89–006 

116TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 116–123 

SEC DISCLOSURE EFFECTIVENESS TESTING ACT 

JUNE 20, 2019.—Committed to the Committee of the Whole House on the State of 

the Union and ordered to be printed 

Ms. MAXINE WATERS of California, from the Committee on 

Financial Services, submitted the following 

R E P O R T 

together with 

MINORITY VIEWS 

[To accompany H.R. 1815] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 1815) to require the Securities and Exchange Commission, when developing rules and regulations about disclosures to retail investors, to conduct investor testing, including a survey and 

interviews of retail investors, 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 ............................................................................................ 3 

Background and Need for Legislation .................................................................... 3 

Section-by-Section Analysis .................................................................................... 5 

Hearings ................................................................................................................... 5 

Committee Consideration ........................................................................................ 5 

Committee Votes ...................................................................................................... 6 

Statement of Oversight Findings and Recommendations of the Committee ...... 8 

Statement of Performance Goals and Objectives .................................................. 8 

New Budget Authority and CBO Cost Estimate ................................................... 8 

Committee Cost Estimate ....................................................................................... 8 

Unfunded Mandate Statement ............................................................................... 11 

Advisory Committee ................................................................................................ 11 

Application of Law to the Legislative Branch .......................................................

Earmark Statement ................................................................................................. 11 

Duplication of Federal Programs ............................................................................ 11 

Changes to Existing Law ........................................................................................ 11 


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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 ‘‘SEC Disclosure Effectiveness Testing Act’’. 

SEC. 2. DISCLOSURE TESTING. 

(a) IN GENERAL.—Section 23(a) of the Securities Exchange Act of 1934 (15 U.S.C. 

78w(a)) is amended by adding at the end the following: 

‘‘(4) INVESTOR TESTING.— ‘‘(A) IN GENERAL.—The Commission shall engage in investor testing prior to 

issuing any rule or regulation which designates documents or information to be 

disclosed under the securities laws, if such documents or information— 

‘‘(i) are primarily used by retail investors, as determined by the Commission; and 

‘‘(ii) are intended to be used by retail investors to make informed investment decisions or to understand the investments held by the retail investor. 

‘‘(B) CONTENTS.—Investor testing conducted pursuant to subparagraph (A) 

shall include the following: 

‘‘(i) Qualitative testing in the form of one-on-one cognitive interviews of 

retail investors about documents or information, or samples of such documents or information, to be provided. 

‘‘(ii) A nationwide survey of retail investors, designed to complement the 

interviews under clause (i), on— 

‘‘(I) the usefulness of such documents or information, or samples of 

such documents or information; 

‘‘(II) the proposed format of such documents or information, or samples of such documents or information; and 

‘‘(III) delivery preferences of such documents or information, or samples of such documents or information. 

‘‘(iii) Analysis and publication in the Federal Register of the results of the 

survey and interviews. 

‘‘(iv) An opportunity for the public to comment on such results published 

in the Federal Register. 

‘‘(C) SUBSTANTIVE CHANGES.—If the Commission, in the period between engaging in investor testing and publishing a final rule, makes substantive 

changes to such rule that the Commission determines would have a significant 

impact on retail investors, the Commission shall again engage in investor testing. 

‘‘(D) PUBLIC AVAILABILITY OF RETAIL TESTING RESULTS.—The Commission 

shall make the data and results of any investor testing performed pursuant to 

this paragraph available to the public.’’. 

(b) PARTICIPATION OF INVESTOR ADVOCATE.—Section 4(g) of the Securities Exchange Act of 1934 (15 U.S.C. 78d(g)) is amended— 

(1) in paragraph (4)— 

(A) in subparagraph (D)(ii), by striking ‘‘and’’ at the end; 

(B) by redesignating subparagraph (E) as subparagraph (F); and 

(C) by inserting after subparagraph (D) the following: 

‘‘(E) engage in investor testing— 

‘‘(i) as necessary to carry out the functions of the Office; and 

‘‘(ii) under section 23(a)(4), if the Commission determines it appropriate; and’’; and 

(2) by adding at the end the following: 

‘‘(9) PUBLICATION OF DATA AND RESULTS OF INVESTOR TESTING.—With respect 

to any investor testing carried out by the Investor Advocate pursuant to paragraph (4)(E), the Investor Advocate may make the data and results of such investor testing available to the public, and without further review or editing by 

the Commission.’’. 

(c) PRIOR RULES.— 

(1) IN GENERAL.—For any final rule or regulation issued by the Securities and 

Exchange Commission (in this subsection referred to as the ‘‘Commission’’) before the date of the enactment of this Act that would be subject to investor testing under section 23(a)(4) of the Securities Exchange Act of 1934, had such rule 

been issued on or after the date of enactment of this Act, the Commission shall 

perform investor testing with respect to such rule or regulation that includes 

the contents described in such section 23(a)(4). 

(2) SCHEDULE.—The Commission shall, not later than 6 months after the date 

of the enactment of this Act, establish a schedule for completing any investor 

testing required under paragraph (1) that prioritizes testing of any final rules 


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1SEC, Form CRS Relationship Summary; Amendments to Form ADV; Required Disclosures 

in Retail Communications and Restrictions on the use of Certain Names or Titles, 83 Fed. Reg. 

21416 (Apr. 18, 2018) (to be codified at 17 C.F.R. pt. 240, available at: https:// 

www.federalregister.gov/documents/2018/05/09/2018-08583/form-crs-relationship-summaryamendments-to-form-adv-required-disclosures-in-retail-communications; SEC, Proposed Commission Interpretation Regarding Standard of Conduct for Investment Advisers; Request for Comment on Enhancing Investment Adviser Regulation, 83 Fed. Reg. 21203) (Apr. 18, 2018) (to be 

codified at 17 C.F.R. pt. 275), available at: https://www.federalregister.gov/documents/2018/05/ 

09/2018-08679/proposed-commission-interpretation-regarding-standard-of-conduct-for-investment-advisers-request-for; SEC, Regulation Best Interest, 83 Fed. Reg. 21574 (Apr. 18, 2018 (to 

be codified at 17 C.F.R. pt. 240), available at: https://www.federalregister.gov/documents/2018/ 

05/09/2018-08582/regulation-best-interest. 

and regulations that designate documents or information central to retail investor decision making. 

(3) REPORT.—The Commission shall issue a report to Congress each year containing the following: 

(A) The status of any investor testing required under paragraph (1). 

(B) The results of any investor testing completed under paragraph (1). 

(C) Any priorities the Commission has, based on results of investor testing required by paragraph (1), for— 

(i) revising or eliminating any final rule or regulation designating 

documents or information to be provided to retail investors; and 

(ii) revising any other final rule or regulation to supplement revised 

or eliminated rules designating documents or information to be provided to retail investors. 

