114-HR5424 Investment Advisers Modernization Act

Legislation
Title	114-HR5424 Investment Advisers Modernization Act
Congress	114
Sponsor	Rep. Hurt, Robert (R-VA-5)
Committee(s)	House - Financial Services
Status	Died
Keywords	McCarthy
© edegan.com, 2016

This bill directs the Securities and Exchange Commission (SEC) to amend specified regulations for investment advisers as they apply to private equity firms and private investment funds.

Sec. 2

The bill revises the disclaimer that, in the case of an investment adviser that is a partnership, an assignment shall not be deemed to result from the death, withdrawal, sale or transfer of minority interests to apply the disclaimer also to minority members, shareholders, for other equity owners of the investment adviser. Qualified clients of an investment adviser may consent to an assignment of the investment adviser contract at the time they enter into an advisory contract.

The Investment Advisers Act of 1940 is amended to repeal the requirement that advisers organized as partnerships notify the other party to an investment adviser contract every time there is a change in the composition of the partnership.

The SEC shall waive the application of specified antifraud prohibitions to advisers who advertise exclusively to:

• qualified clients, determined as of the time of the publication, circulation, or distribution of the advertisement rather than immediately before or after entering into the investment advisory contract;
• knowledgeable employees of any private fund to which the investment adviser acts as an investment adviser;

qualified purchasers; or

• accredited investors (determined as if the investment adviser were the securities issuer and the time of the publication, circulation, or distribution of the advertisement were the sale of such securities).

Sec. 3

The SEC must amend a certain regulation regarding Form PF which registered investment advisers with at least $150 million in private funds assets under management must file with the SEC to report information about the private funds that they manage. This amendment shall state that an investment adviser to a private fund is not required to report any information beyond that which is required by sections 1a and 1b of Form PF unless it is a large hedge fund adviser or a large liquidity fund adviser.

The SEC shall also amend the regulation requiring that client funds and securities of which an investment adviser has custody are verified by actual examination periodically by an independent public accountant.

The SEC shall amend the proxy voting regulation to waive its application to any voting authority exercised by an investment adviser regarding client securities that are not public securities.

Sec. 4

On the other hand, the SEC may not:

amend a specified regulation to extend its requirements and prohibitions concerning investment company sales literature to offerings of securities issued by private funds, or adopt substantially similar rules applicable to such offerings.

Sec. 5

This bill shall not apply to advisory services supplied to an investment company registered under the Investment Company Act of 1940.

Sec. 6

Any regulation referred to in this bill includes any successor regulation.

Bill Text

114th CONGRESS 2d Session H. R. 5424 IN THE SENATE OF THE UNITED STATES September 12, 2016 Received; read twice and referred to the Committee on Banking, Housing, and Urban Affairs

AN ACT To amend the Investment Advisers Act of 1940 and to direct the Securities and Exchange Commission to amend its rules to modernize certain requirements relating to investment advisers, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. SHORT TITLE.

This Act may be cited as the “Investment Advisers Modernization Act of 2016”.

SEC. 2. MODERNIZING CERTAIN REQUIREMENTS RELATING TO INVESTMENT ADVISERS.

(a) Investment Advisory Contracts.—

(1) ASSIGNMENT.—

(A) ASSIGNMENT DEFINED.—Section 202(a)(1) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–2(a)(1)) is amended by striking “; but” and all that follows and inserting “; but no assignment of an investment advisory contract shall be deemed to result from the death or withdrawal, or the sale or transfer of the interests, of a minority of the members, partners, shareholders, or other equity owners of the investment adviser having only a minority interest in the business of the investment adviser, or from the admission to the investment adviser of one or more members, partners, shareholders, or other equity owners who, after such admission, shall be only a minority of the members, partners, shareholders, or other equity owners and shall have only a minority interest in the business.”.

(B) CONSENT TO ASSIGNMENT BY QUALIFIED CLIENTS.—Section 205(a)(2) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–5(a)(2)) is amended by inserting before the semicolon the following: “, except that if such other party is a qualified client (as defined in section 275.205–3 of title 17, Code of Federal Regulations, or any successor thereto), such other party may provide such consent at the time the parties enter into, extend, or renew such contract”.

