of a financial regulator with regard to the 
                disposition of a request for confidential supervisory 
                information shall be before a district court of the 
                United States of competent jurisdiction, subject to 
                chapter 7 of part I of title 5, United States Code.
  (f) Authority To Intervene.--In the case of any action or proceeding 
to compel compliance with a subpoena, order, discovery request, or 
other judicial or administrative process with respect to any 
confidential supervisory information of a financial regulator 
concerning any person engaged in the business of conducting financial 
activities, the financial regulator may intervene in such action or 
proceeding, and such person may intervene with such regulator, for the 
purpose of--
          (1) enforcing the limitations established in paragraph (1) of 
        subsections (b) and (e);
          (2) seeking the withdrawal of any compulsory process with 
        respect to such information; and
          (3) registering appropriate objections with respect to the 
        action or proceeding to the extent the action or proceeding 
        relates to or involves such information.
  (g) Right To Appeal.--Any court order that compels production of 
confidential supervisory information may be immediately appealed by the 
financial regulator and the order compelling production shall be 
automatically stayed, pending the outcome of such appeal.
  (h) Regulations.--
          (1) Authority to prescribe.--Each financial regulator may 
        prescribe such regulations as the regulator considers to be 
        appropriate, after consultation with the other financial 
        regulators (to the extent the prescribing financial regulator 
        considers appropriate and feasible), to carry out the purposes 
        of this section.
          (2) Authority to require notice.--Any regulations prescribed 
        by a financial regulator under paragraph (1) may require any 
        person in possession of confidential supervisory information to 
        notify the financial regulator whenever the person is served 
        with a subpoena, order, discovery request, or other judicial or 
        administrative process requiring the personal attendance of 
        such person as a witness or requiring the production of such 
        information in any proceeding.
  (i) Ability to Partially Waive Privilege Where No Other Privilege 
Applies.--A financial regulator may, to the extent permitted by 
applicable law governing the disclosure of information by the 
regulator, authorize a waiver of the privilege established by this 
section to allow access by a person to confidential supervisory 
information created by such regulator (or requested by such regulator 
from any person engaged in the business of conducting financial 
activities), except that--
          (1) the regulator may place appropriate limits on the use and 
        disclosure of the information shared, and may continue to 
        assert the privilege with respect to any other person that 
        seeks access to the information; and
          (2) such waiver shall not affect any other privilege or 
        confidentiality protection that any party may assert against 
        any person other than such financial regulator.
  (j) Sharing of Reports.--
          (1) In general.--Subject to subsection (k), no provision of 
        this section shall be construed as preventing a person engaged 
        in the business of conducting financial activities from 
        providing a report that is required by, or prepared at the 
        request of, a financial regulator (the originating financial 
        regulator) to another financial regulator that has the 
        authority to obtain the information from the person under any 
        other provision of law.
          (2) Privilege preserved.--If a person provides a report 
        referred to in paragraph (1) to a financial regulator other 
        than the originating financial regulator, such action shall not 
        affect the ability of the originating financial regulator to 
        assert any privilege that such financial regulator may claim 
        with respect to the report against any person that is not a 
        financial regulator.
  (k) Requests For Information Involving Another Financial Regulator.--
          (1) In general.--Before any financial regulator requests 
        information from a person engaged in the business of conducting 
        financial activities that is confidential supervisory 
        information contained in a report that was created by another 
        financial regulator, or that was derived from confidential 
        supervisory information that was created by another financial 
        regulator, (hereafter in this subsection referred to as the 
        ``originating financial regulator''), the financial regulator 
        seeking such information (hereafter in this subsection referred 
        to as the ``requesting financial regulator'') shall first 
        request such information directly from the originating 
        financial regulator.
          (2) Notice of intent to request information from financial 
        institution.--If, pursuant to a request from a requesting 
        financial regulator under paragraph (1), an originating 
        financial regulator refuses to provide the information 
        described in such paragraph, the requesting financial regulator 
        may not request or compel the production of such information 
        from a person engaged in the business of conducting financial 
        activities unless the requesting financial regulator first 
        provides notice of such regulator's intention (to make such 
        request or compel such production) to the originating financial 
        institution and provides the originating financial regulator 
        with reasonable opportunity to respond.
          (3) Declaratory judgment.--The opportunity to respond 
        described in paragraph (2) shall include the right of the 
        originating financial regulator to bring an action in the 
        United States District Court for the District of Columbia for a 
        declaratory judgment of the rights and privileges of the 
        requesting and originating financial regulators with respect to 
        the information described in paragraph (1), and such relief as 
        may be appropriate.
          (4) Standards.--In any action brought under paragraph (3), 
        the United States District Court for the District of Columbia 
        shall decide the matter de novo based on applicable law, other 
        than this title, including any protections or privileges that 
        would be available to the originating financial regulator if 
        such regulator were to intervene in an action brought by the 
        requesting financial regulator to compel the production of such 
        information from the person engaged in the business of 
        conducting financial activity referred to in paragraph (1).
          (5) Prohibition on requesting information while action is 
        pending.--While any action under paragraph (3) is pending with 
        respect to any information described in paragraph (1), the 
        requesting financial regulator may not make any request for 
        such information from any person engaged in the business of 
        conducting financial activity.
          (6) Rule of construction.--No provision of this subsection 
        may be construed as creating any new authority for any 
        financial regulator to request or compel the production of any 
        information from any person engaged in the business of 
        conducting financial activities.
  (l) No Waiver of Any Privilege of Any Other Party.--No provision of 
this Act shall provide a financial regulator with any new authority to 
disclose information in contravention of applicable law governing 
disclosure of information.

SEC. 112. CONFIDENTIALITY OF INFORMATION.

  (a) In General.--
          (1) Financial regulators.--Except as otherwise provided in 
        this section or section 111, any requirement under Federal or 
        State law regarding the privacy or confidentiality of any 
        information or material in the possession of any participant, 
        and any privilege arising under Federal or State law (including 
        the rules of any Federal or State court) with respect to such 
        information or material, shall continue to apply to such 
        information or material after the information or material has 
        been disclosed through the network to another participant or, 
        if subtitle B has taken effect, the Subcommittee.
          (2) Certain insurance information.--Except as otherwise 
        provided in this section or section 111, any requirement under 
        Federal or State law regarding the privacy or confidentiality 
        of any information or material in the possession of the 
        National Association of Insurance Commissioners, or any member 
        or affiliate of the Association, and any privilege arising 
        under Federal or State law (including the rules of any Federal 
        or State court) with respect to such information or material, 
        shall continue to apply to such information or material after 
        the information has been disclosed to the Association, or any 
        other member or affiliate of the Association, through the 
        computer databases maintained by the Association.
          (3) Nonapplicability of certain requirements.--Information or 
        material that is subject to a privilege or confidentiality 
        under any other paragraph of this subsection shall not be 
        subject to--
                  (A) disclosure under any Federal or State law 
                governing the disclosure to the public of information 
                held by an officer or an agency of the Federal 
                Government or the respective State; or
                  (B) subpoena or discovery, or admission into 
                evidence, in any private civil action or administrative 
                process,
        unless with respect to any privilege held by a participant with 
        respect to such information or material, the participant 
        waives, in whole or in part, in the discretion of the 
        participant, such privilege.
  (b) Preemption of State Law.--Any State law, including any State open 
record law, relating to the disclosure of confidential supervisory 
information or any information or material to which subsection (a) 
applies that is inconsistent with any provision of section 111 or 
subsection (a) of this section shall be superseded by the requirements 
of such provision to the extent State law provides less confidentiality 
or a weaker privilege.
  (c) Duty of Financial Regulator to Maintain Confidentiality.--A 
participant may not receive, download, copy, or otherwise maintain any 
information or material from any other member of or liaison to the 
Subcommittee through the network unless--
          (1) the participant maintains a system that enables the 
        participant to maintain full compliance with the requirements 
        of sections 100, 102, and 111 and this section, with respect to 
        such information and material; and
          (2) if and to the extent required by the guidelines 
        established under sections 100 and 102, a record is maintained 
        of each attempt to access such information and material, and 
        the identity of the person making the attempt, in order to 
        prevent evasions of such requirements.

SEC. 113. LIABILITY PROVISIONS.

  (a) No Liability for Good Faith Disclosures.--Any financial 
regulator, and any officer or employee of any financial regulator, 
shall not be subject to any civil action or proceeding for monetary 
damages by reason of the good faith action or omission of any officer 
or employee, while acting within the scope of office or employment, 
relating to collecting, furnishing, or disseminating regulatory or 
supervisory information concerning persons engaged in the business of 
conducting financial activities, to or from another financial 
regulator, whether directly or through the network.
  (b) Criminal Liability for Intentional Unlawful Disclosures.--
          (1) In general.--It shall be unlawful to willfully disclose 
        to any person any information concerning any person engaged in 
        the business of conducting financial activities knowing the 
        disclosure to be in violation of any provision of this title--
                  (A) requiring the confidentiality of such 
                information; or
                  (B) establishing a privilege from disclosure for such 
                information that has not been waived by the relevant 
                financial regulator.
          (2) Penalty.--Notwithstanding section 3571 of title 18, 
        United States Code, any person who violates paragraph (1) shall 
        be fined an amount not to exceed the greater of $100,000 or the 
        amount of the actual damages sustained by any person as a 
        result of such violation, or imprisoned not more than 5 years, 
        or both.
  (c) Full, Continued Protection Under the So-Called ``Federal Tort 
Claims Act''.--No provision of this Act shall be construed as reducing 
or limiting any protection provided for any Federal agency, or any 
officer or employee of any Federal agency, under section 2679 of title 
28, United States Code.
  (d) Protection Applied to the Subcommittee.--For the purposes of this 
section, the term ``financial regulator'' includes the Subcommittee 
after subtitle B has taken effect.

SEC. 114. AUTHORIZATION FOR IDENTIFICATION AND CRIMINAL BACKGROUND 
                    CHECK.

  (a) Sharing of Criminal Records.--
          (1) Attorney general authorization.--Upon receiving a request 
        from a financial regulator, the Attorney General shall--
                  (A) search the records of the Criminal Justice 
                Information Services Division of the Federal Bureau of 
                Investigation, and any other similar database over 
                which the Attorney General has authority and deems 
                appropriate, for any criminal background records 
                (including wanted persons information) corresponding to 
                the identification information provided under 
                subsection (b); and
                  (B) either--
                          (i) shall provide any such records to any 
                        authorized agent of the financial regulator, 
                        which shall provide the relevant information to 
                        such regulator; or
                          (ii) may provide such records directly to the 
                        financial regulator if the Attorney General 
                        limits such provision of records to relevant 
                        information.
          (2) Authorized agent defined.--For purposes of this section, 
        the term ``authorized agent'' means--
                  (A) any agent which has been recognized by the 
                Attorney General for such purpose and authorized by at 
                least 3 other financial regulators to receive such 
                records and perform the information sharing 
                requirements of paragraph (3);
                  (B) the State attorney general for the State in which 
                the regulator is primarily located, and
                  (C) any law enforcement designee of the Attorney 
                General or such State attorney general.
          (3) Information shared.--
                  (A) In general.--The authorized agent shall provide 
                to the requesting financial regulator only any records 
                that are relevant information.
                  (B) Relevant information defined.--For purposes of 
                this section, the term ``relevant information'' means 
                any of the following records:
                          (i) All felony convictions.
                          (ii) All misdemeanor convictions involving--
                                  (I) violation of a law involving 
                                financial activities;
                                  (II) dishonesty or breach of trust, 
                                within the meaning of section 1033 of 
                                title 18, United States Code, including 
                                taking, withholding, misappropriating, 
                                or converting money or property;
                                  (III) failure to comply with child 
                                support obligations;
                                  (IV) failure to pay taxes; and
                                  (V) domestic violence, child abuse, 
                                or a crime of violence.
                  (C) Crime of violence defined.--For purposes of 
                subparagraph (B)(ii)(V), the term ``crime of violence'' 
                means a burglary of a dwelling and a criminal offense 
                that has as an element, the use or attempted use of 
                physical force, or threat of great bodily harm, or the 
                use, attempted use, or threatened use of a deadly 
                weapon, against an individual, including committing or 
                attempting to commit murder, manslaughter, kidnapping, 
                aggravated assault, forcible sex offenses, robbery, 
                arson, extortion, and extortionate extension of credit.
          (4) State uniform or reciprocity laws requirement.--
                  (A) In general.--The Attorney General may not provide 
                any records under this subsection to an insurance 
                regulator of a State, or agent of such regulator, if 
                such State does not have in effect uniform or 
                reciprocity laws and regulations governing the 
                licensure of individuals and entities authorized to 
                sell and solicit the purchase of insurance within the 
                State as set forth in section 321 of P.L. 106-102.
                  (B) Determination of reciprocity.--The determination 
                of whether or not a State has uniform or reciprocity 
                laws or regulations in effect for purposes of 
                subparagraph (A) shall be made by the Attorney General, 
                with the advice and counsel of the National Association 
                of Insurance Commissioners.
                  (C) Exception under certain circumstances.--
                Notwithstanding subparagraph (B), the Attorney General 
                may provide records under this section to an insurance 
                regulator of a State, or agent of such regulator, on 
                the basis of a specific determination by the National 
                Association of Insurance Commissioners that such State 
                has in effect uniform or reciprocity laws and 
                regulations referred to in subparagraph (A) if--
                          (i) a determination by the Attorney General 
                        under subparagraph (B) is pending; or
                          (ii) the Attorney General considers whether 
                        such State has in effect such uniform or 
                        reciprocity laws or regulations and fails to 
                        make a determination, unless the Attorney 
                        General subsequently determines that such State 
                        does not have in effect uniform or reciprocity 
                        laws or regulations.
  (b) Form of Request.--A request under subsection (a) shall include a 
copy of any necessary identification information required by the 
Attorney General, such as the name and fingerprints of the person about 
whom the record is requested and a statement signed by the person 
acknowledging that the regulator (or such regulator's designated agent 
under subsection (g)(1)) may request the search.
  (c) Limitation on Permissible Uses of Information.--Information 
obtained under this section may--
          (1) be used only for regulatory or law enforcement purposes; 
        and
          (2) be disclosed--
                  (A) only to other financial regulators or Federal or 
                State law enforcement agencies; and
                  (B) only if the recipient agrees to--
                          (i) maintain the confidentiality of such 
                        information; and
                          (ii) limit the use of such information to 
                        appropriate regulatory and law enforcement 
                        purposes.
  (d) Penalty for Improper Use.--
          (1) In general.--Whoever uses any information obtained under 
        this section knowingly and willfully for an unauthorized 
        purpose shall be fined under title 18, United States Code, 
        imprisoned for not more than 2 years, or both.
          (2) Additional penalties and waivers.--
                  (A) In general.--Any authorized agent who violates 
                paragraph (1), or any individual who directs such agent 
                to violate such paragraph, shall be barred from 
                engaging in or regulating any activities related to the 
                business of insurance.
                  (B) Waiver authorized.--The Attorney General, in the 
                discretion of the Attorney General, may waive the bar 
                in subparagraph (A), as appropriate.
  (e) Reliance on Information.--A financial regulator (or such 
regulator's designated agent under subsection (g)(1)) who reasonably 
relies on information provided under this section shall not be liable 
in any action for using information as permitted under this section in 
good faith.
  (f) Clarification of Section 1033.--With respect to any action 
brought under section 1033(e)(1)(B) of title 18, United States Code, no 
person engaged in the business of conducting financial activities shall 
be subject to any penalty resulting from such section if the individual 
who the person permitted to engage in the business of insurance is 
licensed, or approved (as part of an application or otherwise), by a 
State insurance regulator that performs criminal background checks 
under this section, unless such person knows that the individual is in 
violation of section 1033(e)(1)(A) of such title.
  (g) Designation of Agent.--
          (1) In general.--A financial regulator may designate an agent 
        for facilitating requests and exchanges of information under 
        this section between or among the financial regulator, the 
        Attorney General, and any other authorized agent.
          (2) Sense of congress regarding agents of insurance 
        regulators.--It is the sense of the Congress that--
                  (A) each State insurance commissioner should 
                designate the National Association of Insurance 
                Commissioners as an agent under paragraph (1);
                  (B) persons engaged in the business of insurance 
                should be able to use the National Association of 
                Insurance Commissioners to facilitate obtaining 
                fingerprints and supplying identification information 
                for use in background checks under this section on a 
                multijurisdictional basis;
                  (C) the National Association of Insurance 
                Commissioners should maintain a database to obtain 
                records under this section for use by State insurance 
                commissioners to reduce multiple or duplicative 
                fingerprinting requirements and criminal background 
                checks, except that any such record shall not be 
                maintained for more than 1 year without performing a 
                new background check to determine if the criminal 
                background record has changed;
                  (D) other financial regulators that require 
                fingerprints and criminal background checks should 
                similarly coordinate efforts to reduce duplication for 
                persons engaged in the business of conducting multiple 
                types of financial activities; and
                  (E) the National Association of Insurance 
                Commissioners, and other financial regulators that use 
                this section, should consult with the Attorney General 
                to consider the feasibility of developing an on-going 
                notification system that would allow the Attorney 
                General to notify such Association when a licensed or 
                approved insurance professional is convicted of a 
                relevant crime.
  (h) Fees.--The Attorney General may charge a reasonable fee for the 
provision of information under this section.
  (i) Rule of Construction.--This section shall not--
          (1) provide independent authorization for a financial 
        regulator to require fingerprinting as a part of a licensure or 
        other application;
          (2) require a financial regulator to perform criminal 
        background checks under this section; or
          (3) supersede or otherwise limit any other authority that 
        allows access to criminal background records.
  (j) Regulations.--The Attorney General may prescribe regulations to 
carry out this section.

