[House Report 118-295]
[From the U.S. Government Publishing Office]


118th Congress   }                                       {      Report
                        HOUSE OF REPRESENTATIVES
 1st Session     }                                       {     118-295

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



 
             IMPROVING DISCLOSURE FOR INVESTORS ACT OF 2023

                                _______
                                

December 1, 2023.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

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

                              R E P O R T

                        [To accompany H.R. 1807]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 1807) to direct the Securities and Exchange 
Commission to promulgate rules with respect to the electronic 
delivery of certain required disclosures, and for other 
purposes, having considered the same, reports favorably thereon 
with an amendment and recommends that the bill as amended do 
pass.
    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Improving Disclosure for Investors Act 
of 2023''.

SEC. 2. ELECTRONIC DELIVERY.

  (a) Promulgation of Rules.--Not later than 180 days after the date of 
the enactment of this section, the Securities and Exchange Commission 
shall propose and, not later than 1 year after the date of the 
enactment of this section, the Commission shall finalize, rules, 
regulations, amendments, or interpretations, as appropriate, to allow a 
covered entity to satisfy the entity's obligation to deliver regulatory 
documents required under the securities laws to investors using 
electronic delivery.
  (b) Required Provisions.--Rules, regulations, amendments, or 
interpretations the Commission promulgates pursuant to subsection (a) 
shall:
          (1) With respect to investors that do not receive all 
        regulatory documents by electronic delivery, provide for--
                  (A) delivery of an initial communication in paper 
                form regarding electronic delivery;
                  (B) a transition period not to exceed 180 days until 
                such regulatory documents are delivered to such 
                investors by electronic delivery; and
                  (C) during a period not to exceed 2 years following 
                the transition period set forth in subparagraph (B), 
                delivery of an annual notice in paper form solely 
                reminding such investors of the ability to opt out of 
                electronic delivery at any time and receive paper 
                versions of regulatory documents.
          (2) Set forth requirements for the content of the initial 
        communication described in paragraph (1)(A).
          (3) Set forth requirements for the timing of delivery of a 
        notice of website availability of regulatory documents and the 
        content of the appropriate notice described in subsection 
        (h)(3)(B).
          (4) Provide a mechanism for investors to opt out of 
        electronic delivery at any time and receive paper versions of 
        regulatory documents.
          (5) Require measures reasonably designed to identify and 
        remediate failed electronic deliveries of regulatory documents.
          (6) Set forth minimum requirements regarding readability and 
        retainability for regulatory documents that are delivered 
        electronically.
          (7) For covered entities other than brokers, dealers, 
        investment advisers registered with the Commission, and 
        investment companies, require measures reasonably designed to 
        ensure the confidentiality of personal information in 
        regulatory documents that are delivered to investors 
        electronically.
  (c) Exemption From Certain Requirements.--Section 101(c) of the 
Electronic Signatures in Global and National Commerce Act (15 U.S.C. 
7001(c)) shall not apply with respect to a regulatory document 
delivered in accordance with this section.
  (d) Rule of Construction.--Nothing in this section shall be construed 
as altering the substance or timing of any regulatory document 
obligation under the securities laws or regulations of a self-
regulatory organization.
  (e) Treatment of Revisions Not Completed in a Timely Manner.--If the 
Commission fails to finalize the rules, regulations, amendments, or 
interpretations required under subsection (a) before the date specified 
in such subsection--
          (1) a covered entity may deliver regulatory documents using 
        electronic delivery in accordance with subsections (b) through 
        (d); and
          (2) such electronic delivery shall be deemed to satisfy the 
        obligation of the covered entity to deliver regulatory 
        documents required under the securities laws.
  (f) Other Required Actions.--
          (1) Review of rules.--The Commission shall--
                  (A) within 180 days of the date of enactment of this 
                Act, conduct a review of the rules and regulations of 
                the Commission to determine whether any such rules or 
                regulations require delivery of written documents to 
                investors; and
                  (B) within 1 year of the date of enactment of this 
                Act, promulgate amendments to such rules or regulations 
                to provide that any requirement to deliver a regulatory 
                document ``in writing'' may be satisfied by electronic 
                delivery.
          (2) Actions by self-regulatory organizations.--Each self-
        regulatory organization shall adopt rules and regulations, or 
        amend the rules and regulations of the self-regulatory 
        organization, consistent with this Act and consistent with 
