[House Report 118-77]
[From the U.S. Government Publishing Office]


118th Congress   }                                      {       Report
                        HOUSE OF REPRESENTATIVES
 1st Session     }                                      {       118-77

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



 
            EQUAL OPPORTUNITY FOR ALL INVESTORS ACT OF 2023

                                _______
                                

  May 30, 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. 2797]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 2797) to amend the Securities Act of 1933 to 
require certification examinations for accredited investors, 
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 ``Equal Opportunity for All Investors 
Act of 2023''.

SEC. 2. CERTIFICATION EXAMINATIONS FOR ACCREDITED INVESTORS.

  (a) In General.--The Securities and Exchange Commission shall revise 
the definition of ``accredited investor'' under Regulation D (section 
230.501 of title 15, Code of Federal Regulations) to include any 
natural person who is certified through the examination required under 
subsection (b).
  (b) Establishment of Examination.--Not later than 1 year after the 
date of the enactment of this Act, the Securities and Exchange 
Commission shall establish an examination (including a test, 
certification, or examination program)--
          (1) to certify an individual as an accredited investor; and
          (2) that--
                  (A) is designed with an appropriate level of 
                difficulty such that an individual with financial 
                sophistication would be unlikely to fail; and
                  (B) includes methods to determine whether an 
                individual seeking to be certified as an accredited 
                investor demonstrates competency with respect to--
                          (i) the different types of securities;
                          (ii) the disclosure requirements under the 
                        securities laws applicable to issuers and 
                        private companies as compared to public 
                        companies;
                          (iii) corporate governance;
                          (iv) financial statements and the components 
                        of such statements;
                          (v) aspects of unregistered securities, 
                        securities issued by private companies, and 
                        investments into private funds, including risks 
                        associated with--
                                  (I) limited liquidity;
                                  (II) limited disclosures;
                                  (III) variance in valuation methods;
                                  (IV) information asymmetry;
                                  (V) leverage risks;
                                  (VI) concentration risk; and
                                  (VII) longer investment horizons;
                          (vi) potential conflicts of interest, when 
                        the interests of the financial professionals 
                        and their clients are misaligned or when their 
                        professional responsibilities are compromised 
                        by financial motivations; and
                          (vii) other criteria the Commission 
                        determines necessary or appropriate in the 
                        public interest or for the protection of 
                        investors.
  (c) Administration.--Beginning not later than 180 days after the date 
the examination is established under subsection (b), such examination 
shall be administered and offered free of charge to the public by a 
registered national securities association under section 15A of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o-3).

                          PURPOSE AND SUMMARY

    Introduced on April 24, 2023, by Representative Mike Flood, 
H.R. 2797, the Equal Opportunity for All Investors Act, would 
expand the ``accredited investor'' definition to include 
individuals who are certified through an examination 
established by the Securities and Exchange Commission (SEC) and 
administered by Financial Industry Regulatory Authority 
(FINRA).

                  BACKGROUND AND NEED FOR LEGISLATION

    The accredited investor definition is intended to limit 
private market investments to only those investors who are 
considered ``sophisticated.'' However, using wealth as a proxy 
for determining sophistication excludes a large pool of 
investors who may have other types of expertise or experience. 
To qualify as an accredited investor, an individual must have 
an annual income of at least $200,000 (of $300,000 with a 
spouse) for each of the previous two years or a net worth of 
over $1 million (either alone or with a spouse). In August 
2020, the SEC adopted amendments to expand the accredited 
investor definition to include individuals with certain 
professional certifications or credentials from accredited 
educational institutions.
    This bill would expand the pathways to qualify as an 
accredited investor by allowing certification for individuals 
who pass an examination established by the SEC and administered 
by FINRA. This approach modernizes the existing definition that 
has inappropriately sidelined sophisticated-but-not-wealthy 
individuals from high-growth asset classes historically 
reserved for the wealthiest individuals.

                                HEARING

    The Subcommittee on Capital Markets of the Committee on 
Financial Services held a hearing examining matters relating to 
H.R. 2797 on February 8, 2023.