SEC. 115. DEFINITIONS.

  For purposes of this title, the following definitions shall apply:
          (1) Federal banking agency.--The term ``Federal banking 
        agency'' has the same meaning as given in section 3(z) of the 
        Federal Deposit Insurance Act.
          (2) Financial activities.--
                  (A) In general.--The term ``financial activities''--
                          (i) means banking activities (including the 
                        ownership of a bank), securities activities, 
                        insurance activities, or commodities 
                        activities; and
                          (ii) includes all activities that are 
                        financial in nature or are incidental to a 
                        financial activity (as defined under section 
                        4(k) of the Bank Holding Company Act of 1956).
                  (B) Rule of construction.--Subparagraph (A) shall not 
                be construed as creating any inference, including any 
                negative inference, concerning the types or extent of 
                activities that are appropriately recognized as 
                activities that are financial in nature, or are 
                incidental to a financial activity, for purposes of 
                section 4 of the Bank Holding Company Act of 1956.
          (3) Financial regulator.--The term ``financial regulator'' 
        means--
                  (A) each Federal banking agency;
                  (B) the Securities and Exchange Commission;
                  (C) the Commodity Futures Trading Commission;
                  (D) the National Credit Union Administration;
                  (E) the Farm Credit Administration;
                  (F) the Federal Housing Finance Board;
                  (G) the Federal Trade Commission, to the extent the 
                Commission has jurisdiction over financial activities 
                being conducted by a person engaged in the business of 
                conducting financial activities;
                  (H) the Secretary of the Treasury, to the extent the 
                Secretary has jurisdiction over financial activities 
                being conducted by a person engaged in the business of 
                conducting financial activities;
                  (I) the Office of Federal Housing Enterprise 
                Oversight of the Department of Housing and Urban 
                Development;
                  (J) the Appraisal Subcommittee of the Financial 
                Institutions Examination Council;
                  (K) any State bank supervisor (as defined in section 
                3(r) of the Federal Deposit Insurance Act), including 
                the Conference of State Bank Supervisors only to the 
                extent such conference is acting as an agent of, and is 
                subject to the oversight of, any such State bank 
                supervisor;
                  (L) any State savings association supervisor, 
                including the American Council of State Savings 
                Supervisors only to the extent such conference is 
                acting as an agent of, and is subject to the oversight 
                of, any such State savings association supervisor;
                  (M) any State insurance commissioner, including the 
                National Association of Insurance Commissioners only to 
                the extent such association is acting as the agent of, 
                and is subject to the oversight of, any such insurance 
                commissioner;
                  (N) any State securities administrator, including the 
                North American Securities Administrators Association 
                only to the extent such association is acting as the 
                agent of, and is subject to the oversight of, any such 
                securities administrator;
                  (O) any State credit union supervisor, including the 
                National Association of State Credit Union Supervisors 
                only to the extent such association is acting as the 
                agent of, and is subject to the oversight of, any such 
                credit union supervisor;
                  (P) the National Association of Securities Dealers, 
                only to the extent that--
                          (i) such association is acting in connection 
                        with the financial services industry; and
                          (ii) the association and the relevant actions 
                        are subject to the oversight of the Securities 
                        and Exchange Commission;
                  (Q) the National Futures Association, only to the 
                extent that--
                          (i) such association is acting in connection 
                        with the financial services industry; and
                          (ii) the association and the relevant actions 
                        are subject to the oversight of the Commodity 
                        Futures Trading Commission or the Securities 
                        and Exchange Commission; and
                  (R) any other self-regulatory organization that 
                engages in or coordinates regulatory and supervisory 
                activities, with respect to any person engaged in the 
                business of conducting financial activities, and is 
                subject to the oversight of the Securities and Exchange 
                Commission or the Commodity Futures Trading Commission, 
                but only to the extent that the organization engages in 
                such activities and is subject to such oversight.
          (4) Foreign financial regulator.--The term ``foreign 
        financial regulator'' means any agency, entity, or body 
        (including a self-regulatory organization) that is empowered by 
        the laws of a foreign country to supervise and regulate persons 
        engaged in the business of conducting financial activities, but 
        only to the extent of such supervisory and regulatory 
        activities.
          (5) Participant.--The term ``participant'' means any entity 
        described in section 101 as being represented by a member of, 
        or a liaison to, the Subcommittee (regardless of whether 
        subtitle B has taken effect) but only to the extent the 
        regulator provides or obtains access to information through the 
        network.
          (6) Person.--The term ``person'' includes any financial 
        regulator.
          (7) Person engaged in the business of conducting financial 
        activities.--The term ``person engaged in the business of 
        conducting financial activities'' includes, to the extent 
        appropriate under the laws applicable to the jurisdiction of a 
        financial regulator over such person--
                  (A) any director, officer, employee, or controlling 
                stockholder of, or agent for, any such person;
                  (B) any other person who has filed or is required to 
                file a change-in-control notice with the appropriate 
                financial regulator before acquiring control of such 
                person; and
                  (C) any person who has sought approval from a 
                financial regulator to engage in the business of 
                conducting financial activities, or that was engaged in 
                such business and subject to the jurisdiction of a 
                financial regulator; and
                  (D) any shareholder, consultant, joint venture 
                partner, and any other person, including an independent 
                contractor, as determined by the appropriate financial 
                regulator (by regulation or case-by-case) who 
                participates in the conduct of the affairs of such 
                person.
          (8) State insurance commissioner.--The term ``State insurance 
        commissioner'' means any officer, agency, or other entity of 
        any State which has primary regulatory authority over the 
        business of insurance and over any person engaged in the 
        business of insurance to the extent of such activities, in such 
        State.
          (9) State securities administrator.--The term ``State 
        securities administrator'' means the securities commission (or 
        any agency or office performing like functions) of any State.

SEC. 116. TECHNICAL AND CONFORMING AMENDMENTS TO OTHER ACTS.

  (a) Subsection (b) of section 552a of title 5, United States Code, is 
amended--
          (1) by striking ``or'' at the end of paragraph (11);
          (2) by striking the period at the end of paragraph (12) and 
        inserting ``; or''; and
          (3) by inserting after paragraph (12) the following new 
        paragraph:
          ``(13) for recordkeeping, licensing, and other regulatory and 
        law enforcement purposes in accordance with title I of the 
        Financial Services Antifraud Network Act of 2001--
                  ``(A) through a network or name-relationship index 
                maintained under such title; or
                  ``(B) to a multistate database maintained by the 
                National Association of Insurance Commissioners and any 
                subsidiary or affiliate of such association, subject to 
                the requirements of such title.''.
  (b) Section 1113 of the Financial Institutions Regulatory and 
Interest Rate Control Act of 1978 (12 U.S.C. 3413) is amended by adding 
at the end the following new subsection:
  ``(r) This title shall not apply to disclosure by a financial 
regulator of information pursuant to subtitle A or B of the Financial 
Services Antifraud Network Act of 2001 to the extent the disclosure is 
made in accordance with the requirements of such Act.''.
  (c) Section 602 of the Consumer Credit Protection Act (15 U.S.C. 
1681) is amended by adding at the end the following new subsection:
  ``(c) This title shall not apply to a communication between 
participants, as defined in the Financial Services Antifraud Network 
Act of 2001, to the extent the communication is made in accordance with 
such Act.''.

SEC. 117. AUDIT OF STATE INSURANCE REGULATORS.

  (a) In General.--At the request of the Congress, the Comptroller 
General shall audit a State insurance regulator or any person who 
maintains information on behalf of such regulator.
  (b) Limitations on Disclosure of Information.--Except as provided in 
this subsection, an officer or employee of the General Accounting 
Office may not disclose information identifying an open insurance 
company or a customer of an open or closed insurance company. The 
Comptroller General may disclose information related to the affairs of 
a closed insurance company only if the Comptroller General believes the 
customer had a controlling influence in the management of the closed 
insurance company or was related to or affiliated with a person or 
group having a controlling influence.
  (c) Coordination With State Regulator.--An officer or employee of the 
Office may discuss a customer or insurance company with an official of 
a State insurance regulator and may report an apparent criminal 
violation to an appropriate law enforcement authority of the United 
States Government or a State.
  (d) Congressional Oversight.--This subsection shall not be construed 
as authorizing an officer or employee of a State insurance regulator to 
withhold information from a committee of the Congress authorized to 
have the information.
  (e) Administrative Aspects of Audit.--
          (1) In general.--To carry out this section, all records and 
        property of or used by a State insurance regulator, including 
        samples of reports of examinations of an insurance company the 
        Comptroller General considers statistically meaningful and 
        workpapers and correspondence related to the reports shall be 
        made available to the Comptroller General. The Comptroller 
        General shall give a State insurance regulator a current list 
        of officers and employees to whom, with proper identification, 
        records and property may be made available, and who may make 
        notes or copies necessary to carry out an audit.
          (2) Prevention of unauthorized access.--The Comptroller 
        General shall prevent unauthorized access to records or 
        property of or used by a State insurance regulator that the 
        Comptroller General obtains during an audit.
  (f) Confidentiality.--
          (1) In general.--The Comptroller General shall maintain the 
        same level of confidentiality for a record made available under 
        this section as is required of the head of the State insurance 
        regulator from which it is obtained.
          (2) Prevention of invasion of personal privacy.--The 
        Comptroller General shall keep information described in section 
        552(b)(6) of title 5, United States Code, that the Comptroller 
        General obtains in a way that prevents unwarranted invasions of 
        personal privacy.
          (3) Availability of information.--Except as provided in 
        subsection (b), no provision of this section shall be construed 
        as authorizing any information to be withheld from the 
        Congress.
  (g) Availability of Information and Inspection of Records.--The right 
of access of the Comptroller General to information under this section 
shall be enforceable under section 716 of title 31, United States Code.
  (h) Definitions.--For purposes of this section, the following 
definitions shall apply:
          (1) State insurance regulator defined.--The term ``State 
        insurance regulator'' means the principal insurance regulatory 
        authority of a State, the District of Columbia, any territory 
        of the United States, Puerto Rico, Guam, American Samoa, the 
        Trust Territory of the Pacific Islands, the Virgin Islands, and 
        the Northern Mariana Islands.
          (2) Insurance company.--The term ``insurance company'' 
        includes any person engaged in the business of insurance to the 
        extent of such activities.

