I 

112TH CONGRESS 

2D SESSION H. R. 4624 

To amend the Investment Advisers Act of 1940 to provide for the registration 

and oversight of national investment adviser associations. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 25, 2012 

Mr. BACHUS (for himself and Mrs. MCCARTHY of New York) introduced the 

following bill; which was referred to the Committee on Financial Services 

A BILL 

To amend the Investment Advisers Act of 1940 to provide 

for the registration and oversight of national investment 

adviser associations. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Investment Adviser 

5 Oversight Act of 2012’’. 

6 SEC. 2. REGISTRATION AND OVERSIGHT OF NATIONAL IN7 VESTMENT ADVISER ASSOCIATIONS. 

8 The Investment Advisers Act of 1940 (15 U.S.C. 

9 80b–1 et seq.) is amended by inserting after section 203A 

10 the following new sections: 


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1 ‘‘SEC. 203B. REGISTRATION OF NATIONAL INVESTMENT AD2 VISER ASSOCIATIONS. 

3 ‘‘(a) REGISTRATION REQUIREMENT.—Except as pro4 vided in subsection (b), it shall be unlawful for any invest5 ment adviser registered under section 203 or that is regu6 lated or required to be regulated as an investment adviser 

7 in a State in which it maintains its principal office and 

8 place of business to make use of the mails or any means 

9 or instrumentality of interstate commerce in connection 

10 with the person’s business as an investment adviser unless 

11 the investment adviser has applied to be a member of a 

12 registered national investment adviser association reg13 istered in accordance with this section and section 203C 

14 within the time period provided by the Commission under 

15 subsection (f). No investment adviser shall be required to 

16 be a member of more than one registered national invest17 ment adviser association. 

18 ‘‘(b) EXEMPTIONS.—The provisions of subsection (a) 

19 shall not apply to the following investment advisers: 

20 ‘‘(1) Any investment adviser one or more of 

21 whose clients is an investment company registered 

22 under the Investment Company Act of 1940. 

23 ‘‘(2) Any investment adviser that has total as24 sets under management 90 percent or more of which 

25 are attributable individually or in the aggregate to 

26 one or more of the following persons with which the 


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1 investment adviser has entered into a written invest2 ment advisory agreement: 

3 ‘‘(A) A client that is not ‘in the United 

4 States’ in accordance with the definitions in 

5 section 202. 

6 ‘‘(B) A qualified purchaser as defined in 

7 section 2(a)(51) of the Investment Company 

8 Act of 1940. 

9 ‘‘(C) An issuer that would be an invest10 ment company, as defined in section 3 of the 

11 Investment Company Act of 1940, but for sec12 tion 3(c)(10) of that Act. 

13 ‘‘(D) An issuer that would be an invest14 ment company, as defined in section 3 of the 

15 Investment Company Act of 1940, but for sec16 tion 3(c)(11) of that Act. 

17 ‘‘(E) A private fund. 

18 ‘‘(F) An issuer that would be an invest19 ment company, as defined in section 3 of the 

20 Investment Company Act of 1940, but for sec21 tion 3(c)(5)(C) of that Act. 

22 ‘‘(G) An issuer that would be an invest23 ment company, as defined in section 3 of the 

24 Investment Company Act of 1940, but for Rule 


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1 3a–7 issued under that Act (17 C.F.R. 270.3a– 

2 7). 

3 ‘‘(H) A company that has elected to be a 

4 business development company pursuant to sec5 tion 54 of the Investment Company Act of 1940 

6 and has not withdrawn its election. 

7 ‘‘(I) An investment adviser registered 

8 under section 203 or that is regulated or re9 quired to be regulated as an investment adviser 

10 in a State in which it maintains its principal of11 fice and place of business. 

12 ‘‘(J) A broker or dealer registered under 

13 section 15 of the Securities Exchange Act of 

14 1934; and 

15 ‘‘(K) An employees’ securities company 

16 that has been granted an exemption under sec17 tion 6(b) of the Investment Company Act of 

18 1940 and any such company that has filed an 

19 application for an exemption under that section 

20 and that, under Commission rule, is exempt 

21 pending final determination of such application 

22 by the Commission. 

23 ‘‘(3) Any investment adviser that is controlling, 

24 controlled by, or under common control with one or 

25 more investment advisers described in paragraph (1) 


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1 or (2) (hereafter referred to as ‘affiliated investment 

2 advisers’) if the affiliated investment advisers and all 

3 such investment advisers described in such para4 graph, have combined assets under management 90 

5 percent or more of which are attributable to one or 

6 more of the types of clients described in paragraph 

7 (1) and subparagraphs (A) through (K) of para8 graph (2), unless the Commission, by order, deter9 mines that such affiliated investment adviser is an 

10 independent affiliate. 

11 ‘‘(4) Any investment adviser that is a member 

12 of any other national investment adviser association 

13 registered with the Commission. 

14 ‘‘(5) Any other investment adviser or class of 

15 investment advisers that the Commission may ex16 empt by rule or regulation consistent with section 

17 206A. 

