69–006 

115TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 115–103 

U.S. TERRITORIES INVESTOR PROTECTION ACT OF 2017 

MAY 1, 2017.—Committed to the Committee of the Whole House on the State of the 

Union and ordered to be printed 

Mr. HENSARLING, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

[To accompany H.R. 1366] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 1366) to amend the Investment Company Act of 1940 to 

terminate an exemption for companies located in Puerto Rico, the 

Virgin Islands, and any other possession of the United States, having considered the same, report favorably thereon without amendment and recommend that the bill do pass. 

PURPOSE AND SUMMARY

Introduced by Representative Nydia Velasquez on March 6, 2017, 

H.R. 1366, the U.S. Territories Investor Protection Act of 2017, 

amends Section 6(a)(1) of the Investment Company Act of 1940 to 

terminate an exemption for investment companies located in Puerto Rico, the Virgin Islands, and any other possession of the United 

States. Under current law, such companies are exempt from registration under the Act provided that their shares are sold solely 

to the residents of the territory or possession in which they are located. The bill provides an automatic three-year safe harbor for investment companies that currently enjoy this exemption. Additionally, the bill authorizes the SEC to further delay the effective date 

(or end of the exemption) for a maximum of three years following 

the initial three year safe harbor. 

BACKGROUND AND NEED FOR LEGISLATION

When Congress enacted the Investment Company Act of 1940, it 

was prohibitively expensive and logistically difficult for SEC personnel to travel and inspect investment companies located in cerVerDate Sep 11 2014 03:36 May 03, 2017 Jkt 069006 PO 00000 Frm 00001 Fmt 6659 Sfmt 6602 E:\HR\OC\HR103.XXX HR103

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tain U.S. territories, including Alaska, Hawaii, the Philippines, the 

Panama Canal Zone, Puerto Rico and the U.S. Virgin Islands. 

Consequently, those investment companies were exempt from 

registration with, and oversight by, the SEC, but the investment 

company had to follow the laws of the jurisdiction in which the investment company operated. As U.S. territories and possessions became states or independent nations no longer under U.S. control, 

amendments were made to Section 6(a)(1). As the burdens and 

costs of travel are not the same today as they were in 1940, H.R. 

1366 terminates this anachronistic exemption from registration 

under the Act. Thus, the bill ensures that investment companies in 

Puerto Rico, Guam, and elsewhere will operate subject to the same 

rules as their mainland counterparts, consistent with the SEC’s 

ability to gather information quickly using modern technology regardless of distance. 

HEARINGS

The Committee on Financial Services’ held no hearings examining matters relating to H.R. 1366. 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on 

March 9, 2017 and ordered H.R. 1366 to be reported favorably to 

the House without amendment by a recorded vote of 58 yeas to 0 

nays (recorded vote no. FC–34), a quorum being present. 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. The sole recorded 

vote in committee was a motion by Chairman Hensarling to report 

the bill favorably to the House without amendment. That motion 

was agreed to by a recorded vote of 58 yeas to 0 nays (Record vote 

no. FC–34), a quorum being present. 


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COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) 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 Committee states that H.R. 1366 will protect U.S. territories investments by terminating the exemptions for 

investment companies located in U.S. territories, and ensuring that 

they are subject to the same requirements and oversight by the 

SEC. 

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 1974. 

COMMITTEE COST ESTIMATE

The Committee adopts as its own the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

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: 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, April 4, 2017. 

Hon. JEB HENSARLING, 

Chairman, Committee on Financial Services, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 1366, the U.S. Territories 

Investor Protection Act of 2017. 

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

to provide them. The CBO staff contact is Stephen Rabent. 

Sincerely, 

KEITH HALL. 

Enclosure. 


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H.R. 1366—U.S. Territories Investor Protection Act of 2017 

Under current law, the Securities and Exchange Commission 

(SEC) requires some issuers of securities to register as an investment company and regulates aspects of their operations. Investment companies that are located in Puerto Rico, the Virgin Islands, 

or other United States possessions are exempt from registration 

under certain conditions and therefore, exempt from the related 

regulations that apply to investment companies. H.R. 1366 would 

remove that exemption three years after the date of enactment of 

the bill; however, the SEC could extend the exemption for up to 

three additional years following the initial three-year period. 