                        COMMITTEE CONSIDERATION

    The Committee on Financial Services met in open session on 
April 26, 2023, and ordered H.R. 2797 to be reported favorably 
to the House as amended by a recorded vote of 42 ayes to 1 nay 
(Record vote no. FC-38), 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. Flood by voice vote.

                            COMMITTEE VOTES

    Clause 2(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. 
2797 was ordered reported favorably to the House as amended by 
a recorded vote of 42 ayes to 1 nay (Record vote no. FC-38), a 
quorum being present.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                      COMMITTEE OVERISGHT 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. 2797 is to expand 
the pathways to qualify as an accredited investor by allowing 
certifications for individuals who pass an examination 
established by the SEC and administered by FINRA.

   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 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.

                 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]


    H.R. 2797 would require the Securities and Exchange 
Commission (SEC) to develop an exam and certify people who pass 
as ``accredited investors,'' which would allow them to make 
investments for which they are not currently eligible. Under 
current law, accredited investors are defined as people or 
entities with sufficient financial sophistication and resources 
to sustain the risk of loss, including banks, broker-dealers, 
and investment companies. Accredited investors may participate 
in investment opportunities not available to nonaccredited 
investors, such as purchasing securities that are exempt from 
registration with the SEC.
    Based on the cost of similar provisions, CBO estimates that 
implementing H.R. 2797 would cost $1 million in both 2023 and 
2024. CBO expects that the SEC would need three employees, at 
an average annual cost of $300,000 per employee, to establish 
the examination and amend the current rules on accredited 
investors. However, because the SEC is authorized to collect 
fees each year to offset its annual appropriation, CBO expects 
that the net effect on discretionary spending over the 2023-
2028 period would be negligible, assuming appropriation actions 
consistent with that authority.
    If the SEC increases annual fees to offset the costs of 
implementing provisions of H.R. 2797, it would increase the 
costs of an existing private-sector mandate on entities 
required to pay those fees. CBO estimates that the incremental 
cost of the mandate would be small and would fall well below 
the annual threshold established in the Unfunded Mandates 
Reform Act (UMRA) for private-sector mandates ($198 million in 
2023, adjusted annually for inflation).
    The bill contains no intergovernmental mandates.
    The CBO staff contacts for this estimate are David Hughes 
(for federal costs) and Andrew Laughlin (for mandates). The 
estimate was reviewed by H. Samuel Papenfuss, Deputy Director 
of Budget Analysis.
                                          Phillip L Swagel,
                             Director, Congressional Budget Office.

                       FEDERAL MANDATES STATEMENT

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995.
    Per the estimate from CBO, H.R. 2797 could increase the 
cost of an existing mandate on private entities if the SEC 
increased costs to implement the bill. However, this increase 
would still fall below the annual threshold for private-sector 
mandates as defined in the Unfunded Mandates Reform Act.
    The Committee has determined that the bill does not impose 
a Federal intergovernmental mandate on State, local, or tribal 
governments.

                      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

    With respect 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

    In compliance with 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. 2797 as the Equal Opportunity for 
All Investors Act of 2023.

Section 2. Certification examination for accredited investors

    This section amends the definition of an accredited 
investor to include individuals who are certified through an 
examination established by the Securities and Exchange 
Commission (SEC) and administered by Financial Industry 
Regulatory Authority (FINRA). This section requires that the 
examination be designed with an appropriate level of difficulty 
such that an individual with financial sophistication would be 
unlikely to fail and may include methods to determine 
competency with respect to different types of securities, 
disclosure requirements under the federal securities laws, 
corporate governance, financial statement, aspect of 
unregistered securities, potential conflicts of interest 
between financial professionals and their clients, and other 
criteria the SEC determines necessary. This section also 
requires that the examination be offered free of charge to the 
public.

         CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    H.R. 2797 does not repeal or amend any section of a 
statute. Therefore, the Office of Legislative Counsel did not 
prepare the report contemplated by clause 3(e)(1)(B) of rule 
XIII of the House of Representatives.

                                  [all]