               TITLE II--SECURITIES INDUSTRY COORDINATION

                  Subtitle A--Disciplinary Information

SEC. 201. INVESTMENT ADVISERS ACT OF 1940.

  Section 204 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-4) 
is amended--
          (1) by striking ``Every investment'' and inserting the 
        following:
  ``(a) In General.--Every investment''; and
          (2) by adding at the end the following:
  ``(b) Filing Depositories.--The Commission, by rule, may require an 
investment adviser--
          ``(1) to file with the Commission any fee, application, 
        report, or notice required to be filed by this title or the 
        rules issued under this title through any entity designated by 
        the Commission for that purpose; and
          ``(2) to pay the reasonable costs associated with such filing 
        and the establishment and maintenance of the systems required 
        by subsection (c).
  ``(c) Access to Disciplinary and Other Information.--
          ``(1) Maintenance of system to respond to inquiries.--The 
        Commission shall require theentity designated by the Commission 
under subsection (b)(1)--
                  ``(A) to establish and maintain a toll-free telephone 
                listing or other readily accessible electronic process 
                to receive inquiries regarding disciplinary actions and 
                proceedings and other information involving investment 
                advisers and persons associated with investment 
                advisers; and
                  ``(B) to respond promptly to such inquiries.
          ``(2) Recovery of costs.--An entity designated by the 
        Commission under subsection (b)(1) may charge persons, other 
        than individual investors, reasonable fees for responses to 
        inquiries made under paragraph (1).
          ``(3) Limitation on liability.--An entity designated by the 
        Commission under subsection (b)(1) shall not have any liability 
        to any person for any actions taken or omitted in good faith 
        under this subsection.''.

SEC. 202. SECURITIES EXCHANGE ACT OF 1934.

  Subsection (i) of section 15A of the Securities Exchange Act of 1934 
(15 U.S.C. 78o-3) is amended to read as follows:
  ``(i) Obligation To Maintain Disciplinary and Other Data.--
          ``(1) Maintenance of system to respond to inquiries.--A 
        registered securities association shall--
                  ``(A) establish and maintain a toll-free telephone 
                listing or other readily accessible electronic process 
                to receive inquiries regarding disciplinary actions and 
                proceedings and other information involving its members 
                and their associated persons and regarding disciplinary 
                actions and proceedings and other information that has 
                been reported to the Central Registration Depository by 
                any registered national securities exchange involving 
                its members and their associated persons; and
                  ``(B) promptly respond to such inquiries.
          ``(2) Recovery of costs.--Such association may charge 
        persons, other than individual investors, reasonable fees for 
        responses to such inquiries.
          ``(3) Limitation on liability.--Such an association or 
        exchange shall not have any liability to any person for any 
        actions taken or omitted in good faith under this 
        subsection.''.

 Subtitle B--Preventing Migration of Rogue Financial Professionals to 
                        the Securities Industry

SEC. 211. SECURITIES EXCHANGE ACT OF 1934.

  (a) Brokers and Dealers.--Section 15(b) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78o(b)) is amended--
          (1) in paragraph (4), by striking subparagraphs (F) and (G) 
        and inserting the following:
          ``(F) is subject to any order of the Commission barring or 
        suspending the right of the person to be associated with a 
        broker or dealer.
          ``(G) has been found by a foreign financial regulatory 
        authority to have--
                  ``(i) made or caused to be made in any application 
                for registration or report required to be filed with a 
                foreign financial regulatory authority, or in any 
                proceeding before a foreign financial regulatory 
                authority with respect to registration, any statement 
                that was at the time and in the light of the 
                circumstances under which it was made false or 
                misleading with respect to any material fact, or 
                omitted to state in any such application, report, or 
                proceeding any material fact that is required to be 
                stated therein;
                  ``(ii) violated any foreign statute or regulation 
                regarding securities, banking, thrift activities, 
                credit union activities, insurance, or contracts of 
                sale of a commodity for future delivery, traded on or 
                subject to the rules of a contract market or any board 
                of trade; or
                  ``(iii) aided, abetted, counseled, commanded, 
                induced, or procured the violation by any other person 
                of any provision of any statutory provisions enacted by 
                a foreign government, or rules or regulations 
                thereunder, regarding securities, banking, thrift 
                activities, credit union activities, insurance, or 
                contracts of sale of a commodity for future delivery 
                traded on or subject to the rules of a contract market 
                or any board of trade, or to have failed reasonably to 
                supervise, with a view to preventing violations of such 
                statutory provisions, rules, and regulations, another 
                person who commits such a violation, if such other 
                person is subject to his supervision.
          ``(H) is subject to any final order of a State securities 
        commission (or any agency or officer performing like 
        functions), State authority that supervises or examines banks, 
        thrifts, or credit unions, State insurance commission (or 
anyagency or office performing like functions), an appropriate Federal 
banking agency (as defined in section 3 of the Federal Deposit 
Insurance Act (12 U.S.C. 1813(q)), or the National Credit Union 
Administration, that--
                  ``(i) bars such person from association with an 
                entity regulated by such commission, authority, agency, 
                or officer, or from engaging in the business of 
                securities, insurance, banking, thrift activities, or 
                credit union activities; or
                  ``(ii) constitutes a final order based on violations 
                of any laws or regulations that prohibit fraudulent, 
                manipulative, or deceptive conduct.''; and
          (2) in paragraph (6)(A)(i), by striking ``or omission 
        enumerated in subparagraph (A), (D), (E), or (G)'' and 
        inserting ``, or is subject to an order or finding, enumerated 
        in subparagraph (A), (D), (E), (G), or (H)''.
  (b) Municipal Securities Brokers and Dealers.--Section 15B(c) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o-4(c)) is amended--
          (1) in paragraph (2)--
                  (A) by striking ``or omission enumerated in 
                subparagraph (A), (D), (E), or (G)'' and inserting ``, 
                or is subject to an order or finding, enumerated in 
                subparagraph (A), (D), (E), (G), or (H)''; and
                  (B) by striking ``ten'' and inserting ``10''; and
          (2) in paragraph (4) by striking ``or omission enumerated in 
        subparagraph (A), (D), (E), or (G)'' and inserting ``, or is 
        subject to an order or finding, enumerated in subparagraph (A), 
        (D), (E), (G), or (H)''.
  (c) Government Securities Brokers and Dealers.--Section 15C(c)(1) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78o-5(c)(1)) is 
amended--
          (1) in subparagraph (A), by striking ``or omission enumerated 
        in subparagraph (A), (D), (E), or (G)'' and inserting ``, or is 
        subject to an order or finding, enumerated in subparagraph (A), 
        (D), (E), (G), or (H)''; and
          (2) in subparagraph (C), by striking ``or omission enumerated 
        in subparagraph (A), (D), (E), or (G)'' and inserting ``, or is 
        subject to an order or finding, enumerated in subparagraph (A), 
        (D), (E), (G), or (H)''.
  (d) Clearance and Settlement.--Section 17A(c) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78q-1(c)) is amended--
          (1) in paragraph (3)(A), by striking ``enumerated in 
        subparagraph (A), (D), (E), or (G)'' and inserting ``, or is 
        subject to an order or finding, enumerated in subparagraph (A), 
        (D), (E), (G), or (H)''; and
          (2) in paragraph (4)(C)--
                  (A) by striking ``enumerated in subparagraph (A), 
                (D), (E), or (G)'' and inserting ``, or is subject to 
                an order or finding, enumerated in subparagraph (A), 
                (D), (E), (G), or (H)''; and
                  (B) by striking ``ten years'' and inserting ``10 
                years''.
  (e) Definition of Statutory Disqualification.--Section 3(a)(39)(F) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(39)(F)) is 
amended by striking ``has committed or omitted any act enumerated in 
subparagraph (D), (E), or (G)'' and inserting ``has committed or 
omitted any act, or is subject to an order or finding, enumerated in 
subparagraph (D), (E), (G), or (H)''.

SEC. 212. INVESTMENT ADVISERS ACT OF 1940.

  (a) Authority To Deny or Revoke Registration Based on State (and 
Other Governmental) Administrative Actions.--Section 203(e) of the 
Investment Advisers Act of 1940 (15 U.S.C. 80b-3(e)) is amended by 
striking paragraphs (7) and (8) and inserting the following:
          ``(7) is subject to any order of the Commission barring or 
        suspending the right of the person to be associated with an 
        investment adviser.
          ``(8) has been found by a foreign financial regulatory 
        authority to have--
                  ``(A) made or caused to be made in any application 
                for registration or report required to be filed with a 
                foreign securities authority, or in any proceeding 
                before a foreign securities authority with respect to 
                registration, any statement that was at the time and in 
                light of the circumstances under which it was made 
                false or misleading with respect to any material fact, 
                or has omitted to state in any such application, 
                report, or proceeding any material fact that is 
                required to be stated therein;
                  ``(B) violated any foreign statute or regulation 
                regarding securities, banking, thrift activities, 
                credit union activities, insurance, or contracts of 
                sale of a commodity for future delivery traded on or 
                subject to the rules of a contract market or any board 
                of trade;
                  ``(C) aided, abetted, counseled, commanded, induced, 
                or procured the violation by any other person of any 
                foreign statute or regulation regarding securities, 
                banking, thrift activities, credit union activities, 
                insurance, or contracts of sale of a commodity for 
                future delivery traded on or subject to the rules of a 
                contract market or any board of trade, or to have 
                failed reasonably to supervise, with a view to 
                preventing violations of statutory provisions, and 
                rules and regulations promulgated thereunder, another 
                person who commits such a violation, if such other 
                person is subject to his supervision.
          ``(9) is subject to any final order of a State securities 
        commission (or any agency or officer performing like 
        functions), State authority that supervises or examines banks, 
        thrifts, or credit unions, State insurance commission (or any 
        agency or office performing like functions), an appropriate 
        Federal banking agency (as defined in section 3 of the Federal 
        Deposit Insurance Act (12 U.S.C. 1813(q)), or the National 
        Credit Union Administration, that--
                  ``(A) bars such person from association with an 
                entity regulated by such commission, authority, agency, 
                or officer, or from engaging in the business of 
                securities, insurance, banking, thrift activities, or 
                credit union activities; or
                  ``(B) constitutes a final order based on violations 
                of any laws or regulations that prohibit fraudulent, 
                manipulative, or deceptive conduct.''.
  (b) Bars on Felons Associated With Investment Advisers.--Section 
203(f) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3(f)) is 
amended--
                  (A) by striking ``or (8)'' and inserting ``(8), or 
                (9)''; and
                  (B) by inserting ``or (3)'' after ``paragraph (2)''.

                          Purpose and Summary

    H.R. 1408, the Financial Services Antifraud Network Act of 
2001, will improve protections for consumers and businesses by 
coordinating the antifraud efforts of Federal and State 
financial regulators. The financial regulators are directed, to 
the extent practicable and appropriate, to develop procedures 
to provide for a network for the sharing of antifraud 
information. In addition to coordinating the different 
regulators' computer systems, H.R. 1408 establishes the first 
industry-wide comprehensive protections for confidentiality, 
privacy, and security, of government information shared through 
the network on regulated entities. It also directs the 
regulators to provide certain minimum due process rights where 
adverse actions are taken against a person.
    To further protect information shared between regulators, 
H.R. 1408 establishes certain limited legal privileges and 
confidentiality and liability protections for regulatory and 
supervisory information.
    H.R. 1408 also allows State insurance regulators to perform 
FBI fingerprint background checks on insurance applicants to 
obtain relevant criminal records, subject to certain 
limitations and protections against misuse. The fingerprinting 
section also clarifies that employers relying on a State 
insurance regulator's background approval of an insurance agent 
pursuant to section 114 of this legislation are not subject to 
liability resulting from section 1033 of title 18 of the United 
States Code, unless such employer knows that the person hired 
is in violation of that section.
    Finally, H.R. 1408 limits the ability of persons to work in 
the securities industry if they have been disciplined by 
banking, thrift, credit union, or insurance regulators.

                  Background and Need for Legislation

    There are over 250 Federal and State financial regulators 
and self-regulating financial organizations, each using 
different systems without a coordinated interface to share 
information and keep track of each other's antifraud efforts. 
Most regulators have already computerized their records and 
have been working on efforts to coordinate their databases 
internally. Recently, some of the larger regulators have even 
begun developing individual information-sharing agreements with 
other regulators across the financial industry. There are, 
however, no comprehensive cross-industry coordination efforts 
underway, and there are no comprehensive guidelines for 
safeguards to protect the confidentiality, privacy, and 
security of shared information. Effectuating individual 
coordination among all of the more than 250 financial 
regulators would require tens of thousands of separate 
agreements--something that would be neither efficient nor 
effective for protecting consumers.
    Furthermore, at a joint March 6, 2001 hearing of the 
Subcommittee on Financial Institutions and the Subcommittee on 
Oversight and Investigation, several regulators testified that 
Federal legislation is necessary to establish confidentiality 
and liability protections so that financial regulators do not 
compromise existing legal privileges when sharing supervisory 
data with other regulators and law enforcement agencies. Iowa 
Insurance Commissioner Terri Vaughan testified:

          We need to create a national information antifraud 
        network based on information-sharing agreements among 
        functional regulators and law enforcement agencies * * 
        * [with] technical standards for sharing * * * [and] 
        with legal immunity for good-faith reporting and 
        handling of regulator information.