PURPOSE AND SUMMARY

H.R. 1815, the SEC Disclosure Effectiveness Testing Act, would 

build on efforts by the Securities and Exchange Commission (SEC) 

to engage in investor testing by requiring the SEC to conduct 

usability testing of new disclosures that are primarily used by retail investors and are intended to help them make investment decisions or understand their investments. It would also require the 

SEC to review and test the usability of its existing disclosures for 

retail investors, such as mutual fund disclosures. Such reviews and 

tests would be required prior to the SEC adopting a final rulemaking. The bill would also provide the SEC’s Investor Advocate 

with the authority to conduct investor testing and allow such testing to meet the requirements of the bill. The Investor Advocate 

would be able to make the testing results and data public. 

BACKGROUND AND NEED FOR LEGISLATON

On April 18, 2018 the SEC proposed a three-part regulatory 

package, consisting of: (1) a ‘‘best interest’’ standard of conduct for 

brokers pursuant to Section 913(f) of Dodd-Frank (‘‘Regulation Best 

Interest’’ or ‘‘Reg BI’’); (2) guidance on the fiduciary standard of 

conduct for investment advisers; and, (3) a relationship disclosure 

document for brokers and investment advisers (‘‘Form CRS’’).1

Form CRS is a 5-page document designed to inform retail investors 

about the relationships and services the brokerage firm or investment adviser offers, the standard of conduct and costs associated 

with those services, specific conflicts of interest, and whether the 

firm and its financial professionals have reportable legal or disciplinary events. The SEC then engaged in investor testing of proposed 

Form CRS, which consisted of a nationwide online survey of 1,800 

individuals and 31 qualitative in-depth interviews in Denver and 

Pittsburgh. 


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2 RAND Relationship Summary, supra note 11. 3 RAND Relationship Summary, supra note 11, at 36. 4 RAND Relationship Summary, supra note 11, at 42. 5Sec. & Exch. Comm’n, Recommendation of the Investor as Purchaser Subcommittee Regarding Proposed Regulation Best Interest, Form CRS, and Investment Advisers Act Fiduciary Guidance, available at: https://www.sec.gov/spotlight/investor-advisory-committee-2012/iac110718-investor-as-purchaser-subcommittee-recommendation.pdf [hereinafter SEC Recommendation]. 6SEC Recommendation, supra note 20. 7Letter from the AARP et al., to the SEC, Sept. 12, 2018, available at: https:// 

consumerfed.org/wp-content/uploads/2018/09/letter-to-sec-from-aarp-cfa-fpc-regarding-crs-testing.pdf. 

On November 7, 2018, the SEC’s Investor Advocate issued a report on the testing conducted by the RAND Corporation.2 According to the report, ‘‘[n]early 90 percent of survey respondents opined 

that the [Form CRS] would help them make more informed decisions about investment accounts and services.’’ 3 However, ‘‘interview discussions revealed that there were areas of confusion for 

participants, including differences between types of accounts or financial professionals.’’ 4

Also, on November 7, 2018, the SEC’s Investor Advisory Committee (IAC) issued recommendations on the SEC proposed Reg BI, 

advisor guidance, and Form CRS. Among other things, the IAC recommended that the SEC conduct usability testing of the disclosures 

in Form CRS ‘‘and, if necessary, revise them to ensure that they 

enable investors to make an informed choice among different types 

of providers and accounts.’’ 5 The IAC also noted that the extensive 

feedback it had received and the comment letters to the SEC suggested that ‘‘Form CRS, as currently proposed, is unlikely to 

achieve its intended purpose of reducing investor confusion and 

supporting informed decisions.’’ 6

On September 12, 2018, AARP, the Financial Planning Coalition, 

and Consumer Federation of America sent a letter to SEC Chairman Clayton detailing the results of their own independent 

usability testing.7 Their testing consisted of 90-minute, one-on-one 

interviews with 16 investors from three geographically diverse locations. The key findings of the testing were that: (1) ‘‘The overall 

level of comprehension was poor;’’ (2) Participants did not understand key differences in the nature of services provided;’’ (3) ‘‘Most 

participants did not understand disclosures regarding legal obligations;’’ (4) ‘‘Participants were deeply confused by the disclosure of 

fees and costs;’’ and, (5) ‘‘Participants understood the existence, but 

not the import, of conflicts of interest.’’ 

The SEC Disclosure Effectiveness Testing Act would build on efforts to engage in investor testing by requiring the SEC to conduct 

usability testing of any new disclosure if they are primarily used 

by retail investors or intended to be used by retail investors to 

make informed investment decisions or understand their investments. It would also require the SEC to review and test the 

usability of its existing disclosures for retail investors, such as mutual fund disclosures. Such reviews and tests would be required 

prior to the SEC adopting a final rulemaking. 

During a March 14, 2019 hearing before the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets, witnesses from the Certified Financial Planning Board of Standards 

(CFP Board) and CFA expressed strong support for the SEC Disclosure Effectiveness Testing Act. Former SEC Chairman Harvey Pitt 

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ing the bill ‘‘superfluous’’ and ‘‘would likely be used by those with 

different objectives to hamstring almost any rulemaking effort involving investor disclosures that the Commission may consider.’’ 

Mr. Lee Baker, President of AARP Georgia, testified that the SEC’s 

test results suggest that ‘‘there’s more work to be done.’’ 

SECTION-BY-SECTION ANALYSIS

Section 1. Short title 

This section states that the title of the bill is the SEC Disclosure 

Effectiveness Testing Act. 

Section 2. Disclosure testing 

Subsection (a) requires the SEC to engage in investor testing 

prior to making any rule or regulation which designates documents 

or information to be disclosed if they are primarily used by retail 

investors or intended to be used by retail investors to make informed investment decisions or understand their investments. Such 

testing must include: qualitative testing in the form of one-on-one 

cognitive interviews of retail investors about documents or information, or samples of such documents or information, to be provided; 

a nationwide survey of retail investors, designed to complement the 

interviews; analysis and publication in the Federal Register of the 

results of the survey and interviews; and an opportunity for the 

public to comment on such results published in the Federal Register. Subsection (a) also requires the SEC to retest any substantive changes that would have a significant impact on investors. 

Subsection (b) provides the SEC’s Investor Advocate with the authority to conduct investor testing and allows such testing to meet 

the requirements of the bill. The Investor Advocate would be able 

to make the testing results and data public. 

Subsection (c) requires the SEC to perform investor testing of existing rules and regulations as of the date of this Act which designates documents or information to be provided to a retail investor. The SEC must establish a schedule for completing this investor 

testing and report to Congress annually on its progress. 

HEARINGS

For the purposes of section 103(i) of H. Res. 6 for the 116th Congress, the Subcommittee on Investor Protection, Entrepreneurship, 

and Capital Markets of the Committee on Financial Services held 

a hearing to consider H.R. 1815 entitled ‘‘Putting Investors First? 

Examining the SEC’s Best Interest Rule’’ on Thursday, March 14, 

2019. Testifying before the Subcommittee was Susan MacMichael 

John, CFP President, Financial Focus, Inc.; Dina Isola, Investment 

Advisor Representative, Ritholtz Wealth Management; Barbara 

Roper, Director of Investor Protection, Consumer Federation of 

America; Lee Baker, President, AARP Georgia State; and the Honorable Harvey L. Pitt, Chief Executive Officer, Kalorama Partners. 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on 

March 26–28, 2019, and ordered H.R. 1815 to be reported favorably 


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to the House with an amendment in the nature of a substitute by 

a vote of 33 yeas and 26 nays, a quorum being present. 

