Amending the Investment Advisers Act of 1940 to Codify Certain Securities and Exchange Commission No-Action Letters That Exclude Brokers and Dealers Compensated for Certain Research Services From the Definition of Investment Adviser
Floor Speech
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Mrs. WAGNER. Madam Speaker, I move to suspend the rules and pass the bill (H.R. 2622) to amend the Investment Advisers Act of 1940 to codify certain Securities and Exchange Commission no-action letters that exclude brokers and dealers compensated for certain research services from the definition of investment adviser, and for other purposes, as amended.
The Clerk read the title of the bill.
The text of the bill is as follows: H.R. 2622
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. EXTENSION OF NO-ACTION LETTER; STUDY.
(a) Findings.--Congress finds the following:
(1) The Securities and Exchange Commission staff first granted temporary no-action relief in 2017, prior to the implementation of European rules designed to protect European investors from excessive costs and conflicts of interest.
(2) The Commission staff did not engage in any meaningful cost-benefit analysis of the issues raised by the no-action relief requested either prior to or following the granting of no-action relief in 2017.
(3) The Commission staff revised and extended the temporary no-action relief in 2019, again without any meaningful cost- benefit analysis of the issues raised by the no-action relief requested prior to or following the granting of the relief.
(4) There are currently approximately 15,300 registered investment advisers, including affiliates that provide the vast majority of investment research.
(5) The Commission has received complaints from investors and investor advocacy groups expressing concerns with the no- action relief, as it currently exists.
(6) The Commission has received concerns from broker- dealers related to the potential expiration of the no-action relief.
(b) Extension of No-action Letter.--The Commission shall provide an additional 6-month extension of the October 26, 2017, Securities Industry and Financial Markets Association, SEC Staff No-Action Letter, set to expire on July 3, 2023.
(c) Study Required.--After the announcement extending the expiration date of the no-action letter under subsection (b), the Commission shall conduct, through notice and comment, a study of the impact of allowing the no-action letter's expiration or maintenance of the no-action letter, and give due regard to any comments received in conducting the study. The Commission or delegated staff shall report their findings and conclusions, including findings related to the expiration of the no-action relief, to the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate.
(d) Contents of Study.--The study required under subsection (c) shall include potential impacts on the research market for smaller issuers, including--
(1) the availability of such research, including--
(A) the number and types of firms who provide such research;
(B) the volume of such research over time; and
(C) competition in the research market;
(2) any unique challenges faced by minority-owned, women- owned, and veteran owned small issuers in obtaining research coverage;
(3) the impact on the availability of research coverage for small issuers due to Commission rules;
(4) a cost-benefit analysis of regulatory options that will support research coverage of small entities and increase transparency in the cost of research provided by broker- dealers;
(5) the impact of the no-action relief on investors in registered investment companies and exempt investment funds, pension funds, endowments, and other asset owners, investment advisers, broker-dealers that provide both investment research and trading services, independent investment advisers that do not provide trading services, broker-dealers that do not provide investment research, and other market participants, including issuers of securities; and
(6) the potential impacts of the expiration of the no- action relief on investors in registered investment companies and exempt investment funds, pension funds, endowments, investment advisers, and other asset owners, broker-dealers that provide both investment research and trading services, independent investment advisers that do not provide trading services, broker-dealers that do not provide investment research, and other market participants, including issuers of securities.
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Mrs. WAGNER. Madam Speaker, I yield myself such time as I may consume.
I rise in support of H.R. 2622, a bill that would ensure broker- dealers can continue to provide investment research to Europe. This research is incredibly important for smaller and midsize public companies that rely on our capital markets.
I thank my colleagues from both sides of the aisle, Representatives Sessions and Gottheimer, for finding common ground and coming to a sensible agreement to ensure that policies enacted by the European Union's Markets in Financial Instruments Directive, MiFID, do not needlessly burden U.S. broker-dealers.
H.R. 2622 extends an SEC no-action letter originally issued in 2017, and extended again in 2019, for another 6 months, granting U.S. broker- dealers much-needed relief and giving the SEC time to properly study the impact of the no-action letter's expiration.
Widespread dissemination of research by U.S. broker-dealers to investment managers is critical to capital formation and to maintaining the competitiveness and efficiency of the U.S. capital markets. Moreover, non-U.S. and global investment managers rely on the excellent research conducted and provided by U.S. broker-dealers to inform their decisionmaking and fulfill their fiduciary duties to U.S. investors.
Unfortunately, the EU's MiFID II threatens to disrupt the current broker-dealer research market by requiring separate payments for research services and trade execution. This small change would capture U.S. broker-dealers receiving unbundled payments for research services and put them under the Investment Advisers Act, subjecting them to an entirely new regulatory regime.
The SEC no-action letter, which H.R. 2622 extends, permits broker- dealers to accept separate cash payments from investment advisers without adding new, burdensome regulatory requirements.
Studies have shown that since MiFID II was introduced, there has been a reduction in the availability of research. Many broker-dealers have said that they will significantly curtail or eliminate their research services altogether if this no-action letter expires. Plus, as of last month, several European Union member states are seeking to reverse MiFID II.
Madam Speaker, to ensure the continued availability of investment research and better understand the consequences of allowing the SEC no- action letter to expire, I urge my colleagues to support H.R.
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Mrs. WAGNER. Madam Speaker, I yield such time as he may consume to the gentleman from Texas (Mr. Sessions), the author of this piece of legislation and my friend and colleague.
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Mrs. WAGNER. Madam Speaker, I would just simply urge my colleagues to support H.R. 2622, and I yield back the balance of my time.
Ms. JACKSON LEE. Madam Speaker, I rise to speak in support of H.R. 2622, a bill to amend the Investment Advisers Act of 1940 to codify certain Securities and Exchange Commission no-action letters that exclude brokers and dealers compensated for certain research services from the definition of investment adviser.
This bill provides statutory authority for specified Securities and Exchange Commission (SEC) guidance allowing broker-dealers to receive payments for research services provided to investment managers.
Under current law, broker-dealers that receive payments for performing this service must register as investment advisors.
However, the SEC currently waives enforcement against these broker- dealers.
The current no-action relief, which was temporarily granted in 2017 by the Securities and Exchange Commission (SEC), has received multiple complaints from investors and advocacy groups who have expressed reservations about the current no-action relief.
This bill helps to address these concerns, correct the defects of the current no-action relief, and resolve issues regarding the potential expiration of the current relief.
H.R. 2622 helps to strengthen American capital markets by providing U.S. brokers and dealers relief from undue external security market regulations and prevent a reduction in investment research that can potentially harm investment managers and the retail investor customers that they serve.
This bill also helps to further strengthen the standard conduct of investment advisory by ensuring that the best interests of customers are protected without regard to the financial and other private interests of brokers and dealers.
H.R. 2622 ensure that the SEC provides secure framework of rules and regulations that help to enhance investors' confidence in the system and safeguards their investment by ensuring transparency of the records.
This bill provides more concrete measures for the over 15,000 Registered Investment Advisors (RIAs) to effectively carry out their primary duties of providing tailored financial advice to their clients, management of investment portfolios, and other services to the public.
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