    Fraud artists have been able to successfully exploit the 
regulatory gaps in our current system, a gap that can be closed 
with greater coordination among the regulators. The Financial 
Services Roundtable testified at the March hearing that 
financial fraud costs consumers and the financial industry over 
$100 billion annually, and that greater information sharing 
would significantly reduce this fraud. The National Futures 
Association (NFA) testified that integrating their information 
systems has reduced the number of rogue brokers in the futures 
industry by an astounding 70 percent.
    Similarly, at the March hearing the General Accounting 
Office (GAO) testified that coordinating regulatory history 
data would beuseful to prevent rogue migration and limit fraud. 
In a subsequent analysis of H.R. 1408, the GAO estimated that a 
computer network meeting the basic information sharing requirements of 
H.R. 1408 would cost approximately $2-3 million to establish, and 
$260,000-$360,000 annually to operate. In just one recent case, Martin 
Frankel, a fraud artist barred from the securities industry, was able 
to enter into the insurance industry and cause hundreds of thousands of 
dollars in losses. Even if an anti-fraud network only prevented a small 
percentage of ongoing fraudulent activities it would pay for itself 
many times over.
    At the March hearing, the Chairwoman of the Subcommittee on 
Oversight and Investigation Sue Kelly asked the witnesses 
specifically about the need for an information sharing network 
among regulators with appropriate liability and confidentiality 
protections. She received nearly unanimous agreement from the 
witnesses that:
    1. Consumers would be better protected if the financial 
regulators use an automated background check of all agency 
databases for all financial licenses and applications, as 
opposed to making specific occasional inquiries;
    2. Consumers would be better protected if all background 
checks for licenses and applications included a check of all 
financial regulator's databases for comprehensive and seamless 
coverage and not just those where individual information 
sharing agreements exist;
    3. It would be cheaper and more effective to create one 
coordinated antifraud network to exchange information than to 
rely on numerous individual agreements and computer 
connections;
    4. Regulators would be better able to fight fraud if they 
could share materials without risk of losing critical 
confidentiality and liability protections;
    5. It would be more efficient for financial institutions to 
allow the regulators to use a single coordinated entity for 
sharing information to reduce duplicative examinations and 
reporting;
    6. A coordinated network could be used by the regulators as 
it evolved over time to share other materials and financial 
data to reduce duplicative filings and examinations; and
    7. It would improve consumer protection in the financial 
services industry if Congress created an anti-fraud network 
coordinating limited information among regulators with full 
confidentiality protections.
    Responding to this consensus, the Committee developed 
legislation directing the financial regulators to coordinate 
their computer systems to facilitate the sharing of appropriate 
antifraud information. The Committee contemplates that the 
financial regulators may accomplish this by coordinating their 
computer protocols so that their systems can seamlessly 
communicate and share critical antifraud information on a 
comprehensive basis.
    This will help enable the regulators to prevent fraud 
artists from moving from one industry to another, detect 
patterns of fraud early on, and take advantage of Internet 
technology to modernize and streamline their antifraud efforts. 
It will also create a mechanism to reduce duplicative 
information requests by regulators and to increase the 
efficiency and effectiveness of financial regulation.
    H.R. 1408 does not contemplate the creation of a database. 
Rather, it would network different existing systems so that 
they can easily communicate with each other. The regulators are 
currently undertaking this coordination of information on an ad 
hoc basis. This section directs that this coordination be done 
in a comprehensive fashion with proper safeguards. No new 
regulations are contemplated. No new collection of information 
is desired. And the direction to coordinate information is 
limited to data on financial companies and professionals, not 
consumers.

                                Hearings

    The Subcommittee on Financial Institutions and Consumer 
Credit and the Subcommittee on Oversight and Investigations 
held a joint hearing entitled ``Protecting Consumers: What can 
Congress do to help financial regulators coordinate efforts to 
fight fraud'' on March 6, 2001.
    The Subcommittees received testimony from: Julie Williams, 
First Senior Deputy Comptroller and Chief Counsel, Office of 
the Comptroller of the Currency; Scott Albinson, Managing 
Director, Examination and Supervision, Office of Thrift 
Supervision; Terri M. Vaughan, Iowa Commissioner of Insurance, 
Vice President of the National Association of Insurance 
Commissioners; Dennis Lormel, Section Chief, Financial Crimes 
Section, Federal Bureau of Investigation; David M. Becker, 
General Counsel, Securities and Exchange Commission; Richard J. 
Hillman, Director, Financial Markets and Community Investment, 
U.S. General Accounting Office; Karen Wuertz, Senior Vice 
President, Strategic Planning and Development, National Futures 
Association; Thomas Rodell, Executive Vice President and Chief 
Operating Officer of Aon Risk Services, Inc. and Chairman of 
The Council of Insurance Agents and Brokers; Ronald A. Smith, 
President, Smith, Sawyer and Smith, Inc., State Government 
Affairs Chairman of Independent Insurance Agents of America on 
behalf of IIAA, National Association of Insurance and Financial 
Advisors and theNational Association of Professional Insurance 
Agents; and Steve Bartlett, President, The Financial Services 
Roundtable.

                        Committee Consideration

    On June 13, 2001, the Subcommittee on Financial 
Institutions and Consumer Credit met in open session and 
approved H.R. 1408 for full Committee consideration, with an 
amendment, by a record vote of 20 yeas and 1 nay.
    On June 27, 2001, the Committee met in open session and 
ordered H.R. 1408 reported to the House, with an amendment, 
with a favorable recommendation by a voice vote.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. No 
record votes were taken with in conjunction with the 
consideration of this legislation by the full Committee. A 
motion by Mr. Oxley to report the bill to the House with a 
favorable recommendation was agreed to by a voice vote. The 
following amendments were considered and agreed to by a voice 
vote:
    An amendment in the nature of a substitute by Mr. Rogers, 
no. 1, making various changes, including increasing safeguards 
and protections related to information sharing through the 
anti-fraud network, further defining the information to be 
shared, and allowing more flexibility for the regulators in 
planning and implementing the anti-fraud network; and
    An amendment to the amendment in the nature of a substitute 
by Mr. Oxley, no. 1a, to reinsert the confidential supervisory 
information privilege language from the Subcommittee print with 
some minor changes.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee held a hearing and made 
findings that are reflected in this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    The financial regulators will establish a network to better 
safeguard the public from fraud in the financial services 
industry and streamline and facilitate the antifraud 
information-sharing efforts of Federal and State regulators.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee finds that this 
legislation would result in no new budget authority, 
entitlement authority, or tax expenditures or revenues.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

H.R. 1408--Financial Services Antifraud Network Act of 2001

    Summary: CBO estimates that enacting H.R. 1408 would have 
no significant impact on the budget. Enacting the legislation 
could affect direct spending and receipts, so pay-as-you-go 
procedures would apply; however, we estimate that any such 
impacts would not be significant. H.R. 1408 contains 
intergovernmental and private-sector mandates as defined in the 
Unfunded Mandates Reform Act (UMRA), but CBO estimates that the 
costs would not be significant and would not exceed the 
thresholds established in that act ($56 million for 
intergovernmental mandates and $113 million for private-sector 
mandates in 2001, adjusted annually for inflation).
    H.R. 1408 would require financial regulators to coordinate 
their computer systems to share information about fraud. The 
affected regulators would include private regulatory 
organizations, the Board of Governors of the Federal Reserve 
System, the Federal Deposit Insurance Corporation (FDIC), the 
National Credit Union Administration (NCUA), the Office of the 
Comptroller of the Currency (OCC), the Office of Thrift 
Supervision (OTS), the Securities and Exchange Commission 
(SEC), and state regulators of the banking, insurance, and 
securities industries.
    Estimated cost to the Federal Government: CBO estimates 
that coordinating computer systems among the affected 
regulatory organizations would cost about $2 million over the 
2002-2003 period and insignificant amounts in subsequent years. 
Furthermore, we estimate that these costs could be partially 
offset by fees, and any net direct spending would be exempt 
from pay-as-you-go procedures.
    The bill also would establish criminal penalties for 
regulators who intentionally disclose confidential or 
privileged information to the public. Finally, the bill would 
authorize these regulators to request the Federal Bureau of 
Investigation (FBI) to conduct criminal background checks on 
individuals in the financial services industry, and it would 
impose criminal penalties for the improper use of such 
information. Those prosecuted and convicted under H.R. 1408 
could be subject to criminal fines; therefore, the federal 
government might collect additional fines if the bill is 
enacted. Collections of such fines are recorded in the budget 
as governmental receipts (revenues), which are deposited in the 
Crime Victims Fund and spent in subsequent years. CBO estimates 
that any impact of this legislation on collections of fines 
(and subsequent spending) would not be significant.
    Basis of estimate: Federal financial regulators currently 
provide information about enforcement and disciplinary actions 
via the Internet. Under the bill, CBO expects that the 
financial regulators would create a search engine to share 
information about fraud, and that the FDIC, the NCUA, the OCC, 
or the OTS would bear the costs of this new system. The NCUA, 
the OCC, and the OTS, charge fees to cover all their 
administrative costs; therefore, additional spending by those 
agencies would have no significant net budgetary effect. That 
is not the case with the FDIC, however, which uses deposit 
insurance premiums paid by all banks to cover the expenses it 
incurs to supervise state-chartered banks. Because the balances 
in the deposit insurance funds exceed the levels required under 
current law, very few banks or savings and loans pay premiums 
for deposit insurance at this time. Therefore, CBO expects that 
under the bill the FDIC would not recover its costs from 
premium income.
    The Federal Reserve remits its profits to the Treasury, and 
those payments are classified as governmental receipts in the 
federal budget. To the extent that the Federal Reserve bears 
the costs of sharing information, H.R. 1408 would reduce 
receipts, but CBO estimates that any such impact would be 
negligible. If federal regulators that receive annual 
appropriations, such as the SEC, bear the costs of sharing 
information, H.R. 1408 could increase discretionary spending, 
subject to the availability of appropriated funds.
    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. Under 
the Balanced Budget and Emergency Deficit Control Act, 
Congressional actions to provide funding necessary to meet the 
government's deposit insurance commitment are excluded from 
pay-as-you-go procedures. CBO expects that the cost to the FDIC 
and other financial regulators to establisha system to share 
information on fraud would be related to the safety and soundness of 
deposit insurance, and thus, would be excluded. Although H.R. 1408 
would establish new criminal penalties, CBO estimates that any impact 
of this legislation of the collection of criminal fines and subsequent 
spending would not be significant.
    Intergovernmental and private-sector impact: The bill would 
require state and private financial regulators to:
    --Participate in a network that links databases containing 
information on final enforcement and disciplinary actions they 
take. The bill does not require regulators to create new 
databases; rather, if such databases of public information 
exist, those regulators must make the contents available to the 
network.
    --Provide notice to persons against whom enforcement or 
disciplinary action is taken based on information from the 
network. Such notice would include the identity of the network 
participant who provided the information, a description of the 
information received, and an opportunity to respond to the 
information.
    The requirement to make information available to the 
network and to meet certain notice requirements would 
constitute both private-sector and intergovernmental mandates.
    The bill also would exempt certain state disclosure laws 
that would apply to the regulatory information released to the 
network, to the extent that state laws provide less 
confidentiality or a weaker privilege than the bill provides. 
The bill would require state insurance regulators, when being 
audited by the General Accounting Office (GAO), to make all 
records available to GAO as part of the audit. The preemption 
and new requirement would be intergovernmental mandates.
    Based on information from governmental and industry 
sources, CBO estimates that the costs of these mandates would 
not be significant. Because the regulators would be required to 
provide information from databases that already exist, the 
costs to regulators would be incurred only to bring those 
databases into compliance with the network design. The notice 
requirements would expand the procedures states already follow 
in their regulatory process and would impose minimal costs.
    The bill would place certain eligibility requirements on 
state insurance commissioners and state securities 
administrators in order to access information from the network. 
These eligibility provisions affect voluntary access to network 
information and therefore are not mandates.
    Estimate prepared by: Federal costs: Mark Hadley and Ken 
Johnson; impact on State, local, and tribal governments: Susan 
Sieg Tompkins; impact on the private sector: Paige Piper/Bach.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional Authority of Congress to enact this legislation 
is provided by Article 1, section 8, clause 1 (relating to the 
general welfare of the United States); Article 1, section 8, 
clause 3 (relating to the power to regulate interstate 
commerce); Article 1, section 8, clause 5 (relating to the 
power to coin money and regulate the value thereof); and 
Article I, section 8, clause 18 (relating to making all laws 
necessary and proper for carrying into execution powers vested 
by the Constitution in the government of the United States).

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

                  Exchange of Committee Correspondence

                          House of Representatives,
                                  Committee on Agriculture,
                                     Washington, DC, July 31, 2001.
Hon. Michael G. Oxley,
Chairman, House Committee on Financial Services, Rayburn House Office 
        Building, Washington, DC.
    Dear Chairman Oxley: I understand that the Committee on 
Financial Services recently ordered reported H.R. 1408, the 
Financial Services Antifraud Network Act of 2001. As you know, 
the legislation contains provisions which fall within the 
jurisdiction of the Committee on Agriculture pursuant to clause 
1(a) of Rule X of the Rules of the House of Representatives.
    Because of your willingness to consult with the Committee 
on Agriculture regarding this matter and the need to move this 
legislation expeditiously, I will waive consideration of the 
bill by the Committee on Agriculture. By agreeing to waive its 
consideration of the bill, the Agriculture Committee does not 
waive its jurisdiction over H.R. 1408. In addition, the 
Committee reserves its authority to seek conferees on any 
provisions of the bill that are within the Agriculture 
Committee's jurisdiction during any House-Senate conference 
that may be convened on this legislation.
    I request that you include this letter and your response as 
part of your committee's report on the bill and the 
Congressional Record during consideration of the legislation on 
the House floor.
    Thank you for your attention to these matters.
            Sincerely,
                                           Larry Combest, Chairman.
                                ------                                

                          House of Representatives,
                           Committee on Financial Services,
                                    Washington, DC, August 1, 2001.
Hon. Larry Combest,
Chairman, House Committee on Agriculture, Longworth House Office 
        Building, Washington, DC.
    Dear Chairman Combest: Thank you for your letter regarding 
your Committee's jurisdictional interest in H.R. 1408, the 
Financial Services Antifraud Network Act of 2001.
    I acknowledge your committee's jurisdictional interest in 
this legislation and appreciate your cooperation in moving the 
bill to the House floor expeditiously. I agree that your 
decision to forego further action on the bill will not 
prejudice the Committee on Agriculture with respect to its 
jurisdictional prerogatives on this or similar legislation. I 
will include a copy of your letter and this response in the 
Committee's report on the bill and the Congressional Record 
when the legislation is considered by the House. Additionally, 
I will support any request you might make for conferees, should 
a conference be necessary.
    Thank you again for your cooperation.
            Sincerely,
                                        Michael G. Oxley, Chairman.