Based on an analysis of information from the SEC, CBO estimates that implementing H.R. 1366 would have no significant effect on the agency’s costs or operations to extend current regulations to include those companies. Moreover, the SEC is authorized 

to collect fees sufficient to offset its annual appropriation; therefore, CBO estimates that the net effect on discretionary spending 

would be negligible, assuming appropriation actions consistent with 

that authority. 

Enacting H.R. 1366 would not affect direct spending or revenues; 

therefore, pay-as-you-go procedures do not apply. CBO estimates 

that enacting H.R. 1366 would not increase net direct spending or 

on-budget deficits in any of the four consecutive 10-year periods beginning in 2028. 

H.R. 1366 contains no intergovernmental mandates as defined in 

the Unfunded Mandates Reform Act (UMRA) and would not affect 

the budgets of state, local, or tribal governments. 

By removing their regulatory exemption under the Investment 

Company Act the bill would impose a private-sector mandate on investment companies that are headquartered in a U.S. territory and 

that sell securities exclusively to residents of that territory. Without the exemption those companies would be subject to existing 

federal requirements for investment companies such as registering 

with the SEC, meeting minimum capital requirements, making disclosures to investors and registering the securities that they offer. 

The cost of the mandate would include registration fees and the 

ongoing costs of complying with SEC requirements. Based on an estimate of the total asset size of the investment companies that 

could be affected and the current rates of regulatory fees that 

would apply to those companies, CBO estimates that the aggregate 

cost of the mandate would fall below the annual threshold established in UMRA for private-sector mandates ($156 million in 2017, 

adjusted annually for inflation). 

On April 4, 2017, CBO transmitted a cost estimate for S. 484, the 

U.S. Territories Investor Protection Act of 2017, as reported by the 

Senate Committee on Banking, Housing, and Urban Affairs on 

March 13, 2017. The two bills are similar and CBO’s estimate of 

their budgetary effects is the same. 

The CBO staff contacts for this estimate are Stephen Rabent (for 

federal costs) and Logan Smith (for private-sector mandates). The 

estimate was approved by H. Samuel Papenfuss, Deputy Assistant 

Director for Budget Analysis. 


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FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office 

pursuant to section 423 of the Unfunded Mandates reform Act. 

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 the section 102(b)(3) of the 

Congressional Accountability Act. 

EARMARK IDENTIFICATION

H.R. 1366 does not contain any congressional earmarks, limited 

tax benefits, or limited tariff benefits as defined in clause 9 of rule 

XXI. 

DUPLICATION OF FEDERAL PROGRAMS

Pursuant to section 3(c)(5) of rule XIII, the Committee states 

that no provision of H.R. 1366 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. 

DISCLOSURE OF DIRECTED RULEMAKING

Pursuant to section 3(i) of H. Res. 5, 115th Cong. (2017), the 

Committee states that H.R. 1366 contains no directed rulemaking. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1: Short title 

This section cites H.R. 1366 as the ‘‘U.S. Territories Investor Protection Act of 2017.’’ 

Section 2: Termination of exemption 

This section amends the Investment Company Act of 1940 by 

eliminating the exemption provided to U.S. possessions under section 6(a)(1) of the Act. The exemption will take effect three years 

after enactment. This section also provides the SEC with the authority to extend the safe harbor to a maximum of three years, in 

addition to the initial three year period. 