COMMITTEE VOTES AND ROLL CALL VOTES

In compliance with clause 3(b) of Rule XIII of the Rules of the 

House of Representatives, the Committee advises that the following 

roll call votes occurred during the Committee’s consideration of 

H.R. 1815. 


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STATEMENT OF OVERSIGHT FINDINGS AND RECOMMENDATIONS OF

THE COMMITTEE

In compliance with clause 3(c)(1) of rule XIII and clause 2(b)(1) 

of rule X of the Rules of the House of Representatives, the Committee’s oversight findings and recommendations are reflected in the 

descriptive portions of this report. 

STATEMENT OF PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause (3)(c) of rule XIII of the Rules of the House 

of Representatives, the goals of H.R. 1815 are to ensure that the 

SEC implements usability testing of new disclosures that are primarily used by retail investors. 

NEW BUDGET AUTHORITY AND CBO COST ESTIMATE

Pursuant to clause 3(c)(2) of rule XIII of the Rules of the House 

of Representatives and section 308(a) of the Congressional Budget 

Act of 1974, and pursuant to clause 3(c)(3) of rule XIII of the Rules 

of the House of Representatives and section 402 of the Congressional Budget Act of 1974, the Committee has received the following estimate for H.R. 1815 from the Director of the Congressional Budget Office: 

COMMITTEE COST ESTIMATE

Clause 3(d)(1) of rule XIII of the Rules of the House of Representatives requires an estimate and a comparison of the costs 

that would be incurred in carrying out H.R. 1815. However, clause 

3(d)(2)(B) of that rule provides that this requirement does not 

apply when the committee has included in its report a timely submitted cost estimate of the bill prepared by the Director of the Congressional Budget Office under section 402 of the Congressional 

Budget Act. 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, June 19, 2019. 

Hon. MAXINE WATERS, 

Chairwoman, Committee on Financial Services, 

House of Representatives, Washington, DC. 

DEAR MADAM CHAIRWOMAN: The Congressional Budget Office 

has prepared the enclosed cost estimate for H.R. 1815, the SEC 

Disclosure Effectiveness Testing Act. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is David Hughes. 

Sincerely, 

PHILLIP L. SWAGEL, Director. 

Enclosure. 


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1 Retail investors are individuals without advanced investment knowledge who buy and sell 

securities, exchange traded funds, or mutual funds, frequently with the advice of broker-dealers 

and investment advisors. 2For example, the SEC recently adopted a final rule mandating that broker-dealers and investment advisors disclose their financial services they offered, standards of conduct, fees and 

costs, conflicts of interest, and disciplinary history to retail investors. Under the rule, retail investors are entitled to a disclosure at the beginning of the relationship and an additional disclosure following a material change to the relationship. See Form CRS Relationship Summary; 

Amendments to Form ADV, 17 C.F.R. § 200, 240, 249, 275, and 279 (June 5, 2019). 

Bill summary: Financial professionals such as broker-dealers and 

investment advisors are required by the Securities and Exchange 

Commission (SEC) to disclose a variety of documents and other information to retail investors.1 Disclosures are designed to educate 

retail investors about financial choices, standards of care, fiduciary 

relationships, and other aspects of investing.2 H.R. 1815 would require the SEC to test the usability of any disclosure that it mandates through a final rule to be provided to retail investors by 

broker dealers or investment advisors. Those usability tests would 

be required before the SEC adopts final rules governing such disclosures. If proposed disclosures undergo substantive changes before the final rule is promulgated, an additional usability test 

would be required. Disclosures previously mandated before of the 

bill’s enactment also would require a usability test. 

Each usability test would include the following: 

• One-on-one interviews with retail investors to assess their 

understanding of the disclosure in question; 


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• A nationwide survey of retail investors to assess the usefulness of the disclosure; • An analysis of the interview and survey results, which 

would be published in the Federal Register; and • An opportunity for public comment on those published results. 

Estimated Federal cost: The estimated budgetary effect of H.R. 

1815 is shown in Table 1. The costs of the legislation fall within 

budget function 370 (commerce and housing credit). 

Basis of estimate: CBO estimates that implementing H.R. 1815 would have a gross cost to the SEC of $156 million over the 2019– 

2024 period. However, the SEC is authorized to collect fees each 

year to offset its annual appropriation. Assuming appropriation actions consistent with that authority, CBO expects that implementing H.R. 1815 would lead to a net decrease in spending of $8 

million because the collection of fees would initially outpace spending on usability testing. 

TABLE 1—ESTIMATED INCREASES IN SPENDING SUBJECT TO APPROPRIATION UNDER H.R. 1815 

By fiscal year, millions of dollars— 

2019 2020 2021 2022 2023 2024 2019–2024 

Testing of Proposed Documents 

Estimated Authorization ............................. 0 27 28 29 30 31 145 

Estimated Outlays ...................................... 0 20 28 29 30 31 138 

Testing of Prior Documents 

Estimated Authorization ............................. 0 * 4 5 5 5 19 

Estimated Outlays ...................................... 0 * 3 5 5 5 18 

Additional Fee Collections 

Estimated Authorization ............................. 0 ¥27 ¥32 ¥34 ¥35 ¥36 ¥164 

Estimated Outlays ...................................... 0 ¥27 ¥32 ¥34 ¥35 ¥36 ¥165 

Total Changes 

Estimated Authorization .................... 0 0 0 0 0 0 0 

Estimated Outlays ............................. 0 ¥7 ¥1 0 0 0 ¥8 

* = between -$500,000 and $500,000. 

Using information from the SEC on the quantity of proposed 

rules that involve disclosures to retail investors, CBO estimates 

that the agency would test the usability of an average of 18 disclosures each year over the 2020–2024 period. Each test would require the work of three employees, at a cost of $250,000 per employee, and contractor support at a cost of $600,000. CBO estimates 

that some retesting would be required because of substantive 

changes to proposed disclosures before final promulgation. In total, 

CBO estimates, the SEC would conduct 95 investor tests over the 

next five years, at a gross cost of $138 million, including the cost 

of publishing data and results. 

Under H.R. 1815, the SEC would establish a schedule in 2020 to 

test disclosures mandated by final rules in place before the bill’s 

enactment. Testing on those disclosures would probably begin in 

2021. CBO estimates that three such disclosures would be tested 

each year from 2021 to 2024, at a gross cost of $18 million over the 

2020–2024 period. 

Pay-As-You Go considerations: None. 

Increase in Long-Term deficits: None. 