             Section-by-Section Analysis of the Legislation


Section 1. Short title; table of contents

    This section establishes the short title of the bill, the 
``Financial Services Antifraud Network Act of 2001'' and 
provides a table of contents.

Section 2. Purposes

    This section explains the purposes of the legislation.

                       Title I--Antifraud Network


             Subtitle A--Direction to Financial Regulators

Section 100. Creation and operation of the network

    This section directs the financial regulators to develop 
procedures to provide for a network for the sharing of 
antifraud information. The Committee contemplates that the 
financial regulators may accomplish this by coordinating their 
computer systems to facilitate the sharing of appropriate 
antifraud information. There are more than 250 different 
financial regulators each using different computer systems 
without a coordinated interface to share information and keep 
track of each other's antifraud efforts. This section begins 
the process both of coordinating the different regulators' 
computer systems and establishing appropriate protections for 
confidentiality, privacy, and security, on a comprehensive 
basis. This section does not contemplate the creation of a 
database, but rather looks to network different existing 
systems so that they can easily communicate with each other. In 
fact, the regulators are currently undertaking this 
coordination of information on an ad hoc basis. This section 
directs that this coordination be done in a comprehensive 
fashion with proper safeguards. The Committee does not 
contemplate the promulgation of new regulations, nor does it 
believe that the collection of new information is necessary or 
desirable to fulfill the networking requirements of this 
legislation. The direction to coordinate information is limited 
to data on financial companies and professionals, not 
consumers.
    Subsection (a) directs the financial regulators to develop 
procedures to provide for a network for the sharing of 
antifraud information. The regulators are also directed to 
develop an ongoing process to continue coordinating and 
improving their antifraud efforts over time. The Committee 
expects this ongoing process to include some facilitation of 
regular or periodic meetings where appropriate to discuss 
further process or technology upgrades.
    Subsection (b) sets forth the minimum level of coordination 
required by the regulators. The networking of information must 
include the sharing of certain final disciplinary and formal 
enforcement actions. However, this requirement only applies 
where the actions are public, electronically accessible 
(already in a database or other existing computer format), and 
related to conduct of financial companies or professionals that 
is fraudulent, dishonest, or involves a breach of trust or 
failure to be properly registered or licensed.
    The regulators are further instructed to consider sharing 
other relevant and useful anti-fraud information so long as 
adequate privacy, confidentiality, and security safeguards can 
be established to govern such information sharing. The 
regulators are directed to develop a plan to share such 
information where it is already publicly accessible or does not 
include personally identifiable information on consumers. In 
the latter category, the subsection contemplates information 
will be shared by regulators on licenses and applications, 
financial affiliations and name-relationships, aggregate trend 
data, and reports generated by or for or filed with the 
regulator, or similar information that is filed with a 
regulator (or generated by a regulator) that is factual and 
substantiated and being shared for the purpose of verifying an 
application or other declaration filed by a regulated company 
or financial professional. For example, this would allow a 
regulator to cross check information filed by a company with 
information provided to another regulator by the company's 
affiliates.
    This subsection also outlines certain minimum protections 
that the Committee expects the regulators to provide for their 
regulatees through the network when sharing information on a 
comprehensive basis. Specifically, when any regulator uses 
information as described in the subsection to take an adverse 
action against a person, the regulator must notify the person 
of the right to reasonably respond to the use of the 
information in taking the adverse action. The regulator must 
also notify the person, revealing the identity of the regulator 
that provided the information, and provide a specific and 
detailed description of the information relied upon in taking 
the adverse action.
    For example, where a financial regulator suggests that a 
person should consider withdrawing an application or other 
request for agency action based on information that was 
received from another regulator through the network, the 
Committee contemplates that the regulator will still make every 
reasonable effort to provide a specific and detailed 
description of the relevant portions of the information to the 
person, so that the person is made aware of exactly what 
negative information isbeing considered. Where practicable, the 
regulators must provide the notice and the opportunity to respond 
before any final action against the person is completed, except where 
substantial or material harm would result, in which case the notice and 
opportunity to respond will be provided at the time of such action. The 
Committee recognizes that many agencies will already have due process 
protections in place that a regulator will determine are sufficiently 
similar or stronger, and does not intend to supercede such protections. 
The Committee also understands that there are circumstances, such as 
issuance of Summary Orders under State securities laws, where it would 
be impracticable or inappropriate for financial regulators to provide 
the advance notice required by section 100(b)(3), but financial 
regulators in such circumstances are still obligated to provide a 
reasonable opportunity to respond to the network information used. 
Additionally, these due process protections are not intended to allow 
individuals to re-open final public decisions merely because they are 
referred to on the network.
    The Committee expects that participants in the network will 
maintain procedures and safeguards for controlling and limiting 
access to any confidential information. Such procedures and 
safeguards should include measures to limit the risk of 
unauthorized disclosure of information shared through the 
network.
    Subsections (d) through (f) provide that the Federal 
financial regulators have 6 months to submit a networking plan 
to Congress and all the financial regulators have 2 years to 
implement it. The Secretary of the Treasury must determine at 
the end of the 6 months whether the regulators have submitted a 
plan that substantially meets the requirements of this 
legislation, and again at the end of 2 years whether the 
regulators have established a network that substantially 
complies with this legislation. If they do not meet these 
requirements, then a decision-making subcommittee structure is 
created in subtitle B. If the Secretary does not submit either 
affirmative determination within 30 days of the specified time 
period, then subtitle B will take effect. These subsections are 
intended to allow the financial regulators the opportunity to 
coordinate their computer systems on their own, but if they 
fail to meet the time deadlines, then subtitle B establishes a 
process (i.e., the Subcommittee) to facilitate decisions on how 
to perform the networking of information.
    Subsection (g) provides that a financial regulator may meet 
the requirement to share final disciplinary or formal 
enforcement actions if the other regulators have access to a 
centralized database containing sufficiently similar 
information (such as a database maintained by the NASD or NAIC 
containing that information) or the financial regulator makes 
the information available to the public over the Internet. It 
announces the sense of the Congress that the NAIC, the 
Conference of State Bank Supervisors (CSBS), the American 
Council of State Savings Supervisors (ACSSS), the National 
Association of State Credit Union Supervisors (NASCUS), and the 
North American Securities Administrators Association (NASAA) 
should develop model guidelines for their respective regulated 
financial industries to promote uniform standards for sharing 
information with the network.
    Subsection (h) establishes that each participant that 
allows access to its databases may establish parameters for 
controlling or limiting such access, with the exception of 
final disciplinary or formal enforcement actions. Limitations 
include the type or category of information that may be 
accessed, the participants that may have access to the database 
or any specific type or category of information, and the 
subsequent disclosure of the accessed information by any other 
participant. Any transfer of information other than final 
disciplinary or formal enforcement actions must be accompanied 
by a disclaimer that the information may be unsubstantiated and 
may not be relied on as the basis for denying any application 
or license. The creation and use of the anti-fraud network is 
not intended to replace access to any current databases by the 
public or financial entities.
    Subsection (i) establishes eligibility requirements for 
State securities administrators to access the network. The 
ability to access the network is intended to reflect the 
ability to obtain information from other regulators through the 
coordinated computer systems. A limit on a regulator's ability 
to access the network does not relieve the regulator of the 
obligation to share final disciplinary and formal enforcement 
actions. To be eligible to access the network, a State 
securities administrator must (within 3 years of enactment) 
meet two requirements: (1) participate in a centralized 
database for broker-dealers, broker-dealer agents, investment 
advisers, and investment adviser representatives as designated 
by NASAA; and (2) require the broker-dealer, broker-dealer 
agent, investment adviser, and investment adviser 
representative to file applications and follow-up documentation 
through the centralized registration database.
    The Committee notes the unfortunate development that 
several state regulatory authorities are refusing to require 
state-registered investment advisers to use the Investment 
Advisor Registration Depository (IARD). The Committee believes 
that a significant goal of the IARD will remain unfulfilled 
until all States mandate uniform rules that require investment 
advisers to make filings on the IARD. The Committee applauds 
the North American Securities Administrators Association for 
adopting a model rule that urges full and completeparticipation 
in the IARD by the states, and urges all the states to do so. The 
Committee emphasizes that it is critically important that all states 
require all investment advisers to utilize the IARD in order to provide 
a more valuable resource for investors, regulators, and others. With 
that goal in mind, this section makes state securities administrators' 
access to the network established in this Act contingent on the state 
mandating electronic filing by advisers through the IARD.
    Subsection (j) establishes eligibility requirements for 
State insurance commissioners to access the network. To be 
eligible, a State must meet two requirements. First, the State 
insurance department must participate with other States in the 
NAIC database on disciplinary actions. Also, within 3 years of 
enactment, the department must participate in the NAIC 
databases on business affiliations and consumer complaints. 
Second, the State must be accredited by the NAIC or have an 
application for accredited status pending. Inclusion in the 
following databases maintained by the NAIC meets this 
participation requirement: Regulatory Information Retrieval 
System, Producer Database, and Complaints Database.
    Subsection (k) provides that each financial regulator must 
consider developing guidelines for participants on denoting 
which types of information are to receive different levels of 
confidentiality protection and how entities or associations 
that act on behalf of financial regulators (such as 
associations of State regulators) should denote such agency 
status.
    Subsection (l) provides that creation or use of the network 
does not affect the authority of a financial regulator to 
provide any person, including another participant, access to 
any information in accordance with any provision of law other 
than this legislation.

     Subtitle B--Potential Establishment of Antifraud Subcommittee

    Subtitle B gives the financial regulators 6 months to 
develop a proposal and 2 years to implement it to coordinate 
certain computer information. If they fail to do this on their 
own, then a subcommittee is created within the President's 
Working Group on Financial Markets with representative 
regulators from each of the financial industries to make 
decisions regarding the network protocols. This subcommittee 
would then have a similar time frame to plan and establish the 
network in conjunction with the other regulators, unless they 
determine that it is impracticable or not cost efficient. The 
subcommittee does not have any regulatory power or authority, 
but rather is intended by the Committee merely to help the more 
than 250 regulators make decisions on creating a cross-industry 
Internet search engine and developing computer data protocols 
and recommended guidelines for regulator information sharing.

Section 101. Establishment

    If the regulators are unable to develop an antifraud 
computer network on their own as set forth in section 100, then 
this section establishes the Antifraud Subcommittee (hereafter 
referred to as the Subcommittee) within the President's Working 
Group on Financial Markets. The Secretary of the Treasury, 
Chairman of the Securities and Exchange Commission (SEC), a 
State insurance commissioner designated by the National 
Association of Insurance Commissioners (NAIC), the Chairman of 
the Commodity Futures Trading Commission (CFTC), and a designee 
of the Chairman of the Federal Financial Institutions 
Examination Council (currently made up of the 5 Federal banking 
agencies) are members of the Subcommittee. Representatives of 
various financial regulators serve as financial liaisons while 
representatives of the Department of Justice, the Federal 
Bureau of Investigation, the United States Secret Service, and 
the Financial Crimes Enforcement Network serve as law 
enforcement liaisons. The Subcommittee may recognize additional 
regulators as other liaisons. If a membership position on the 
Subcommittee is not filled, whether by unwillingness, 
circumstance, or operation of law, then the President is 
required to appoint someone to fill such role with the missing 
regulator's guidance. Since the existence of the Working Group 
is at the direction of the President, the President may move 
the Subcommittee coordinating function to another appropriate 
place. However, if the Subcommittee's structure or duties are 
significantly altered, the Subcommittee members can withdraw 
from their direct involvement.

Section 102. Purposes of the subcommittee

    Subsection (a) describes the general duties of the 
Subcommittee which include coordinating access by the 
participants to financial regulator antifraud databases through 
the network; coordinate information sharing, where appropriate, 
among State, Federal, and foreign financial regulators and law 
enforcement agencies where sufficient privacy and 
confidentiality safeguards exist; consider coordinating 
development by participants of a name-relationship index for 
determining cross-industry affiliations and relationships; and 
the development of guidelines for ensuring appropriate privacy, 
confidentiality, and security of shared information.
    Subsection (b) requires that the financial regulators allow 
participants in the network to access their records on public 
final disciplinary or formal enforcement actions relating to 
fraudulent or wrongfulconduct, a breach of trust, or a failure 
to register with the appropriate financial regulator. Those records do 
not have to be made accessible if they are not already computerized. It 
also announces the sense of the Congress that the participants should, 
to the extent they consider practicable and appropriate, consider 
sharing other antifraud information similar to that described in 
section 100. The subsection also creates a due process right to be 
notified of and respond to information obtained through the network 
that is used to take an adverse action, similar to section 100.
    The remainder of subsection (b) and subsections (c) through 
(f) set forth similar requirements and directions as in the 
parallel provisions in section 100.
    Subsection (g) requires the Subcommittee to report to 
Congress within 6 months regarding the methods that the 
regulators will use to network antifraud information and what 
impediments exist to that networking. The Subcommittee and the 
regulators are required to establish the network within 2 years 
of subtitle B taking effect. If the Subcommittee, in 
conjunction with the liaisons, determines that the network 
would not be practicable or cost-effective, then the 
Subcommittee must report annually to Congress on its efforts to 
coordinate regulator antifraud information sharing efforts 
until the networking requirements are fulfilled.
    Subsection (h) provides that the creation or use of the 
network will not affect the authority of a participant to 
provide any person, including another participant, access to 
any information in accordance with any provision of law other 
than this legislation. Subsection (i) clarifies that the 
Subcommittee will not be able to force a member or liaison to 
create a new database or otherwise incur significant costs in 
modifying its databases. Instead, the members or liaison can 
merely allow the network access to the required information 
(the ability to connect to their systems via Internet or 
otherwise to search and/or download the relevant information 
from their database).