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 omitVerDate Sep 11 2014 03:36 May 03, 2017 Jkt 069006 PO 00000 Frm 00006 Fmt 6659 Sfmt 6602 E:\HR\OC\HR103.XXX HR103

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ted is enclosed in black brackets and existing law in which no 

change is proposed is shown in roman): 

INVESTMENT COMPANY ACT OF 1940 

TITLE I—INVESTMENT COMPANIES 

* * * * * * * 

EXEMPTIONS

SEC. 6. (a) The following investment companies are exempt from 

the provisions of this title: 

ø(1) Any company organized or otherwise created under the 

laws of and having its principal office and place of business in 

Puerto Rico, the Virgin Islands, or any other possession of the 

United States; but such exemption shall terminate if any security of which such company is the issuer is offered for sale or 

sold after the effective date of this title, by such company or 

an underwriter therefor, to a resident of any State other than 

the State in which such company is organized.¿ 

(2) Any company which since the effective date of this title 

or within five years prior to such date has been reorganized 

under the supervision of a court of competent jurisdiction, if 

(A) such company was not an investment company at the commencement of such reorganization proceedings, (B) at the conclusion of such proceedings all outstanding securities of such 

company were owned by creditors of such company or by persons to whom such securities were issued on account of creditors’ claims, and (C) more than 50 per centum of the voting securities of such company, and securities representing more 

than 50 per centum of the net asset value of such company, are 

currently owned beneficially by not more than twenty-five persons; but such exemption shall terminate if any security of 

which such company is the issuer is offered for sale or sold to 

the public after the conclusion of such proceedings by the 

issuer or by or through any underwriter. For the purposes of 

this paragraph, any new company organized as part of the reorganization shall be deemed the same company as its predecessor; and beneficial ownership shall be determined in the 

manner provided in section 3(c)(1). 

(3) Any issuer as to which there is outstanding a writing 

filed with the Commission by the Federal Savings and Loan 

Insurance Corporation stating that exemption of such issuer 

from the provisions of this title is consistent with the public interest and the protection of investors and is necessary or appropriate by reason of the fact that such issuer holds or proposes to acquire any assets or any product of any assets which 

have been segregated (A) from assets of any company which at 

the filing of such writing is an insured institution within the 

meaning of section 401(a) of the National Housing Act, as heretofore or hereafter amended, or (B) as a part of or in connection with any plan for or condition to the insurance of accounts 

of any company by said corporation or the conversion of any 

company into a Federal savings and loan association. Any such 

writing shall expire when canceled by a writing similarly filed 


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or at the expiration of two years after the date of its filing, 

whichever first occurs; but said corporation may, nevertheless, 

before, at, or after the expiration of any such writing file another writing or writings with respect to such issuer. 

(4) Any company which prior to March 15, 1940, was and 

now is a wholly-owned subsidiary of a registered face-amount 

certificate company and was prior to said date and now is organized and operating under the insurance laws of any State and 

subject to supervision and examination by the insurance commissioner thereof, and which prior to March 15, 1940, was and 

now is engaged, subject to such laws, in business substantially 

all of which consists of issuing and selling only to residents of 

such State and investing the proceeds from, securities providing for or representing participations or interests in intangible assets consisting of mortgages or other liens on real estate or notes or bonds secured thereby or in a fund or deposit 

of mortgages or other liens on real estate or notes or bonds secured thereby or having outstanding such securities so issued 

and sold. 

(5)(A) Any company that is not engaged in the business of 

issuing redeemable securities, the operations of which are subject to regulation by the State in which the company is organized under a statute governing entities that provide financial 

or managerial assistance to enterprises doing business, or proposing to do business, in that State if— 

(i) the organizational documents of the company state 

that the activities of the company are limited to the promotion of economic, business, or industrial development in 

the State through the provision of financial or managerial 

assistance to enterprises doing business, or proposing to do 

business, in that State, and such other activities that are 

incidental or necessary to carry out that purpose; 

(ii) immediately following each sale of the securities of 

the company by the company or any underwriter for the 

company, not less than 80 percent of the securities of the 

company being offered in such sale, on a class-by-class 

basis, are held by persons who reside or who have a substantial business presence in that State; 

(iii) the securities of the company are sold, or proposed 

to be sold, by the company or by any underwriter for the 

company, solely to accredited investors, as that term is defined in section 2(a)(15) of the Securities Act of 1933, or to 

such other persons that the Commission, as necessary or 

appropriate in the public interest and consistent with the 

protection of investors, may permit by rule, regulation, or 

order; and 

(iv) the company does not purchase any security issued 

by an investment company or by any company that would 

be an investment company except for the exclusions from 

the definition of the term ‘‘investment company’’ under 

paragraph (1) or (7) of section 3(c), other than— 

(I) any debt security that meets such standards of 

credit-worthiness as the Commission shall adopt; or 

(II) any security issued by a registered open-end investment company that is required by its investment 


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policies to invest not less than 65 percent of its total 

assets in securities described in subclause (I) or securities that are determined by such registered open-end 

investment company to be comparable in quality to securities described in subclause (I). 