Mandates: If the SEC increased fees to offset the costs of implementation, H.R. 1815 would raise the cost of an existing mandate 

on private entities required to pay those assessments. CBO estiVerDate Sep 11 2014 01:36 Jun 25, 2019 Jkt 089006 PO 00000 Frm 00010 Fmt 6659 Sfmt 6602 E:\HR\OC\HR123.XXX HR123

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mates that, on average, the annual incremental cost of the mandate would be less than $35 million—well below the annual threshold established in the Unfunded Mandates Reform Act for privatesector mandates ($164 million in 2019, adjusted annually for inflation). 

Estimate prepared by: Federal costs: David Hughes; Mandates: 

Rachel Austin. 

Estimate reviewed by: Kim Cawley, Chief, Natural and Physical 

Resources Cost Estimates Unit; Susan Willie, Chief, Mandates 

Unit; H. Samuel Papenfuss, Deputy Assistant Director for Budget 

Analysis; Theresa Gullo, Assistant Director for Budget Analysis. 

UNFUNDED MANDATE STATEMENT

Pursuant to Section 423 of the Congressional Budget and Impoundment Control Act (as amended by Section 101(a)(2) of the Unfunded Mandates Reform Act, Pub. L. 104–4), the Committee 

adopts as its own the estimate of federal mandates regarding H.R. 

1815, as amended, prepared by the Director of the Congressional 

Budget Office. 

ADVISORY COMMITTEE

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 

APPLICATION OF LAW TO THE LEGISLATIVE BRANCH

Pursuant to section 102(b)(3) of the Congressional Accountability 

Act, Pub. L. No. 104–1, H.R. 1815, as amended, does not apply to 

terms and conditions of employment or to access to public services 

or accommodations within the legislative branch. 

EARMARK STATEMENT

In accordance with clause 9 of rule XXI of the Rules of the House 

of Representatives, H.R. 1815 does not contain any congressional 

earmarks, limited tax benefits, or limited tariff benefits as described in clauses 9(e), 9(f), and 9(g) of rule XXI. 

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 

H.R.1815 establishes or reauthorizes a program of the Federal Government known to be duplicative of another federal program, a program that was included in any report from the Government Accountability Office to Congress pursuant to section 21 of Public 

Law 111–139, or a program related to a program identified in the 

most recent Catalog of Federal Domestic Assistance. 

CHANGES TO EXISTING LAW

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, 

H.R. 1815, as reported, are shown as follows: 


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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, 

and existing law in which no change is proposed is shown in 

roman): 

SECURITIES EXCHANGE ACT OF 1934 

TITLE I—REGULATION OF SECURITIES EXCHANGES 

* * * * * * * 

SECURITIES AND EXCHANGE COMMISSION

SEC. 4. (a) There is hereby established a Securities and Exchange 

Commission (hereinafter referred to as the ‘‘Commission’’) to be 

composed of five commissioners to be appointed by the President by 

and with the advice and consent of the Senate. Not more than 

three of such commissioners shall be members of the same political 

party, and in making appointments members of different political 

parties shall be appointed alternately as nearly as may be practicable. No commissioner shall engage in any other business, vocation, or employment than that of serving as commissioner, nor 

shall any commissioner participate, directly or indirectly, in any 

stock-market operations or transactions of a character subject to 

regulation by the Commission pursuant to this title. Each commissioner shall hold office for a term of five years and until his successor is appointed and has qualified, except that he shall not so 

continue to serve beyond the expiration of the next session of Congress subsequent to the expiration of said fixed term of office, and 

except (1) any commissioner appointed to fill a vacancy occurring 

prior to the expiration of the term for which his predecessor was 

appointed shall be appointed for the remainder of such term, and 

(2) the terms of office of the commissioners first taking office after 

the enactment of this title shall expire as designated by the President at the time of nomination, one at the end of one year, one at 

the end of two years, one at the end of three years, one at the end 

of four years, and one at the end of five years, after the date of the 

enactment of this title. 

(b) APPOINTMENT AND COMPENSATION OF STAFF AND LEASING AU- THORITY.— 

(1) APPOINTMENT AND COMPENSATION.—The Commission 

shall appoint and compensate officers, attorneys, economists, 

examiners, and other employees in accordance with section 

4802 of title 5, United States Code. 

(2) REPORTING OF INFORMATION.—In establishing and adjusting schedules of compensation and benefits for officers, attorneys, economists, examiners, and other employees of the Commission under applicable provisions of law, the Commission 

shall inform the heads of the agencies referred to under section 

1206 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 1833b) and Congress of such 

compensation and benefits and shall seek to maintain comVerDate Sep 11 2014 01:36 Jun 25, 2019 Jkt 089006 PO 00000 Frm 00012 Fmt 6659 Sfmt 6602 E:\HR\OC\HR123.XXX HR123

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parability with such agencies regarding compensation and benefits. 

(3) LEASING AUTHORITY.—Nothwithstanding any other provision of law, the Commission is authorized to enter directly into 

leases for real property for office, meeting, storage, and such 

other space as is necessary to carry out its functions, and shall 

be exempt from any General Services Administration space 

management regulations or directives. 

(c) Notwithstanding any other provision of law, in accordance 

with regulations which the Commission shall prescribe to prevent 

conflicts of interest, the Commission may accept payment and reimbursement, in cash or in kind, from non-Federal agencies, organizations, and individuals for travel, subsistence, and other necessary expenses incurred by Commission members and employees 

in attending meetings and conferences concerning the functions or 

activities of the Commission. Any payment or reimbursement accepted shall be credited to the appropriated funds of the Commission. The amount of travel, subsistence, and other necessary expenses for members and employees paid or reimbursed under this 

subsection may exceed per diem amounts established in official 

travel regulations, but the Commission may include in its regulations under this subsection a limitation on such amounts. 

(d) Notwithstanding any other provision of law, former employers 

of participants in the Commission’s professional fellows programs 

may pay such participants their actual expenses for relocation to 

Washington, District of Columbia, to facilitate their participation in 

such programs, and program participants may accept such payments. 

(e) Notwithstanding any other provision of law, whenever any fee 

is required to be paid to the Commission pursuant to any provision 

of the securities laws or any other law, the Commission may provide by rule that such fee shall be paid in a manner other than in 

cash and the Commission may also specify the time that such fee 

shall be determined and paid relative to the filing of any statement 

or document with the Commission. 

(f) REIMBURSEMENT OF EXPENSES FOR ASSISTING FOREIGN SECU- RITIES AUTHORITIES.—Notwithstanding any other provision of law, 

the Commission may accept payment and reimbursement, in cash 

or in kind, from a foreign securities authority, or made on behalf 

of such authority, for necessary expenses incurred by the Commission, its members, and employees in carrying out any investigation 

pursuant to section 21(a)(2) of this title or in providing any other 

assistance to a foreign securities authority. Any payment or reimbursement accepted shall be considered a reimbursement to the appropriated funds of the Commission. 

(g) OFFICE OF THE INVESTOR ADVOCATE.— 

(1) OFFICE ESTABLISHED.—There is established within the 

Commission the Office of the Investor Advocate (in this subsection referred to as the ‘‘Office’’). 