(2) NOT REQUIRED TO PROVIDE FOR NOTIFICATION OF CHANGE IN MEMBERSHIP OF PARTNERSHIP.—Section 205 of the Investment Advisers Act of 1940 (15 U.S.C. 80b–5) is amended—

(A) in subsection (a)—

(i) in paragraph (1), by striking the semicolon and inserting “; or”;

(ii) in paragraph (2), by striking “; or” and inserting a period; and

(iii) by striking paragraph (3); and

(B) in subsection (d), by striking “paragraphs (2) and (3) of subsection (a)” and inserting “subsection (a)(2)”.

(b) Advertising Rule.—

(1) IN GENERAL.—Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.206(4)–1 of title 17, Code of Federal Regulations, to provide that paragraphs (a)(1) and (a)(2) of such section do not apply to an advertisement that an investment adviser publishes, circulates, or distributes solely to persons described in paragraph (2) of this subsection.

(2) PERSONS DESCRIBED.—A person is described in this paragraph if such person is, or the investment adviser reasonably believes such person is—

(A) a qualified client (as defined in section 275.205–3 of title 17, Code of Federal Regulations), determined as of the time of the publication, circulation, or distribution of the advertisement rather than immediately prior to or after entering into the investment advisory contract referred to in such section;

(B) a knowledgeable employee (as defined in section 270.3c–5 of title 17, Code of Federal Regulations) of any private fund to which the investment adviser acts as an investment adviser;

(C) a qualified purchaser (as defined in section 2(a) of the Investment Company Act of 1940 (15 U.S.C. 80a–2(a))); or

(D) an accredited investor (as defined in section 230.501 of title 17, Code of Federal Regulations), determined as if the investment adviser were the issuer of securities referred to in such section and the time of the publication, circulation, or distribution of the advertisement were the sale of such securities.

SEC. 3. REMOVING DUPLICATIVE BURDENS AND APPROPRIATELY TAILORING CERTAIN REQUIREMENTS.

(a) Form PF.—Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.204(b)–1 of title 17, Code of Federal Regulations, to provide that an investment adviser to a private fund is not required to report any information beyond that which is required by sections 1a and 1b of Form PF, unless such investment adviser is a large hedge fund adviser or a large liquidity fund adviser (as such terms are defined in such Form).

(b) Custody Rule.—Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.206(4)–2 of title 17, Code of Federal Regulations, consistent with, and expanding on, IM Guidance Update No. 2013–04, titled “Privately Offered Securities under the Investment Advisers Act Custody Rule”, published by the Division of Investment Management of the Commission, with respect to the exception for certain privately offered securities in paragraph (b)(2) of such section, so as to—

(1) remove the requirement of clause (i)(B) of such paragraph (relating to the uncertificated nature and recordation of ownership of the securities); and

(2) remove the requirement of clause (ii) of such paragraph (relating to audit and financial statement distribution requirements with respect to securities of pooled investment vehicles).

(c) Proxy Voting Rule.—Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.206(4)–6 of title 17, Code of Federal Regulations, to provide that such section does not apply to any voting authority with respect to client securities that are not public securities.

SEC. 4. FACILITATING ROBUST CAPITAL FORMATION BY PREVENTING REGULATORY MISMATCH.

The Commission may not—

(1) amend section 230.156 of title 17, Code of Federal Regulations, to extend the provisions of such section to offerings of securities issued by private funds; or

(2) adopt rules applicable to offerings of securities issued by private funds that are substantially the same as the provisions of such section.

SEC. 5. EXCLUSION OF ADVISORY SERVICES TO REGISTERED INVESTMENT COMPANIES.

This Act shall not apply with respect to advisory services provided, or proposed to be provided, to an investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a–1 et seq.).

SEC. 6. REFERENCES TO REGULATIONS.

In this Act, any reference to a regulation shall be construed to refer to such regulation or any successor thereto.

SEC. 7. DEFINITIONS.

In this Act:

(1) PUBLIC SECURITY.—The term “public security” means a security issued by an issuer that—

(A) is required to submit reports under section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a); 78o(d)); or

(B) has a security that is listed or traded on any exchange or organized market operating in a foreign jurisdiction.

(2) TERMS DEFINED IN INVESTMENT ADVISERS ACT OF 1940.—The terms defined in section 202(a) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–2(a)) have the meanings given such terms in such section.

Passed the House of Representatives September 9, 2016.

Attest: karen l. haas, Clerk

Resources

Link to bill page