(B) Notwithstanding the exemption provided by this paragraph, section 9 (and, to the extent necessary to enforce section 

9, sections 38 through 51) shall apply to a company described 

in this paragraph as if the company were an investment company registered under this title. 

(C) Any company proposing to rely on the exemption provided by this paragraph shall file with the Commission a notification stating that the company intends to do so, in such form 

and manner as the Commission may prescribe by rule. 

(D) Any company meeting the requirements of this paragraph may rely on the exemption provided by this paragraph 

upon filing with the Commission the notification required by 

subparagraph (C), until such time as the Commission determines by order that such reliance is not in the public interest 

or is not consistent with the protection of investors. 

(E) The exemption provided by this paragraph may be subject to such additional terms and conditions as the Commission 

may by rule, regulation, or order determine are necessary or 

appropriate in the public interest or for the protection of investors. 

(b) Upon application by any employees’ security company, the 

Commission shall by order exempt such company from the provisions of this title and of the rules and regulations hereunder, if and 

to the extent that such exemption is consistent with the protection 

of investors. In determining the provisions to which such an order 

of exemption shall apply, the Commission shall give due weight, 

among other things, to the form of organization and the capital 

structure of such company, the persons by whom its voting securities, evidences of indebtedness, and other securities are owned and 

controlled, the prices at which securities issued by such company 

are sold and the sales load thereon, the disposition of the proceeds 

of such sales, the character of the securities in which such proceeds 

are invested, and any relationship between such company and the 

issuer of any such security. 

(c) The Commission, by rules and regulations upon its own motion, or by order upon application, may conditionally or unconditionally exempt any person, security, or transaction, or any class 

or classes of persons, securities, or transactions, from any provision 

or provisions of this title or of any rule or regulation thereunder, 

if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of 

investors and the purposes fairly intended by the policy and provisions of this title. 

(d) The Commission, by rules and regulations or order, shall exempt a closed-end investment company from any or all provisions 

of this title, but subject to such terms and conditions as may be 

necessary or appropriate in the public interest or for the protection 

of investors, if— 

(1) the aggregate sums received by such company from the 

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ing price of all securities of which such company is the issuer 

and which it proposes to offer for sale, do not exceed 

$10,000,000, or such other amount as the Commission may set 

by rule, regulation, or order; 

(2) no security of which such company is the issuer has been 

or is proposed to be sold by such company or any underwriter 

therefor, in connection with a public offering, to any person 

who is not a resident of the State under the laws of which such 

company is organized or otherwise created; and 

(3) such exemption is not contrary to the public interest or 

inconsistent with the protection of investors. 

(e) If, in connection with any rule, regulation, or order under this 

section exempting any investment company from any provision of 

section 7, the Commission deems it necessary or appropriate in the 

public interest or for the protection of investors that certain specified provisions of this title pertaining to registered investment companies shall be applicable in respect of such company, the provisions so specified shall apply to such company, and to other persons in their transactions and relations with such company, as 

though such company were a registered investment company. 

(f) Any closed-end company which— 

(1) elects to be treated as a business development company 

pursuant to section 54; or 

(2) would be excluded from the definition of an investment 

company by section 3(c)(1), except that it presently proposes to 

make a public offering of its securities as a business development company, and has notified the Commission, in a form 

and manner which the Commission may, by rule, prescribe, 

that it intends in good faith to file, within 90 days, a notification of election to become subject to the provisions of sections 

55 through 65, 

shall be exempt from sections 1 through 53, except to the extent 

provided in sections 59 through 65. 

* * * * * * * 

Æ 


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