(2) INVESTOR ADVOCATE.— (A) IN GENERAL.—The head of the Office shall be the Investor Advocate, who shall— 

(i) report directly to the Chairman; and 

(ii) be appointed by the Chairman, in consultation 

with the Commission, from among individuals having 


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experience in advocating for the interests of investors 

in securities and investor protection issues, from the 

perspective of investors. 

(B) COMPENSATION.—The annual rate of pay for the Investor Advocate shall be equal to the highest rate of annual pay for other senior executives who report to the 

Chairman of the Commission. 

(C) LIMITATION ON SERVICE.—An individual who serves 

as the Investor Advocate may not be employed by the 

Commission— 

(i) during the 2-year period ending on the date of appointment as Investor Advocate; or 

(ii) during the 5-year period beginning on the date 

on which the person ceases to serve as the Investor 

Advocate. 

(3) STAFF OF OFFICE.—The Investor Advocate, after consultation with the Chairman of the Commission, may retain or employ independent counsel, research staff, and service staff, as 

the Investor Advocate deems necessary to carry out the functions, powers, and duties of the Office. 

(4) FUNCTIONS OF THE INVESTOR ADVOCATE.—The Investor 

Advocate shall— 

(A) assist retail investors in resolving significant problems such investors may have with the Commission or 

with self-regulatory organizations; 

(B) identify areas in which investors would benefit from 

changes in the regulations of the Commission or the rules 

of self-regulatory organizations; 

(C) identify problems that investors have with financial 

service providers and investment products; 

(D) analyze the potential impact on investors of— 

(i) proposed regulations of the Commission; and 

(ii) proposed rules of self-regulatory organizations 

registered under this title; øand¿ 

(E) engage in investor testing— 

(i) as necessary to carry out the functions of the Office; and 

(ii) under section 23(a)(4), if the Commission determines it appropriate; and 

ø(E)¿ (F) to the extent practicable, propose to the Commission changes in the regulations or orders of the Commission and to Congress any legislative, administrative, or 

personnel changes that may be appropriate to mitigate 

problems identified under this paragraph and to promote 

the interests of investors. 

(5) ACCESS TO DOCUMENTS.—The Commission shall ensure 

that the Investor Advocate has full access to the documents of 

the Commission and any self-regulatory organization, as necessary to carry out the functions of the Office. 

(6) ANNUAL REPORTS.— (A) REPORT ON OBJECTIVES.— 

(i) IN GENERAL.—Not later than June 30 of each 

year after 2010, the Investor Advocate shall submit to 

the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial 


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15 

Services of the House of Representatives a report on 

the objectives of the Investor Advocate for the following fiscal year. 

(ii) CONTENTS.—Each report required under clause 

(i) shall contain full and substantive analysis and explanation. 

(B) REPORT ON ACTIVITIES.— (i) IN GENERAL.—Not later than December 31 of 

each year after 2010, the Investor Advocate shall submit to the Committee on Banking, Housing, and 

Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives a report on the activities of the Investor Advocate during 

the immediately preceding fiscal year. 

(ii) CONTENTS.—Each report required under clause 

(i) shall include— 

(I) appropriate statistical information and full 

and substantive analysis; 

(II) information on steps that the Investor Advocate has taken during the reporting period to improve investor services and the responsiveness of 

the Commission and self-regulatory organizations 

to investor concerns; 

(III) a summary of the most serious problems 

encountered by investors during the reporting period; 

(IV) an inventory of the items described in subclause (III) that includes— 

(aa) identification of any action taken by 

the Commission or the self-regulatory organization and the result of such action; 

(bb) the length of time that each item has 

remained on such inventory; and 

(cc) for items on which no action has been 

taken, the reasons for inaction, and an identification of any official who is responsible for 

such action; 

(V) recommendations for such administrative 

and legislative actions as may be appropriate to 

resolve problems encountered by investors; and 

(VI) any other information, as determined appropriate by the Investor Advocate. 

(iii) INDEPENDENCE.—Each report required under 

this paragraph shall be provided directly to the Committees listed in clause (i) without any prior review or 

comment from the Commission, any commissioner, 

any other officer or employee of the Commission, or 

the Office of Management and Budget. 

(iv) CONFIDENTIALITY.—No report required under 

clause (i) may contain confidential information. 

(7) REGULATIONS.—The Commission shall, by regulation, establish procedures requiring a formal response to all recommendations submitted to the Commission by the Investor 

Advocate, not later than 3 months after the date of such submission. 


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(8) OMBUDSMAN.— 

(A) APPOINTMENT.—Not later than 180 days after the 

date on which the first Investor Advocate is appointed 

under paragraph (2)(A)(i), the Investor Advocate shall appoint an Ombudsman, who shall report directly to the Investor Advocate. 

(B) DUTIES.—The Ombudsman appointed under subparagraph (A) shall— 

(i) act as a liaison between the Commission and any 

retail investor in resolving problems that retail investors may have with the Commission or with self-regulatory organizations; 

(ii) review and make recommendations regarding 

policies and procedures to encourage persons to 

present questions to the Investor Advocate regarding 

compliance with the securities laws; and 

(iii) establish safeguards to maintain the confidentiality of communications between the persons described in clause (ii) and the Ombudsman. 

(C) LIMITATION.—In carrying out the duties of the Ombudsman under subparagraph (B), the Ombudsman shall 

utilize personnel of the Commission to the extent practicable. Nothing in this paragraph shall be construed as 

replacing, altering, or diminishing the activities of any ombudsman or similar office of any other agency. 

(D) REPORT.—The Ombudsman shall submit a semiannual report to the Investor Advocate that describes the 

activities and evaluates the effectiveness of the Ombudsman during the preceding year. The Investor Advocate 

shall include the reports required under this section in the 

reports required to be submitted by the Inspector Advocate 

under paragraph (6). 

(9) PUBLICATION OF DATA AND RESULTS OF INVESTOR TESTING.—With respect to any investor testing carried out by the Investor Advocate pursuant to paragraph (4)(E), the Investor Advocate may make the data and results of such investor testing 

available to the public, and without further review or editing by 

the Commission. 

(h) EXAMINERS.— 

(1) DIVISION OF TRADING AND MARKETS.—The Division of 

Trading and Markets of the Commission, or any successor organizational unit, shall have a staff of examiners who shall— 

(A) perform compliance inspections and examinations of 

entities under the jurisdiction of that Division; and 

(B) report to the Director of that Division. 

(2) DIVISION OF INVESTMENT MANAGEMENT.—The Division of 

Investment Management of the Commission, or any successor 

organizational unit, shall have a staff of examiners who shall— 

(A) perform compliance inspections and examinations of 

entities under the jurisdiction of that Division; and 

(B) report to the Director of that Division. 

(i) SECURITIES AND EXCHANGE COMMISSION RESERVE FUND.— 

(1) RESERVE FUND ESTABLISHED.—There is established in the 

Treasury of the United States a separate fund, to be known as 


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17 

the ‘‘Securities and Exchange Commission Reserve Fund’’ (referred to in this subsection as the ‘‘Reserve Fund’’). 