Section 103. Chairperson; term of chairperson; meetings; officers and 
        staff

    This section provides that a Chairperson of the 
Subcommittee is to be selected from the members to serve a term 
of 2 years. The Chairperson is empowered to appoint 
Subcommittee staff as may be necessary. The Chairperson or a 
majority of the members may call meetings. A majority of the 
members is required to constitute a quorum and to make 
decisions.

Section 104. Nonagency status

    Section 104 clarifies that the Subcommittee is not an 
advisory committee pursuant to the Federal Advisory Committee 
Act, nor a federal agency with respect to certain 
administrative procedures that apply to federal agencies.

Section 105. Powers of the subcommittee

    The Subcommittee has the powers necessary to carry out its 
duties and functions. Each agency and entity represented by a 
member or liaison is required, to the extent permitted by law, 
to provide information concerning its databases to facilitate 
coordination. Members and liaisons will serve without 
additional compensation. The Subcommittee may request that each 
agency or entity represented by a member or liaison provide 
administrative, technical, or other support service.

Section 106. Agreement on cost structure

    Under this section, the Subcommittee is to determine the 
means for providing for any necessary costs of carrying out the 
purposes of this subtitle in consultation and agreement with 
each member or liaison concerning its respective contribution. 
With the exception of final disciplinary and formal enforcement 
actions, a member or liaison may request the reimbursement of 
reasonable costs for providing access to its databases.

                   Subtitle C--Regulatory provisions

Section 111. Agency supervisory privilege

    Section 111 clarifies that confidential supervisory 
information (CSI) prepared or collected by bank, securities, 
insurance, and other financial regulators as part of their 
supervisory responsibilities is privileged from unauthorized 
disclosure. CSI includes confidential reports of examination or 
investigation prepared by a financial regulator in fulfilling 
its supervisory responsibilities, as well as correspondence and 
other documents related to these reports that a regulator 
treats as confidential, such as confidential examiner work-
papers. CSI does not include certain information that is not 
prepared at the request of financial regulators or information 
required to be made available under applicable Federal or State 
law.
    CSI prepared by a financial regulator or collected by a 
financial regulator from a person engaged in financial 
activities in the course of the supervisory process is 
privileged. As such, only the regulator who created the 
information or requested it can authorize its disclosure. 
Moreover, if a regulated entity provides information to the 
regulator in the course of the supervisory process, the 
regulated entity does not waive any privilege it may otherwise 
assert.
    A regulator must give the regulated entity notice if it 
decides to release CSI that was requested from the entity 
except under certain circumstances. For example, the notice 
provisions do not apply if the information is being provided to 
another financial regulator or liaison, is to be used for law 
enforcement purposes, or is information that was originally 
created or included in information created by the regulator 
(e.g., a report of examination).
    Financial regulators may share information with each other 
without waiving any supervisory privilege. A regulated entity 
or another supervisory agency, with which a financial regulator 
shares information, generally may not disclose CSI without the 
consent of the financial regulator that holds the privilege. 
However, a person may still take certain types of information 
prepared for one regulator and provide them to a second 
regulator that has the authority to obtain that information 
under other provisions of law. The CSI provisions also do not 
create any new authority for regulators to disclose information 
in contravention of other applicable law.
    There are exceptions to a financial regulator's ability to 
withhold CSI. A regulator cannot prevent access to CSI by 
Congress or the GAO. Moreover, because some financial 
regulators (e.g., the National Association of Securities 
Dealers and the National Futures Association) are subject to 
oversight by a Federal agency, section 111 also provides that 
such financial regulators may not use the privilege to prevent 
access to CSI by the Federal agency with oversight authority.
    H.R. 1408 is not intended to limit or otherwise affect 
access to or sharing of confidential supervisory information as 
set forth by section 36(h) of the Federal Deposit Insurance Act 
(12 U.S.C. 1831m(h)). That section requires certain financial 
institutions to transmit to the institution's auditor a copy of 
the most recent report of examination and other confidential 
supervisory information received by the institution from its 
financial regulator.
    The safety and soundness of persons engaged in the business 
of conducting financial activities is of paramount importance. 
A key component to ensuring that safety and soundness is an 
independent audit. In order for there to be an independent 
audit of a person engaged in the business of conducting 
financial activities, it is necessary for the person's 
independent auditor to have access to the person's reports of 
examination and other confidential supervisory information 
received by the person from its financial regulator. The 
banking agencies already allow access by independent auditors 
to relevantexamination reports and other confidential 
supervisory information either by agency rule or by agency policy or 
practice. In order to ensure that independent audits of persons engaged 
in the business of conducting financial activities will continue to 
occur without interruption, Congress expects that financial regulators 
that have not already done so will immediately adopt rules or take 
other appropriate action consistent with this legislation to allow a 
person's independent auditor to have access to the person's reports of 
examination and other confidential supervisory information received by 
the person from its financial regulator.
    Finally, books and records in the possession of or 
maintained on behalf of a regulated entity (other than reports 
prepared for, and information created by, a financial 
regulator) are not CSI for purposes of section 111. Third 
parties may continue to obtain ordinary books and records of a 
regulated entity directly from the entity subject to any lawful 
privilege that the regulated entity may assert.

Section 112. Confidentiality of information

    Subsection (a) provides that any Federal or State privacy, 
confidentiality, or other privilege applying to information of 
a participant will continue to apply to such information after 
it has been shared with another participant through the 
network. This ensures that any existing confidentiality 
protections or privileges follow the information as it goes 
from participant to participant in the network. Subsection (a) 
also extends additional Federal confidentiality protections to 
certain insurance information shared through a computer network 
maintained by the NAIC.
    Subsection (b) preempts State laws, including State open 
record laws, that are inconsistent with the confidentiality 
provisions of the bill and provide less confidentiality or 
privilege protections. Subsection (c) provides that a 
participant may not receive information through the network 
unless the participant can maintain full compliance with the 
confidentiality protections established in the bill. This would 
not, however, relieve the participant of the duty to provide 
access to certain required information as set forth in section 
100.

Section 113. Liability protections

    Subsection (a) provides liability protection, somewhat 
similar to the Federal Tort Claims Act, for financial 
regulators and their employees that are acting in good faith 
and within the scope of their employment, relating to 
communicating regulatory or supervisory information concerning 
persons engaged in the business of conducting financial 
activities with other regulators. Subsection (b) sets forth 
criminal penalties (imprisonment for not more than 5 years and 
fines) for intentional disclosures of confidential or 
privileged information per this title. Subsection (c) clarifies 
that the protections of the Federal Tort Claims Act are not 
limited by this Act. Subsection (d) provides that the term 
``financial regulator'' includes the Subcommittee if subtitle B 
has taken effect.

Section 114. Authorization for identification and criminal background 
        check

    This section is intended to allow the Federal Bureau of 
Investigation (FBI) to provide certain criminal records to 
State regulators to help such regulators perform licensing 
background checks. This section does not actually authorize or 
require State regulators to perform such checks, nor does it 
require that they use this section to request such information. 
Under existing Federal law, States can authorize their 
insurance regulators to receive criminal history records from 
the FBI, and several States have done so. Section 114 provides 
additional authority that States may use without superseding 
their existing authority.
    Subsection (a) directs the Attorney General, upon request 
from a financial regulator, to perform a search for criminal 
background records that match the fingerprints or other 
identifying information required to be provided. The Attorney 
General may then either provide such information to an 
authorized agent of the regulator, or if the Attorney General 
wants to screen the records for relevant information, the 
Attorney General may provide such relevant information directly 
to the regulator. If the Attorney General provides records to 
an authorized agent, then such agent must similarly screen the 
records for relevant information, and may only provide to the 
regulators the relevant information. Relevant information is 
defined as all felony and certain misdemeanor conviction 
records of the applicant. An authorized agent can be a State 
Attorney General, any law enforcement designee of the Attorney 
General or such State Attorney General, or any agent that has 
been recognized by the Attorney General for such purpose and 
appointed as agent by at least 3 other financial regulators. 
For example, the Committee contemplates that a sufficient 
number of State insurance regulators may choose to request that 
the Attorney General recognize the NAIC to act as their 
authorized agent in receiving criminal records and providing 
relevant portions to the State insurance regulators.
    Subsection (a) also provides that State insurance 
regulators may only use the powers authorized under this 
section if they have uniform or reciprocal agent licensing 
laws, as set forth in the NationalAssociation of Registered 
Agents and Brokers provisions of the Gramm-Leach-Bliley Act (section 
321 of Public Law 106-102). The determination of whether or not a State 
has uniform or reciprocity laws will be made by the Attorney General, 
with the advice and counsel of the National Association of Insurance 
Commissioners, except under certain circumstances. It is the 
expectation of the Committee that the Attorney General will rely on a 
reasonable determination by the NAIC regarding a State's laws.
    Subsection (b) allows the Attorney General to specify what 
form of identification is required to accompany a criminal 
record search request, and requires that the financial 
regulator has obtained an acknowledgement from the person whose 
records are being searched that the regulator may request such 
records. The Committee expects that the Attorney General will 
request the fingerprints of the person whose records are being 
searched, unless the Attorney General decides that some other 
reasonably cost-efficient identifying technology is preferable.
    Subsection (c) limits the permissible uses of the criminal 
background information to regulatory and law enforcement 
purposes. It also limits disclosure of the information, beyond 
the transfer of screened information from the Attorney General 
to the authorized agent to the financial regulator. Further 
disclosure is allowed only from the regulator to another 
financial regulator or law enforcement agency, and only where 
the recipient agrees to similarly limit further disclosure and 
to maintain the confidentiality of the information.
    Subsection (d) provides penalties for improper use of the 
criminal records. It further provides that an authorized agent 
who knowingly and willfully uses the information for an 
unauthorized purpose, or an insurance officer who directs such 
agent to so misuse information, will be barred from engaging in 
or regulating insurance activities. The Attorney General can 
waive that restriction as appropriate. This subsection is 
intended to prevent regulators from pressuring their agents to 
transfer criminal records to them, where the agents know that 
the records are irrelevant and that such transfer would thus be 
in violation of the law.
    Subsection (e) provides additional legal protections to a 
financial regulator who reasonably relies on the criminal 
background records provided by the Attorney General. Subsection 
(f) clarifies the application of section 1033 of title 18, 
United States Code. Employers relying on a State insurance 
regulator's background approval of an insurance agent pursuant 
to section 114 of this legislation are not subject to liability 
resulting from section 1033 of title 18 of the United States 
Code, unless that employer knows that the person hired is in 
violation of that section.
    Subsection (g) enables a financial regulator to designate a 
representative to facilitate requests and exchanges of 
information under this section. It announces the sense of the 
Congress that each State insurance regulator should designate 
the NAIC as such representative and that the NAIC and other 
financial regulators that require criminal background checks 
retain any records under this section in order to reduce 
multiple or duplicative criminal background checks. The 
Committee hopes that eventually a person seeking to obtain an 
insurance license in multiple states would only have to pay for 
and process one background check for each licensing period. The 
NAIC and other financial regulators are also encouraged to 
consult with the Attorney General to consider the feasibility 
of developing an on-going notification system that would allow 
the Attorney General to notify them when a licensed or approved 
professional is convicted of a relevant crime.
    Subsection (h) gives the Attorney General the authority to 
charge reasonable fees for the provision of information under 
this section. Subsection (i) clarifies that this section cannot 
be interpreted to provide authorization for a financial 
regulator to require fingerprinting as a part of a licensure or 
other application. There must be independent statutory 
authority to be able to request the information. This 
subsection also makes clear that no financial regulator is 
required to perform criminal background checks under this 
section--current systems used by financial regulators to 
perform criminal background checks are not supplanted. 
Subsection (j) authorizes the Attorney General to prescribe 
regulations to carry out this section.

Section 115. Definitions

    This section provides definitions of certain terms used in 
title I.

Section 116. Technical and conforming amendments to other acts

    This section makes necessary technical and conforming 
amendments to other acts.

Section 117. Audit of State insurance regulators

    Section 117 gives the Comptroller General of the United 
States the authority to audit a State insurance regulator, 
although only at the request of the Congress. The auditing 
authority includes any entity acting on behalf of the 
regulator, such as the NAIC or similar associations.

               Title II--Securities Industry Coordination


                  subtitle a--disciplinary information

Section 201. Investment Advisers Act of 1940

    Section 201 amends provisions of the Investment Advisers 
Act of 1940 relating to the establishment of a one-stop filing 
system for investment advisers by the Securities and Exchange 
Commission (the Commission). Section 201 also provides 
liability protection for the system operator for statements 
made in reports filed on the system (based on protections 
afforded under similar provisions of the Securities Exchange 
Act of 1934 for broker-dealer filings).
    Last year, the Commission adopted final rules requiring 
federally registered investment advisers to file Form ADV, Part 
1--the basic registration document for investment advisers--via 
an Internet-based electronic filing system, the Investment 
Adviser Registration Depository (IARD). Electronic Filing by 
Investment Advisers; Amendments to Form ADV (Release No. IA-
1897; 34-43282: File No. S7-10-00). Final rules relating to 
Form ADV, Part 2 are expected in the near future.
    On July 28, 2000, the Commission designated NASD 
Regulation, Inc. as the operator of the IARD. The Commission 
has made clear that NASDR's role is limited to developing and 
operating the IARD, and that NASDR has no authority as a self-
regulatory organization (SRO) over investment advisers. The 
Committee agrees with the limitations the Commission has 
imposed upon NASDR's role and emphasizes that the Commission 
alone has the duty under law to carry out the various 
responsibilities associated with the IARD with respect to 
federally registered investment advisers, including providing 
ready access to disciplinary and other information to 
investors, ensuring that fees to support the IARD are 
reasonable, and ensuring that all costs of the IARD are 
appropriate and necessary (particularly the costs associated 
with NASDR's role in administering the system).