        rules, regulations, amendments, or interpretations finalized by 
        the Commission pursuant to subsection (a).
          (3) Rule of application.--This subsection shall not apply to 
        a rule or regulation issued pursuant to a Federal statute if 
        that Federal statute specifically requires delivery of written 
        documents to investors.
  (g) Definitions.--In this section:
          (1) Commission.--The term ``Commission'' means the Securities 
        and Exchange Commission.
          (2) Covered entity.--The term ``covered entity'' means--
                  (A) an investment company (as defined in section 
                3(a)(1) of the Investment Company Act of 1940 (15 
                U.S.C. 80a-3(a)(1))) that is registered under such Act;
                  (B) a business development company (as defined in 
                section 2(a) the Investment Company Act of 1940 (15 
                U.S.C. 80a-2(a))) that has elected to be regulated as 
                such under such Act;
                  (C) a registered broker or dealer (as defined in 
                section 3(a)(4) and section 3(a)(5) of the Securities 
                Exchange Act of 1934) (15 U.S.C. 78c(a)(4) & 
                78c(a)(5));
                  (D) a registered municipal securities dealer (as 
                defined in section 3(a)(30) of the Securities Exchange 
                Act of 1934) (15 U.S.C. 78c(a)(30));
                  (E) a registered government securities broker or 
                government securities dealer (as defined in section 
                3(a)(43) and section 3(a)(44) of the Securities 
                Exchange Act of 1934) (15 U.S.C. 78c(a)(43) & 
                78c(a)(44));
                  (F) a registered investment adviser (as defined in 
                section 202(a)(11) of the Investment Advisers Act of 
                1940) (15 U.S.C. 80b-1(a)(11));
                  (G) a registered transfer agent (as defined in 
                section 3(a)(25) of the Securities Exchange Act of 
                1934) (15 U.S.C. 78c(a)(25)); or
                  (H) a registered funding portal (as defined in the 
                second paragraph (80) of section 3(a) of the Securities 
                Exchange Act of 1934) (15 U.S.C. 78c(a)(80)).
          (3) Electronic delivery.--The term ``electronic delivery'', 
        with respect to regulatory documents, includes--
                  (A) the direct delivery of such regulatory document 
                to an electronic address of an investor;
                  (B) the posting of such regulatory document to a 
                website and direct electronic delivery of an 
                appropriate notice of the availability of the 
                regulatory document to the investor; and
                  (C) an electronic method reasonably designed to 
                ensure receipt of such regulatory document by the 
                investor.
          (4) Regulatory documents.--The term ``regulatory documents'' 
        includes--
                  (A) prospectuses meeting the requirements of section 
                10(a) of the Securities Act of 1933 (15 U.S.C. 77j(a));
                  (B) summary prospectuses meeting the requirements 
                of--
                          (i) section 230.498 of title 17, Code of 
                        Federal Regulations; or
                          (ii) section 230.498A of title 17, Code of 
                        Federal Regulations;
                  (C) statements of additional information, as 
                described under section 270.30e-3(h)(3) of title 17, 
                Code of Federal Regulations;
                  (D) annual and semi-annual reports to investors 
                meeting the requirements of section 30(e) of the 
                Investment Company Act of 1940 (15 U.S.C. 80a-29(e));
                  (E) notices meeting the requirements under section 
                270.19a-1 of title 17, Code of Federal Regulations;
                  (F) confirmations and account statements meeting the 
                requirements under section 240.10b-10 of title 17, Code 
                of Federal Regulations;
                  (G) proxy statements meeting the requirements under 
                section 240.14a-3 of title 17, Code of Federal 
                Regulations;
                  (H) privacy notices meeting the requirements of 
                Regulation S-P under subpart A of part 248 of title 17, 
                Code of Federal Regulations;
                  (I) affiliate marketing notices meeting the 
                requirements of Regulation S-AM under subpart B of part 
                248 of title 17, Code of Federal Regulations; and
                  (J) all other regulatory documents required to be 
                delivered by covered entities to investors under the 
                securities laws and the rules and regulations of the 
                Commission and the self-regulatory organizations.
          (5) Securities laws.--The term ``securities laws'' has the 
        meaning given the term in section 3(a) of the Securities 
        Exchange Act of 1934 (15 U.S.C. 78c(a)).
          (6) Self-regulatory organization.--The term ``self-regulatory 
        organization'' means--
                  (A) a self-regulatory organization, as defined in 
                section 2(a)(26) of the Securities Exchange Act of 1934 
                (15 U.S.C. 78c(a)(26)); and
                  (B) the Municipal Securities Rulemaking Board.
          (7) Website.--The term ``website'' means an internet website 
        or other digital, internet, or electronic-based information 
        repository, such as a mobile application, to which an investor 
        of a covered entity has been provided reasonable access.