(2) RESERVE FUND AMOUNTS.— 

(A) IN GENERAL.—Except as provided in subparagraph 

(B), any registration fees collected by the Commission 

under section 6(b) of the Securities Act of 1933 (15 U.S.C. 

77f(b)) or section 24(f) of the Investment Company Act of 

1940 (15 U.S.C. 80a-24(f)) shall be deposited into the Reserve Fund. 

(B) LIMITATIONS.—For any 1 fiscal year— 

(i) the amount deposited in the Fund may not exceed $50,000,000; and 

(ii) the balance in the Fund may not exceed 

$100,000,000. 

(C) EXCESS FEES.—Any amounts in excess of the limitations described in subparagraph (B) that the Commission 

collects from registration fees under section 6(b) of the Securities Act of 1933 (15 U.S.C. 77f(b)) or section 24(f) of the 

Investment Company Act of 1940 (15 U.S.C. 80a-24(f)) 

shall be deposited in the General Fund of the Treasury of 

the United States and shall not be available for obligation 

by the Commission. 

(3) USE OF AMOUNTS IN RESERVE FUND.—The Commission 

may obligate amounts in the Reserve Fund, not to exceed a 

total of $100,000,000 in any 1 fiscal year, as the Commission 

determines is necessary to carry out the functions of the Commission. Any amounts in the reserve fund shall remain available until expended. Not later than 10 days after the date on 

which the Commission obligates amounts under this paragraph, the Commission shall notify Congress of the date, 

amount, and purpose of the obligation. 

(4) RULE OF CONSTRUCTION.—Amounts collected and deposited in the Reserve Fund shall not be construed to be Government funds or appropriated monies and shall not be subject to 

apportionment for the purpose of chapter 15 of title 31, United 

States Code, or under any other authority. 

(j) OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION.— 

(1) OFFICE ESTABLISHED.—There is established within the 

Commission the Office of the Advocate for Small Business Capital Formation (hereafter in this subsection referred to as the 

‘‘Office’’). 

(2) ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION.— 

(A) IN GENERAL.—The head of the Office shall be the Advocate for Small Business Capital Formation, who shall— 

(i) report directly to the Commission; and 

(ii) be appointed by the Commission, from among individuals having experience in advocating for the interests of small businesses and encouraging small 

business capital formation. 

(B) COMPENSATION.—The annual rate of pay for the Advocate for Small Business Capital Formation shall be 

equal to the highest rate of annual pay for other senior executives who report directly to the Commission. 


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(C) NO CURRENT EMPLOYEE OF THE COMMISSION.—An individual may not be appointed as the Advocate for Small 

Business Capital Formation if the individual is currently 

employed by the Commission. 

(3) STAFF OF OFFICE.—The Advocate for Small Business Capital Formation, after consultation with the Commission, may 

retain or employ independent counsel, research staff, and service staff, as the Advocate for Small Business Capital Formation 

determines to be necessary to carry out the functions of the Office. 

(4) FUNCTIONS OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION.—The Advocate for Small Business Capital 

Formation shall— 

(A) assist small businesses and small business investors 

in resolving significant problems such businesses and investors may have with the Commission or with self-regulatory organizations; 

(B) identify areas in which small businesses and small 

business investors would benefit from changes in the regulations of the Commission or the rules of self-regulatory organizations; 

(C) identify problems that small businesses have with 

securing access to capital, including any unique challenges 

to minority-owned small businesses, women-owned small 

businesses, and small businesses affected by hurricanes or 

other natural disasters; 

(D) analyze the potential impact on small businesses and 

small business investors of— 

(i) proposed regulations of the Commission that are 

likely to have a significant economic impact on small 

businesses and small business capital formation; and 

(ii) proposed rules that are likely to have a significant economic impact on small businesses and small 

business capital formation of self-regulatory organizations registered under this title; 

(E) conduct outreach to small businesses and small business investors, including through regional roundtables, in 

order to solicit views on relevant capital formation issues; 

(F) to the extent practicable, propose to the Commission 

changes in the regulations or orders of the Commission 

and to Congress any legislative, administrative, or personnel changes that may be appropriate to mitigate problems identified under this paragraph and to promote the 

interests of small businesses and small business investors; 

(G) consult with the Investor Advocate on proposed recommendations made under subparagraph (F); and 

(H) advise the Investor Advocate on issues related to 

small businesses and small business investors. 

(5) ACCESS TO DOCUMENTS.—The Commission shall ensure 

that the Advocate for Small Business Capital Formation has 

full access to the documents and information of the Commission and any self-regulatory organization, as necessary to carry 

out the functions of the Office. 

(6) ANNUAL REPORT ON ACTIVITIES.— 


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(A) IN GENERAL.—Not later than December 31 of each 

year after 2015, the Advocate for Small Business Capital 

Formation shall submit to the Committee on Banking, 

Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives a report on the activities of the Advocate for Small 

Business Capital Formation during the immediately preceding fiscal year. 

(B) CONTENTS.—Each report required under subparagraph (A) shall include— 

(i) appropriate statistical information and full and 

substantive analysis; 

(ii) information on steps that the Advocate for Small 

Business Capital Formation has taken during the reporting period to improve small business services and 

the responsiveness of the Commission and self-regulatory organizations to small business and small business investor concerns; 

(iii) a summary of the most serious issues encountered by small businesses and small business investors, including any unique issues encountered by minority-owned small businesses, women-owned small 

businesses, and small businesses affected by hurricanes or other natural disasters and their investors, 

during the reporting period; 

(iv) an inventory of the items summarized under 

clause (iii) (including items summarized under such 

clause for any prior reporting period on which no action has been taken or that have not been resolved to 

the satisfaction of the Advocate for Small Business 

Capital Formation as of the beginning of the reporting 

period covered by the report) that includes— 

(I) identification of any action taken by the 

Commission or the self-regulatory organization 

and the result of such action; 

(II) the length of time that each item has remained on such inventory; and 

(III) for items on which no action has been 

taken, the reasons for inaction, and an identification of any official who is responsible for such action; 

(v) recommendations for such changes to the regulations, guidance and orders of the Commission and 

such legislative actions as may be appropriate to resolve problems with the Commission and self-regulatory organizations encountered by small businesses 

and small business investors and to encourage small 

business capital formation; and 

(vi) any other information, as determined appropriate by the Advocate for Small Business Capital Formation. 

(C) CONFIDENTIALITY.—No report required by subparagraph (A) may contain confidential information. 

(D) INDEPENDENCE.—Each report required under subparagraph (A) shall be provided directly to the committees 


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of Congress listed in such subparagraph without any prior 

review or comment from the Commission, any commissioner, any other officer or employee of the Commission, or 

the Office of Management and Budget. 

(7) REGULATIONS.—The Commission shall establish procedures requiring a formal response to all recommendations submitted to the Commission by the Advocate for Small Business 

Capital Formation, not later than 3 months after the date of 

such submission. 