Section 202. Securities and Exchange Act of 1934

    This section amends section 15A(i) of the Securities 
Exchange Act of 1934. Pursuant to section 15A(i), the NASDR 
operates the Central Registration Depository (CRD) which 
maintains regulatory information about broker-dealers and their 
associated persons. Section 15A(i) requires the NASDR to 
maintain a toll-free telephone listing to receive inquiries 
about disciplinary actions involving members and to promptly 
respond to those inquiries. It also immunizes any person for 
liability for actions taken or omitted in good faith under that 
provision. Section 202 makes clear that this liability 
protection encompasses other readily accessible electronic 
processes for distributing information, i.e. the distribution 
of the information over the Internet. The section also broadens 
the description of the information to be made available, 
including information about disciplinary actions reported to 
the CRD by a national securities exchange.

 Subtitle B--Preventing Migration of Rogue Financial Professionals to 
                        the Securities Industry

Section 211. Securities Exchange Act of 1934

    This section amends several provisions of the Securities 
Exchange Act of 1934 to enhance the Commission's authority to 
limit the ability of persons to work in the securities industry 
if they have been disciplined by banking, thrift, credit union, 
or insurance regulators.

Section 212. Investment Advisers Act of 1940

    This section amends several provisions of the Investment 
Advisers Act of 1940 to enhance the Commission's authority to 
limit the ability of persons to act as investment advisers if 
they have been disciplined by banking or insurance regulators, 
or have been convicted of certain felonies.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

              SECTION 552a OF TITLE 5, UNITED STATES CODE


Sec. 552a. Records maintained on individuals

  (a)  * * *
  (b) Conditions of Disclosure.--No agency shall disclose any 
record which is contained in a system of records by any means 
of communication to any person, or to another agency, except 
pursuant to a written request by, or with the prior written 
consent of, the individual to whom the record pertains, unless 
disclosure of the record would be--
          (1)  * * *

           *       *       *       *       *       *       *

          (11) pursuant to the order of a court of competent 
        jurisdiction; [and]
          (12) to a consumer reporting agency in accordance 
        with section 3711(e) of title 31[.]; or
          (13) for recordkeeping, licensing, and other 
        regulatory and law enforcement purposes in accordance 
        with title I of the Financial Services Antifraud 
        Network Act of 2001--
                  (A) through a network or name-relationship 
                index maintained under such title; or
                  (B) to a multistate database maintained by 
                the National Association of Insurance 
                Commissioners and any subsidiary or affiliate 
                of such association, subject to the 
                requirements of such title.

           *       *       *       *       *       *       *

                              ----------                              


SECTION 1113 OF THE FINANCIAL INSTITUTIONS REGULATORY AND INTEREST RATE 
                          CONTROL ACT OF 1978

                               exceptions

  Sec. 1113. (a)  * * *

           *       *       *       *       *       *       *

  (r) This title shall not apply to disclosure by a financial 
regulator of information pursuant to subtitle A or B of the 
Financial Services Antifraud Network Act of 2001 to the extent 
the disclosure is made in accordance with the requirements of 
such Act.
                              ----------                              


           SECTION 602 OF THE CONSUMER CREDIT PROTECTION ACT

Sec. 602.  Findings and purpose

  (a)  * * *

           *       *       *       *       *       *       *

  (c) This title shall not apply to a communication between 
participants, as defined in the Financial Services Antifraud 
Network Act of 2001, to the extent the communication is made in 
accordance with such Act.
                              ----------                              


INVESTMENT ADVISERS ACT OF 1940

           *       *       *       *       *       *       *


TITLE II--INVESTMENT ADVISERS

           *       *       *       *       *       *       *


                  Registration of Investment Advisers

  Sec. 203. (a)  * * *

           *       *       *       *       *       *       *

  (e) The Commission, by order, shall censure, place 
limitations on the activities, functions, or operations of, 
suspend for a period not exceeding twelve months, or revoke the 
registration of any investment adviser if it finds, on the 
record after notice and opportunity for hearing, that such 
censure, placing of limitations, suspension, or revocation is 
in the public interest and that such investment adviser, or any 
person associated with such investment adviser, whether prior 
to or subsequent to becoming so associated--
          (1)  * * *

           *       *       *       *       *       *       *

          [(7) is subject to an order of the Commission entered 
        pursuant to subsection (f) of this section barring or 
        suspending the right of such person to be associated 
        with an investment adviser which order is in effect 
        with respect to such person.
          [(8) has been found by a foreign financial regulatory 
        authority to have--
                  [(A) made or caused to be made in any 
                application for registration or report required 
                to be filed with a foreign securities 
                authority, or in any proceeding before a 
                foreign securities authority with respect to 
                registration, any statement that was at the 
                time and in light of the circumstances under 
                which it was made false or misleading with 
                respect to any material fact, or has omitted to 
                state in any application or report to a foreign 
                securities authority any material fact that is 
                required to be stated therein;
                  [(B) violated any foreign statute or 
                regulation regarding transactions in securities 
                or contracts of sale of a commodity for future 
                delivery traded on or subject to the rules of a 
                contract market or any board of trade; or
                  [(C) aided, abetted, counseled, commanded, 
                induced, or procured the violation by any other 
                person of any foreign statute or regulation 
                regarding transactions in securities or 
                contracts of sale of a commodity for future 
                delivery traded on or subject to the rules of a 
                contract market or any board of trade, or has 
                been found, by the foreign finanical regulatory 
                authority, to have failed reasonably to 
                supervise, with a view to preventing violations 
                of statutory provisions, and rules and 
                regulations promulgated thereunder, another 
                person who commits such a violation, if such 
                other person is subject to his supervision.]
          (7) is subject to any order of the Commission barring 
        or suspending the right of the person to be associated 
        with an investment adviser.
          (8) has been found by a foreign financial regulatory 
        authority to have--
                  (A) made or caused to be made in any 
                application for registration or report required 
                to be filed with a foreign securities 
                authority, or in any proceeding before a 
                foreign securities authority with respect to 
                registration, any statement that was at the 
                time and in light of the circumstances under 
                which it was made false or misleading with 
                respect to any material fact, or has omitted to 
                state in any such application, report, or 
                proceeding any material fact that is required 
                to be stated therein;
                  (B) violated any foreign statute or 
                regulation regarding securities, banking, 
                thrift activities, credit union activities, 
                insurance, or contracts of sale of a commodity 
                for future delivery traded on or subject to the 
                rules of a contract market or any board of 
                trade;
                  (C) aided, abetted, counseled, commanded, 
                induced, or procured the violation by any other 
                person of any foreign statute or regulation 
                regarding securities, banking, thrift 
                activities, credit union activities, insurance, 
                or contracts of sale of a commodity for future 
                delivery traded on or subject to the rules of a 
                contract market or any board of trade, or to 
                have failed reasonably to supervise, with a 
                view to preventing violations of statutory 
                provisions, and rules and regulations 
                promulgated thereunder, another person who 
                commits such a violation, if such other person 
                is subject to his supervision.
          (9) is subject to any final order of a State 
        securities commission (or any agency or officer 
        performing like functions), State authority that 
        supervises or examines banks, thrifts, or credit 
        unions, State insurance commission (or any agency or 
        office performing like functions), an appropriate 
        Federal banking agency (as defined in section 3 of the 
        Federal Deposit Insurance Act (12 U.S.C. 1813(q)), or 
        the National Credit Union Administration, that--
                  (A) bars such person from association with an 
                entity regulated by such commission, authority, 
                agency, or officer, or from engaging in the 
                business of securities, insurance, banking, 
                thrift activities, or credit union activities; 
                or
                  (B) constitutes a final order based on 
                violations of any laws or regulations that 
                prohibit fraudulent, manipulative, or deceptive 
                conduct.
  (f) The Commission, by order, shall censure or place 
limitations on the activities of any person associated, seeking 
to become associated, or, at the time of the alleged 
misconduct, associated or seeking to become associated with an 
investment adviser, or suspend for a period not exceeding 
twelve months or bar any such person from being associated with 
an investment adviser, if the Commission finds, on the record 
after notice and opportunity for hearing, that such censure, 
placing of limitations, suspension, or bar is in the public 
interest and that such person has committed or omitted any act 
or omission enumerated in paragraph (1), (5), (6), [or (8)] 
(8), or (9) of subsection (e) or has been convicted of any 
offense specified in paragraph (2) or (3) of subsection (e) 
within ten years of the commencement of the proceedings under 
this subsection, or is enjoined from any action, conduct, or 
practice specified in paragraph (4) of subsection (e). It shall 
be unlawful for any person as to whom such an order suspending 
or barring him from being associated with an investment adviser 
is in effect willfully to become, or to be, associated with an 
investment adviser without the consent of the Commission, and 
it shall be unlawful for any investment adviser to permit such 
a person to become, or remain, a person associated with him 
without the consent of the Commission, if such investment 
adviser knew, or in the exercise of reasonable care, should 
have known, of such order.

           *       *       *       *       *       *       *


                        Annual and Other Reports

  Sec. 204. [Every investment] (a) In General.--Every 
investment adviser who makes use of the mails or of any means 
or instrumentality of interstate commerce in connection with 
his or its business as an investment adviser (other than one 
specifically exempted from registration pursuant to section 
203(b) of this title), shall make and keep for prescribed 
periods such records (as defined in section 3(a)(37) of the 
Securities Exchange Act of 1934), furnish such copies thereof, 
and make and disseminate such reports as the Commission, by 
rule, may prescribe as necessary or appropriate in the public 
interest or for the protection of investors. All records (as so 
defined) of such investment advisers are subject at any time, 
or from time to time, to such reasonable periodic, special, or 
other examinations by representatives of the Commission as the 
Commission deems necessary or appropriate in the public 
interest or for the protection of investors.
  (b) Filing Depositories.--The Commission, by rule, may 
require an investment adviser--
          (1) to file with the Commission any fee, application, 
        report, or notice required to be filed by this title or 
        the rules issued under this title through any entity 
        designated by the Commission for that purpose; and
          (2) to pay the reasonable costs associated with such 
        filing and the establishment and maintenance of the 
        systems required by subsection (c).
  (c) Access to Disciplinary and Other Information.--
          (1) Maintenance of system to respond to inquiries.--
        The Commission shall require the entity designated by 
        the Commission under subsection (b)(1)--
                  (A) to establish and maintain a toll-free 
                telephone listing or other readily accessible 
                electronic process to receive inquiries 
                regarding disciplinary actions and proceedings 
                and other information involving investment 
                advisers and persons associated with investment 
                advisers; and
                  (B) to respond promptly to such inquiries.
          (2) Recovery of costs.--An entity designated by the 
        Commission under subsection (b)(1) may charge persons, 
        other than individual investors, reasonable fees for 
        responses to inquiries made under paragraph (1).
          (3) Limitation on liability.--An entity designated by 
        the Commission under subsection (b)(1) shall not have 
        any liability to any person for any actions taken or 
        omitted in good faith under this subsection.

           *       *       *       *       *       *       *

                              ----------                              


SECURITIES EXCHANGE ACT OF 1934

           *       *       *       *       *       *       *


TITLE I--REGULATION OF SECURITIES EXCHANGES

           *       *       *       *       *       *       *


                  Definitions and Application of Title

  Sec. 3. (a) When used in this title, unless the context 
otherwise requires--
          (1)  * * *

           *       *       *       *       *       *       *

          (39) A person is subject to a ``statutory 
        disqualification'' with respect to membership or 
        participation in, or association with a member of, a 
        self-regulatory organization, if such person--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (F) [has committed or omitted any act 
                enumerated in subparagraph (D), (E), or (G)] 
                has committed or omitted any act, or is subject 
                to an order or finding, enumerated in 
                subparagraph (D), (E), (G), or (H) of paragraph 
                (4) of section 15(b) of this title, has been 
                convicted of any offense specified in 
                subparagraph (B) of such paragraph (4) or any 
                other felony within ten years of the date of 
                the filing of an application for membership or 
                participation in, or to become associated with 
                a member of, such self-regulatory organization, 
                is enjoined from any action, conduct, or 
                practice specified in subparagraph (C) of such 
                paragraph (4), has willfully made or caused to 
                be made in any application for membership or 
                participation in, or to become associated with 
                a member of, a self-regulatory organization, 
                report required to be filed with a self-
                regulatory organization, or proceeding before a 
                self-regulatory organization, any statement 
                which was at the time, and in the light of the 
                circumstances under which it was made, false or 
                misleading with respect to any material fact, 
                or has omitted to state in any such 
                application, report, or proceeding any material 
                fact which is required to be stated therein.