                          PURPOSE AND SUMMARY

    Introduced on March 27, 2023, by Representative Bill 
Huizenga, H.R. 1807, the Improving Disclosure for Investors Act 
of 2023, would direct the Securities and Exchange Commission 
(SEC) to promulgate rules with respect to the electronic 
delivery of certain required disclosures to investors. Under 
the bill, such rules would allow registered investment 
companies (i.e., mutual funds, closed-end funds, and exchange-
traded funds), business development companies (BDCs), 
registered broker-dealers, registered advisers, and other SEC-
regulated entities to meet their obligations under U.S. 
securities laws to deliver regulatory documents to investors 
electronically.

                  BACKGROUND AND NEED FOR LEGISLATION

    A 2019 study found that almost 95 percent of households 
that own mutual funds have internet access, and these 
households often pay their bills, bank, and oversee their 
finances online. Additionally, the Social Security 
Administration requires beneficiaries to access benefit 
statements online, and 45 million individuals have ``my Social 
Security'' online accounts. Nevertheless, H.R. 1807 
appropriately preserves the ability for investors who prefer to 
receive paper notices and disclosures to do so. Specifically, 
H.R. 1807 requires the SEC to incorporate investor protections 
into its rules, such as providing a means for investors to opt 
out of electronic delivery at any time.
    Aside from reducing the environmental impact of tons of 
disposed paper each year, the benefits of making electronic 
delivery the default method for the entities listed above 
include facilitating positive investor engagement, as investors 
can more easily search for and find information most relevant 
to them. Additionally, electronic delivery will enhance the 
effectiveness of investor communications for individuals with 
disabilities or those for whom English is not their primary 
language. At a time when so many households, even senior 
households, have transitioned to online management of their 
finances, H.R. 1807 is a significant and critical step forward 
in modernizing how investor disclosures are delivered while 
preserving choice.

                                HEARING

    Pursuant to clause 3(c)(6) of rule XIII, the following 
hearing was used to develop H.R. 1807: The Subcommittee on 
Capital Markets of the Committee on Financial Services held a 
hearing on March 9, 2023, titled ``U.S. Public Markets Built 
for the 21st Century: Exploring Reforms to Make Our Public 
Markets Attractive for Small and Emerging Companies Raising 
Capital.''

                        COMMITTEE CONSIDERATION

    The Committee on Financial Services met in open session on 
April 26, 2023, and ordered H.R. 1807 to be reported favorably 
to the House as amended by voice vote, a quorum being present. 
Before the question was called to order the bill favorably 
reported, the Committee adopted an amendment in the nature of a 
substitute offered by Mr. Huizenga by 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 order to report legislation and amendments thereto. H.R. 
1807 was ordered reported favorably to the House as amended by 
voice vote, a quorum being present.

                      COMMITTEE OVERSIGHT FINDINGS

    Pursuant to clause 3(c) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the Committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    PERFORMANCE GOALS AND OBJECTIVES

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the goal of H.R. 1807 is to direct 
the Securities and Exchange Commission to promulgate rules with 
respect to the electronic delivery of certain required 
disclosures to investors.

                 CONGRESSIONAL BUDGET OFFICE ESTIMATES

    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:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

   NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX EXPENDITURES

    Pursuant to clause 3(c)(2) of rule XIII of the Rules of the 
House of Representatives, the Committee adopts as its own the 
estimate of new budget authority, entitlement authority, or tax 
expenditures or revenues contained in the cost estimate 
prepared by the Director of the Congressional Budget Office 
pursuant to section 402 of the Congressional Budget Act of 
1973.

                       FEDERAL MANDATES STATEMENT

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

                      ADVISORY COMMITTEE STATEMENT

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

                  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.

                         EARMARK IDENTIFICATION

    Pursuant to clause 9 of rule XXI of the Rules of the House 
of Representatives, the Committee has carefully reviewed the 
provisions of the bill and states that the provisions of the 
bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                    DUPLICATION OF FEDERAL PROGRAMS

    Pursuant to clause 3(c)(5) of rule XIII of the Rules of the 
House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes a program of 
the Federal Government known to be duplicative of another 
Federal program, including any program that was included in a 
report to Congress pursuant to section 21 of the Public Law 
111-139 or the most recent Catalog of Federal Domestic 
Assistance.

             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title

    This section cites H.R. 1807 as the ``Improving Disclosure 
for Investors Act of 2023''.

Section 2. Electronic delivery

    This section directs the SEC to promulgate rules to allow a 
covered entity to meet its obligations to deliver regulatory 
documents required under the securities laws to investors using 
electronic delivery. Within this section, a ``covered entity'' 
is defined as a registered investment company, a business 
development company, a registered broker or dealer, a 
registered municipal securities dealer, a registered government 
securities broker or government securities dealer, a registered 
investment adviser, a registered transfer agent, or a 
registered funding portal.
    Section 2 also states that the rules will: (1) for any 
investors who do not receive all regulatory documents 
electronically, provide for delivery of an initial 
communication regarding electronic delivery in paper, include a 
transition period not longer than 180 days, and during a period 
not to exceed two years, provide investors with an annual 
notice in paper reminding investors that they can opt out of 
electronic delivery at any time; (2) set forth the requirements 
for the initial communication to investors; (3) set forth the 
requirements for providing investors with notice that 
regulatory documents are available on a website and the 
contents of the notice; (4) provide a mechanism for investors 
to opt out of electronic delivery and to receive paper versions 
of regulatory documents; (5) include measures to identify and 
remediate failed electronic deliveries; (6) set forth 
requirements regarding readability and retainability of 
regulatory documents delivered electronically; and (7) require 
measures designed to ensure the confidentiality of personal 
information. Moreover, this section specifies exemptions, rules 
of construction, and notes that if rules are not completed in a 
timely manner, a covered entity may deliver regulatory 
documents electronically to satisfy its obligations under the 
securities laws.
    This section also directs the SEC to review the rules to 
determine whether any rules require delivery of written 
documents to investors and to promulgate amendments to the 
rules to provide that delivery of regulatory documents in 
writing may be satisfied electronically. Finally, this section 
directs self-regulatory organizations to adopt rules or amend 
their rules consistent with the SEC's final rules on electronic 
delivery.

                                  [all]