(8) GOVERNMENT-BUSINESS FORUM ON SMALL BUSINESS CAP- ITAL FORMATION.—The Advocate for Small Business Capital 

Formation shall be responsible for planning, organizing, and 

executing the annual Government-Business Forum on Small 

Business Capital Formation described in section 503 of the 

Small Business Investment Incentive Act of 1980 (15 U.S.C. 

80c–1). 

(9) RULE OF CONSTRUCTION.—Nothing in this subsection may 

be construed as replacing or reducing the responsibilities of the 

Investor Advocate with respect to small business investors. 

* * * * * * * 

RULES, REGULATIONS, AND ORDERS; ANNUAL REPORTS

SEC. 23. (a)(1) The Commission, the Board of Governors of the 

Federal Reserve System, and the other agencies enumerated in section 3(a)(34) of this title shall each have power to make such rules 

and regulations as may be necessary or appropriate to implement 

the provisions of this title for which they are responsible or for the 

execution of the functions vested in them by this title, and may for 

such purposes classify persons, securities, transactions, statements, 

applications, reports, and other matters within their respective jurisdictions, and prescribe greater, lesser, or different requirements 

for different classes thereof. No provision of this title imposing any 

liability shall apply to any act done or omitted in good faith in conformity with a rule, regulation, or order of the Commission, the 

Board of Governors of the Federal Reserve System, other agency 

enumerated in section 3(a)(34) of this title, or any self-regulatory 

organization, notwithstanding that such rule, regulation, or order 

may thereafter be amended or rescinded or determined by judicial 

or other authority to be invalid for any reason. 

(2) The Commission and the Secretary of the Treasury, in making rules and regulations pursuant to any provisions of this title, 

shall consider among other matters the impact any such rule or 

regulation would have on competition. The Commission and the 

Secretary of the Treasury shall not adopt any such rule or regulation which would impose a burden on competition not necessary or 

appropriate in furtherance of the purposes of this title. The Commission and the Secretary of the Treasury shall include in the 

statement of basis and purpose incorporated in any rule or regulation adopted under this title, the reasons for the Commission’s or 

the Secretary’s determination that any burden on competition imposed by such rule or regulation is necessary or appropriate in furtherance of the purposes of this title. 

(3) The Commission and the Secretary, in making rules and regulations pursuant to any provision of this title, considering any apVerDate Sep 11 2014 01:36 Jun 25, 2019 Jkt 089006 PO 00000 Frm 00020 Fmt 6659 Sfmt 6601 E:\HR\OC\HR123.XXX HR123

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plication for registration in accordance with section 19(a) of this 

title, or reviewing any proposed rule change of a self-regulatory organization in accordance with section 19(b) of this title, shall keep 

in a public file and make available for copying all written statements filed with the Commission and the Secretary and all written 

communications between the Commission or the Secretary and any 

person relating to the proposed rule, regulation, application, or proposed rule change: Provided, however, That the Commission and 

the Secretary shall not be required to keep in a public file or make 

available for copying any such statement or communication which 

it may withhold from the public in accordance with the provisions 

of section 552 of title 5, United States Code. 

(4) INVESTOR TESTING.— (A) IN GENERAL.—The Commission shall engage in investor 

testing prior to issuing any rule or regulation which designates 

documents or information to be disclosed under the securities 

laws, if such documents or information— 

(i) are primarily used by retail investors, as determined 

by the Commission; and 

(ii) are intended to be used by retail investors to make informed investment decisions or to understand the investments held by the retail investor. 

(B) CONTENTS.—Investor testing conducted pursuant to subparagraph (A) shall include the following: 

(i) Qualitative testing in the form of one-on-one cognitive 

interviews of retail investors about documents or information, or samples of such documents or information, to be 

provided. 

(ii) A nationwide survey of retail investors, designed to 

complement the interviews under clause (i), on— 

(I) the usefulness of such documents or information, 

or samples of such documents or information; 

(II) the proposed format of such documents or information, or samples of such documents or information; 

and 

(III) delivery preferences of such documents or information, or samples of such documents or information. 

(iii) Analysis and publication in the Federal Register of 

the results of the survey and interviews. 

(iv) An opportunity for the public to comment on such results published in the Federal Register. 

(C) SUBSTANTIVE CHANGES.—If the Commission, in the period 

between engaging in investor testing and publishing a final 

rule, makes substantive changes to such rule that the Commission determines would have a significant impact on retail investors, the Commission shall again engage in investor testing. 

(D) PUBLIC AVAILABILITY OF RETAIL TESTING RESULTS.—The 

Commission shall make the data and results of any investor 

testing performed pursuant to this paragraph available to the 

public. 

(b)(1) The Commission, the Board of Governors of the Federal 

Reserve System, and the other agencies enumerated in section 

3(a)(34) of this title shall each make an annual report to the Congress on its work for the preceding year, and shall include in each 

such report whatever information, data, and recommendations for 


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22 

further legislation it considers advisable with regard to matters 

within its respective jurisdiction under this title. 

(2) The appropriate regulatory agency for a self-regulatory organization shall include in its annual report to the Congress for each 

fiscal year, a summary of its oversight activities under this title 

with respect to such self-regulatory organization, including a description of any examination conducted as part of such activities of 

any organization, any material recommendation presented as part 

of such activities to such organization for changes in its organization or rules, and any such action by such organization in response 

to any such recommendation. 

(3) The appropriate regulatory agency for any class of municipal 

securities dealers shall include in its annual report to the Congress 

for each fiscal year a summary of its regulatory activities pursuant 

to this title with respect to such municipal securities dealers, including the nature of and reason for any sanction imposed pursuant to this title against any such municipal securities dealer. 

(4) The Commission shall also include in its annual report to the 

Congress for each fiscal year— 

(A) a summary of the Commission’s oversight activities with 

respect to self-regulatory organizations for which it is not the 

appropriate regulatory agency, including a description of any 

examination of any such organization, any material recommendation presented to any such organization for changes 

in its organization or rules, and any action by any such organization in response to any such recommendations; 

(B) a statement and analysis of the expenses and operations 

of each self-regulatory organization in connection with the performance of its responsibilities under this title, for which purpose data pertaining to such expenses and operations shall be 

made available by such organization to the Commission at its 

request; 

(C) the steps the Commission has taken and the progress it 

has made toward ending the physical movement of the securities certificate in connection with the settlement of securities 

transactions, and its recommendations, if any, for legislation to 

eliminate the securities certificate; 

(D) the number of requests for exemptions from provisions of 

this title received, the number granted, and the basis upon 

which any such exemption was granted; 

(E) a summary of the Commission’s regulatory activities with 

respect to municipal securities dealers for which it is not the 

appropriate regulatory agency, including the nature of, and 

reason for, any sanction imposed in proceedings against such 

municipal securities dealers; 

(F) a statement of the time elapsed between the filing of reports pursuant to section 13(f) of this title and the public availability of the information contained therein, the costs involved 

in the Commission’s processing of such reports and tabulating 

such information, the manner in which the Commission uses 

such information, and the steps the Commission has taken and 

the progress it has made toward requiring such reports to be 

filed and such information to be made available to the public 

in machine language; 


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(G) information concerning (i) the effects its rules and regulations are having on the viability of small brokers and dealers; 

(ii) its attempts to reduce any unnecessary reporting burden on 

such brokers and dealers; and (iii) its efforts to help to assure 

the continued participation of small brokers and dealers in the 

United States securities markets; 

(H) a statement detailing its administration of the Freedom 

of Information Act, section 552 of title 5, United States Code, 

including a copy of the report filed pursuant to subsection (d) 

of such section; and 

(I) the steps that have been taken and the progress that has 

been made in promoting the timely public dissemination and 

availability for analytical purposes (on a fair, reasonable, and 

nondiscriminatory basis) of information concerning government 

securities transactions and quotations, and its recommendations, if any, for legislation to assure timely dissemination of 

(i) information on transactions in regularly traded government 

securities sufficient to permit the determination of the prevailing market price for such securities, and (ii) reports of the 

highest published bids and lowest published offers for government securities (including the size at which persons are willing 

to trade with respect to such bids and offers). 