           *       *       *       *       *       *       *


           Registration and Regulation of Brokers and Dealers

  Sec. 15. (a)  * * *
  (b)(1)  * * *

           *       *       *       *       *       *       *

  (4) The Commission, by order, shall censure, place 
limitations on the activities, functions, or operations of, 
suspend for a period not exceeding twelve months, or revoke the 
registration of any broker or dealer if it finds, on the record 
after notice and opportunity for hearing, that such censure, 
placing of limitations, suspension, or revocation is in the 
public interest and that such broker or dealer, whether prior 
or subsequent to becoming such, or any person associated with 
such broker or dealer, whether prior or subsequent to becoming 
so associated--
          (A)  * * *

           *       *       *       *       *       *       *

          [(F) is subject to an order of the Commission entered 
        pursuant to paragraph (6) of this subsection (b) 
        barring or suspending the right of such person to be 
        associated with a broker or dealer.
          [(G) has been found by a foreign financial regulatory 
        authority to have--
                  [(i) made or caused to be made in any 
                application for registration or report required 
                to be filed with a foreign financial regulatory 
                authority, or in any proceeding before a 
                foreign financial regulatory authority with 
                respect to registration, any statement that was 
                at the time and in the light of the 
                circumstances under which it was made false or 
                misleading with respect to any material fact, 
                or has omitted to state in any application or 
                report to the foreign financial regulatory 
                authority any material fact that is required to 
                be stated therein;
                  [(ii) violated any foreign statute or 
                regulation regarding transactions in 
                securities, or contracts of sale of a commodity 
                for future delivery, traded on or subject to 
                the rules of a contract market or any board of 
                trade;
                  [(iii) aided, abetted, counseled, commanded, 
                induced, or procured the violation by any 
                person of any provision of any statutory 
                provisions enacted by a foreign government, or 
                rules or regulations thereunder, empowering a 
                foreign financial regulatory authority 
                regarding transactions in securities, or 
                contracts of sale of a commodity for future 
                delivery, traded on or subject to the rules of 
                a contract market or any board of trade, or has 
                been found, by a foreignfinancial regulatory 
authority, to have failed reasonably to supervise, with a view to 
preventing violations of such statutory provisions, rules, and 
regulations, another person who commits such a violation, if such other 
person is subject to his supervision.]
          (F) is subject to any order of the Commission barring 
        or suspending the right of the person to be associated 
        with a broker or dealer.
          (G) has been found by a foreign financial regulatory 
        authority to have--
                  (i) made or caused to be made in any 
                application for registration or report required 
                to be filed with a foreign financial regulatory 
                authority, or in any proceeding before a 
                foreign financial regulatory authority with 
                respect to registration, any statement that was 
                at the time and in the light of the 
                circumstances under which it was made false or 
                misleading with respect to any material fact, 
                or omitted to state in any such application, 
                report, or proceeding any material fact that is 
                required to be stated therein;
                  (ii) violated any foreign statute or 
                regulation regarding securities, banking, 
                thrift activities, credit union activities, 
                insurance, or contracts of sale of a commodity 
                for future delivery, traded on or subject to 
                the rules of a contract market or any board of 
                trade; or
                  (iii) aided, abetted, counseled, commanded, 
                induced, or procured the violation by any other 
                person of any provision of any statutory 
                provisions enacted by a foreign government, or 
                rules or regulations thereunder, regarding 
                securities, banking, thrift activities, credit 
                union activities, insurance, or contracts of 
                sale of a commodity for future delivery traded 
                on or subject to the rules of a contract market 
                or any board of trade, or to have failed 
                reasonably to supervise, with a view to 
                preventing violations of such statutory 
                provisions, rules, and regulations, another 
                person who commits such a violation, if such 
                other person is subject to his supervision.
          (H) is subject to any final order of a State 
        securities commission (or any agency or officer 
        performing like functions), State authority that 
        supervises or examines banks, thrifts, or credit 
        unions, State insurance commission (or any agency or 
        office performing like functions), an appropriate 
        Federal banking agency (as defined in section 3 of the 
        Federal Deposit Insurance Act (12 U.S.C. 1813(q)), or 
        the National Credit Union Administration, that--
                  (i) bars such person from association with an 
                entity regulated by such commission, authority, 
                agency, or officer, or from engaging in the 
                business of securities, insurance, banking, 
                thrift activities, or credit union activities; 
                or
                  (ii) constitutes a final order based on 
                violations of any laws or regulations that 
                prohibit fraudulent, manipulative, or deceptive 
                conduct.

           *       *       *       *       *       *       *

  (6)(A) With respect to any person who is associated, who is 
seeking to become associated, or, at the time of the alleged 
misconduct, who was associated or was seeking to become 
associated with a broker or dealer, or any person 
participating, or, at the time of the alleged misconduct, who 
was participating, in an offering of any penny stock, the 
Commission, by order, shall censure, place limitations on the 
activities or functions of such person, or suspend for a period 
not exceeding 12 months, or bar such person from being 
associated with a broker or dealer, or from participating in an 
offering of penny stock, if the Commission finds, on the record 
after notice and opportunity for a hearing, that such censure, 
placing of limitations, suspension, or bar is in the public 
interest and that such person--
          (i) has committed or omitted any act [or omission 
        enumerated in subparagraph (A), (D), (E), or (G)], or 
        is subject to an order or finding, enumerated in 
        subparagraph (A), (D), (E), (G), or (H) of paragraph 
        (4) of this subsection;

           *       *       *       *       *       *       *


                   Registered Securities Associations

  Sec. 15A. (a)  * * *

           *       *       *       *       *       *       *

  [(i) A registered securities association shall, within one 
year from the date of enactment of this section, (1) establish 
and maintain a toll-free telephone listing to receive inquiries 
regarding disciplinary actions involving its members and their 
associated persons, and (2) promptly respond to such inquiries 
in writing. Such association may charge persons, other than 
individual investors, reasonable fees for written responses to 
such inquiries. Such an association shall not have any 
liability to any person for any actions taken or omitted in 
good faith under this paragraph.]
  (i) Obligation to Maintain Disciplinary and Other Data.--
          (1) Maintenance of system to respond to inquiries.--A 
        registered securities association shall--
                  (A) establish and maintain a toll-free 
                telephone listing or other readily accessible 
                electronic process to receive inquiries 
                regarding disciplinary actions and proceedings 
                and other information involving its members and 
                their associated persons and regarding 
                disciplinary actions and proceedings and other 
                information that has been reported to the 
                Central Registration Depository by any 
                registered national securities exchange 
                involving its members and their associated 
                persons; and
                  (B) promptly respond to such inquiries.
          (2) Recovery of costs.--Such association may charge 
        persons, other than individual investors, reasonable 
        fees for responses to such inquiries.
          (3) Limitation on liability.--Such an association or 
        exchange shall not have any liability to any person for 
        any actions taken or omitted in good faith under this 
        subsection.

           *       *       *       *       *       *       *


                          Municipal Securities

  Sec. 15B. (a)  * * *

           *       *       *       *       *       *       *

  (c)(1)  * * *
  (2) The Commission, by order, shall censure, place 
limitations on the activities, functions, or operations, 
suspend for a period not exceeding twelve months, or revoke the 
registration of any municipal securities dealer, if it finds, 
on the record after notice and opportunity for hearing, that 
such censure, placing of limitations, denial, suspension, or 
revocation, is in the public interest and that such municipal 
securities dealer has committed or omitted any act [or omission 
enumerated in subparagraph (A), (D), (E), or (G)], or is 
subject to an order or finding, enumerated in subparagraph (A), 
(D), (E), (G), or (H) of paragraph (4) of section 15(b) of this 
title, has been convicted of any offense specified in 
subparagraph (B) of such paragraph (4) within [ten] 10 years of 
the commencement of the proceedings under this paragraph, or is 
enjoined from any action, conduct, or practice specified in 
subparagraph (C) or such paragraph (4).

           *       *       *       *       *       *       *

  (4) The Commission, by order, shall censure or place 
limitations on the activities or functions of any person 
associated, seeking to become associated, or, at the time of 
the alleged misconduct, associated or seeking to become 
associated with a municipal securities dealer, or suspend for a 
period not exceeding twelve months or bar any such person from 
being associated with a municipal securities dealer, if the 
Commission finds, on the record after notice and opportunity 
for hearing, that such censure, placing of limitations, 
suspension, or bar is in the public interest and that such 
person has committed any act [or omission enumerated in 
subparagraph (A), (D), (E), or (G)], or is subject to an order 
or finding, enumerated in subparagraph (A), (D), (E), (G), or 
(H) of paragraph (4) of section 15(b) of this title, has been 
convicted of any offense specified in subparagraph (B) of such 
paragraph (4) within 10 years of the commencement of the 
proceedings under this paragraph, or is enjoined from any 
action, conduct, or practice specified in subparagraph (C) of 
such paragraph (4). It shall be unlawful for any person as to 
whom an order entered pursuant to this paragraph or paragraph 
(5) of this subsection suspending or barring him from being 
associated with a municipal securities dealer is in effect 
willfully to become, or to be, associated with a municipal 
securities dealer without the consent of the Commission, and it 
shall be unlawful for any municipal securities dealer to permit 
such a person to become, or remain, a person associated with 
him without the consent of the Commission, if such municipal 
securities dealer knew, or, in the exercise of reasonable care 
should have known, of such order.

           *       *       *       *       *       *       *


               Government Securities Brokers and Dealers

    Sec. 15C. (a)  * * *

           *       *       *       *       *       *       *

  (c)(1) With respect to any government securities broker or 
government securities dealer registered or required to register 
under subsection (a)(1)(A) of this section--
          (A) The Commission, by order, shall censure, place 
        limitations on the activities, functions, or operations 
        of, suspend for a period not exceeding 12 months, or 
        revoke the registration of such government securities 
        broker or government securities dealer, if it finds, on 
        the record after notice and opportunity for hearing, 
        that such censure, placing of limitations, suspension, 
        or revocation is in the public interest and that such 
        government securities broker or government securities 
        dealer, or any person associated with such government 
        securities broker or government securities dealer 
        (whether prior or subsequent to becoming so 
        associated), has committed or omitted any act [or 
        omission enumerated in subparagraph (A), (D), (E), or 
        (G)], or is subject to an order or finding, enumerated 
        in subparagraph (A), (D), (E), (G), or (H) of paragraph 
        (4) of section 15(b) of this title, has been convicted 
        of any offense specified in subparagraph (B) of such 
        paragraph (4) within 10 years of the commencement of 
        the proceedings under this paragraph, or is enjoined 
        from any action, conduct, or practice specified in 
        subparagraph (C) of such paragraph (4).

           *       *       *       *       *       *       *

          (C) The Commission, by order, shall censure or place 
        limitations on the activities or functions of any 
        person associated, or seeking to become associated, 
        with a government securities broker or government 
        securities dealer registered or required to register 
        under subsection (a)(1)(A) of this section or suspend 
        for a period not exceeding 12 months or bar any such 
        person from being associated with such a government 
        securities broker or government securities dealer, if 
        the Commission finds, on the record after notice and 
        opportunity for hearing, that such censure, placing of 
        limitations, suspension, or bar is in the public 
        interest and that such person has committed or omitted 
        any act [or omission enumerated in subparagraph (A), 
        (D), (E), or (G)], or is subject to an order or 
        finding, enumerated in subparagraph (A), (D), (E), (G), 
        or (H) of paragraph (4) of section 15(b) of this title, 
        has been convicted of any offense specified in 
        subparagraph (B) of such paragraph (4) within 10 years 
        of the commencement of the proceedings under this 
        paragraph, or is enjoined from any action, conduct, or 
        practice specified in subparagraph (C) of such 
        paragraph (4).

           *       *       *       *       *       *       *


National System for Clearance and Settlement of Securities Transactions

  Sec. 17A. (a)  * * *

           *       *       *       *       *       *       *

  (c)(1)  * * *

           *       *       *       *       *       *       *

    (3) The appropriate regulatory agency for a transfer agent, 
by order, shall deny registration to, censure, place 
limitations on theactivities, functions, or operations of, 
suspend for a period not exceeding 12 months, or revoke the 
registration of such transfer agent, if such appropriate regulatory 
agency finds, on the record after notice and opportunity for hearing, 
that such denial, censure, placing of limitations, suspension, or 
revocation is in the public interest and that such transfer agent, 
whether prior or subsequent to becoming such, or any person associated 
with such transfer agent, whether prior or subsequent to becoming so 
associated--
          (A) has committed or omitted any act [enumerated in 
        subparagraph (A), (D), (E), or (G)], or is subject to 
        an order or finding, enumerated in subparagraph (A), 
        (D), (E), (G), or (H) of paragraph (4) of section 15(b) 
        of this title, has been convicted of any offense 
        specified in subparagraph (B) of such paragraph (4) 
        within ten years of the commencement of the proceedings 
        under this paragraph, or is enjoined from any action, 
        conduct, or practice specified in subparagraph (C) of 
        such paragraph (4); or

           *       *       *       *       *       *       *

  (4)(A)  * * *

           *       *       *       *       *       *       *

    (C) The appropriate regulatory agency for a transfer agent, 
by order, shall censure or place limitations on the activities 
or functions of any person associated, seeking to become 
associated, or, at the time of the alleged misconduct, 
associated or seeking to become associated with the transfer 
agent, or suspend for a period not exceeding twelve months or 
bar any such person from being associated with the transfer 
agent, if the appropriate regulatory agency finds, on the 
record after notice and opportunity for hearing, that such 
censure, placing of limitations, suspension, or bar is in the 
public interest and that such person has committed or omitted 
any act [enumerated in subparagraph (A), (D), (E), or (G)], or 
is subject to an order or finding, enumerated in subparagraph 
(A), (D), (E), (G), or (H) or paragraph (4) of section 15(b) of 
this title, has been convicted of any offense specified in 
subparagraph (B) of such paragraph (4) within [ten] 10 years of 
the commencement of the proceedings under this paragraph, or is 
enjoined from any action, conduct, or practice specified in 
subparagraph (C) of such paragraph (4). It shall be unlawful 
for any person as to whom such an order suspending or barring 
him from being associated with a transfer agent is in effect 
willfully to become, or to be, associated with a transfer agent 
without the consent of the appropriate regulatory agency that 
entered the order and the appropriate regulatory agency for 
that transfer agent. It shall be unlawful for any transfer 
agent to permit such a person to become, or remain, a person 
associated with it without the consent of such appropriate 
regulatory agencies, if the transfer agent knew, or in the 
exercise of reasonable care should have known, of such order. 
The Commission may establish, by rule, procedures by which a 
transfer agent reasonably can determine whether a person 
associated or seeking to become associated with it is subject 
to any such order, and may require, by rule, that any transfer 
agent comply with such procedures.

           *       *       *       *       *       *       *


                                
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