(c) The Commission, by rule, shall prescribe the procedure applicable to every case pursuant to this title of adjudication (as defined 

in section 551 of title 5, United States Code) not required to be determined on the record after notice and opportunity for hearing. 

Such rules shall, as a minimum, provide that prompt notice shall 

be given of any adverse action or final disposition and that such 

notice and the entry of any order shall be accompanied by a statement of written reasons. 

(d) CEASE-AND-DESIST PROCEDURES.—Within 1 year after the 

date of enactment of this subsection, the Commission shall establish regulations providing for the expeditious conduct of hearings 

and rendering of decisions under section 21C of this title, section 

8A of the Securities Act of 1933, section 9(f) of the Investment 

Company Act of 1940, and section 203(k) of the Investment Advisers Act of 1940. 

* * * * * * * 


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(24) 

MINORITY VIEWS 

H.R. 1815, the SEC Disclosure Effectiveness Testing Act, is a deliberate effort to delay the Securities and Exchange Commission’s 

(SEC) proposed rulemaking package that includes Regulation Best 

Interest (‘‘Reg BI’’) and a new short-form client relationship summary disclosure (‘‘Form CRS’’), despite the SEC having already conducted investor testing on the proposed Form CRS. Instead of explicitly targeting Reg BI and Form CRS through narrowly tailored 

language, H.R. 1815 would apply to all rules and regulations that 

‘‘designate documents or information to be provided to a retail investor.’’ In the absence of a definition of ‘‘documents or information’’ for retail investors, H.R. 1815 would apply to virtually any investor disclosure, report, or form under the SEC’s jurisdiction. In 

a March 2019 letter written by former SEC Chairman Harvey Pitt 

and former SEC Commissioners Paul Atkins and Dan Gallagher, 

the signatories noted that ‘‘all of the SEC’s corporate disclosure 

rules’’ and many rules issued by self-regulatory organizations 

(SROs) overseen by the SEC would be subject to investor testing 

under this ‘‘overly broad’’ bill. As such, these former SEC officials 

warn that the bill ‘‘underestimates the sheer number of rules’’ relating to disclosures for retail investors. 

Moreover, H.R. 1815 includes a look-back provision applicable to 

existing disclosure rules which requires the SEC to conduct investor testing on similar disclosure rulemakings finalized before enactment of the bill. Requiring investor testing on all existing disclosure rulemakings ‘‘would truly be a monumental undertaking that 

would distract the SEC from its core mission,’’ as stated in the letter from the former SEC commissioners and chairman. 

Additionally, under H.R. 1815, if substantive changes are made 

to a rule following investor testing, the SEC must then perform additional investor testing on those changes. Such a requirement is 

extremely problematic and unreasonable, as it would entangle the 

SEC in a virtually infinite loop of changes to proposed rulemakings 

followed by subsequent investor testing. By creating a never-ending 

bureaucratic loop on such a wide array of rulemakings, H.R. 1815 

has the real possibility of harming investors by preventing the SEC 

from finalizing investor protection rulemakings as well as diverting 

the SEC’s resources from enforcement actions. 

The investor testing required under H.R. 1815 would consist of 

one-on-one cognitive interviews with retail investors about the disclosures or information to be provided under the rulemaking, a nationwide survey of retail investors on the usefulness of such documents and the proposed format, and analysis and publication of the 

results of the survey and interviews. While establishing the exact 

methods to be employed for the SEC’s investor testing efforts may 

seem useful, it only serves to underscore the uselessness of H.R. 

1815, as the investor testing the SEC already conducted for Form 


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25 

CRS utilized the same processes and methods outlined in this bill. 

Following the release of the proposed rulemaking package and in 

connection with the SEC’s efforts to help address investor confusion 

about the nature of their relationships with investment advisers 

and broker-dealers, in November of 2018 the SEC published a report on investor testing conducted in conjunction with the RAND 

Corporation. The investor testing collected feedback on a sample 

Form CRS as would be used under the proposed rulemaking package. The investor testing consisted of a nationwide online survey of 

over 1,800 retail investors and qualitative in-depth interviews of 31 

retail investors in Denver and Pittsburgh. Nearly 90% of survey respondents found that the Relationship Summary would help them 

make more informed decisions about investment accounts and services according the report. Thankfully, the SEC did not need to wait 

on Congress to advise the Commission on how to conduct effective 

and sound investor testing. To the contrary, by prescribing the 

same methods that the SEC applied to their investor testing of 

Form CRS, H.R. 1815 demonstrates implicit approval of the SEC’s 

investor testing for Form CRS. 

Committee Republicans believe investor testing is an effective 

tool for designing smart and workable regulatory frameworks. The 

SEC was forward thinking in conducting investor testing for Form 

CRS. Committee Republicans are confident the SEC will devote the 

necessary attention and consideration to the findings of their investor testing, the input from the seven retail investor roundtables, 

and the feedback from the 6,000 comment letters as they work to 

finalize Reg BI and Form CRS. Thus, H.R. 1815 is completely unnecessary. 

Reg BI and Form CRS are significant improvements on the status quo for Mom and Pop investors. Any delay to this important 

rulemaking package—an all but certain result under H.R. 1815— 

is problematic, as it would only hurt retail investors by not providing them with a heightened standard of care for broker-dealers 

as well as not providing them with an informative Form CRS. 

BARRY LOUDERMILK. TED BUDD. BRYAN STEIL. JOHN W. ROSE. DENVER RIGGLEMAN. ANDY BARR. LEE M. ZELDIN. 

ANN WAGNER. 

BILL HUIZENGA. 

BILL POSEY. 

TOM EMMER. 

SCOTT R. TIPTON. 

SEAN P. DUFFY. 

ROGER WILLIAMS. 

FRENCH J. HILL. 

WARREN DAVIDSON. 

ANTHONY GONZALEZ. 

ALEXANDER X. MOONEY. 

FRANK D. LUCAS. 

STEVE STIVERS. 


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26 

BLAINE LUETKEMEYER. PATRICK T. MCHENRY. DAVID KUSTOFF. PETE T. KING. LANCE GOODEN. 

Æ 


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