18 ‘‘(c) INDEPENDENT AFFILIATE DEFINITION AND

19 DETERMINATION.— 

20 ‘‘(1) DEFINITION.—For purposes of subsection 

21 (b)(3), the term ‘independent affiliate’ means any 

22 affiliated investment adviser with compliance pro23 grams, operations, and businesses that are suffi24 ciently independent from those of the investment ad25 visers described in subsection (b)(1) or (2) that 


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1 membership by any such affiliated investment ad2 viser in a registered national investment adviser as3 sociation is necessary in the public interest and for 

4 the protection of investors or in furtherance of the 

5 purposes of this title. 

6 ‘‘(2) DETERMINATION.—The Commission’s de7 termination under such subsection (b)(3) shall be 

8 made by order at the earlier of 180 days from re9 ceipt by the Commission of a request from any na10 tional investment adviser association or investment 

11 adviser for such a determination, or the date of the 

12 first on-site examination of such affiliated invest13 ment adviser conducted by the Commission after the 

14 date of enactment of this section. The Commission 

15 may, by order, determine that an investment adviser 

16 that the Commission had previously determined to 

17 be an independent affiliate is no longer an inde18 pendent affiliate due to changes in its compliance 

19 programs, operations, or businesses. 

20 ‘‘(3) NOTIFICATION.—The Commission shall 

21 promptly notify all national investment adviser asso22 ciations of any determination that an investment ad23 viser is an independent affiliate. In addition to the 

24 authority to determine by order that a particular in25 vestment adviser is an independent affiliate, the 


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1 Commission shall have authority from time to time 

2 to exempt by rule, regulation or order, any class of 

3 investment advisers that the Commission determines 

4 are independent affiliates. 

5 ‘‘(d) PROCEDURE FOR REGISTRATION.—An associa6 tion of investment advisers may be registered as a national 

7 investment adviser association by filing with the Commis8 sion an application for registration in such form, and con9 taining the rules of the association and such other infor10 mation and documents, as the Commission, by rule, may 

11 prescribe as necessary or appropriate in the public interest 

12 or for the protection of investors or otherwise in further13 ance of the provisions of this title. 

14 ‘‘(e) REQUIREMENTS FOR REGISTRATION.—An asso15 ciation of investment advisers shall not be registered as 

16 a national investment adviser association unless the Com17 mission determines that— 

18 ‘‘(1) such association is so organized and has 

19 the capacity to be able to carry out the purposes of 

20 this title and to enforce compliance by its members 

21 and persons associated with its members with the 

22 provisions of this title, the rules and regulations 

23 thereunder, and the rules of the association; and 

24 ‘‘(2) the rules of the association— 


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1 ‘‘(A) assure a fair representation of the 

2 public interest and the association’s members in 

3 the selection of the association’s board of direc4 tors and the administration of its affairs and 

5 provide that a majority of its directors shall not 

6 be associated with any member of the associa7 tion or other self-regulatory organization reg8 istered under the Securities Exchange Act of 

9 1934, or any investment adviser, broker, or 

10 dealer; 

11 ‘‘(B) are designed to prevent fraudulent 

12 and manipulative acts and practices, to protect 

13 investors and the public interest, and to pro14 mote business conduct standards for its mem15 bers consistent with their obligations to inves16 tors under this title and the rules thereunder 

17 and are not designed to impose any schedule or 

18 fixed rates of fees to be charged by its members 

19 or to regulate by virtue of any authority con20 ferred by this title matters not related to the 

21 purposes of this title or the administration of 

22 the association; 

23 ‘‘(C) are necessary in furtherance of, and 

24 are consistent with, the principles and provi25 sions of this title and the rules thereunder, and 


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1 the fiduciary standards applicable to investment 

2 advisers under this title or State law, and do 

3 not unnecessarily duplicate, overlap, or conflict 

4 with any existing provision of this title or the 

5 rules thereunder; 

6 ‘‘(D) are necessary or appropriate in light 

7 of the business of registered investment advis8 ers and do not impose any burden on the ability 

9 of members to compete in the market for finan10 cial services that is not necessary or appro11 priate in the public interest or for the protec12 tion of investors or otherwise in furtherance of 

13 the provisions of this title; 

14 ‘‘(E) provide for periodic examinations of 

15 its members and persons associated with its 

16 members to determine compliance with the ap17 plicable provisions of this title, the rules and 

18 regulations thereunder, and the rules of the as19 sociation, and for consultation with the Com20 mission in the development of such an examina21 tion program, except that the association— 

22 ‘‘(i) shall not conduct periodic exami23 nations of any investment adviser in a 

24 State— 


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1 ‘‘(I) in which the investment ad2 viser is regulated or required to be 

3 regulated and maintains its principal 

4 office and place of business; and 

5 ‘‘(II) that has adopted a plan to 

6 conduct an on-site examination of all 

7 such investment advisers on average 

8 at least once every four years (here9 after referred to as a ‘State examina10 tion plan’); and 

11 ‘‘(ii) may conduct examinations for 

12 cause of any such investment adviser that 

13 is a member of the association and may 

14 conduct a periodic examinations of any 

15 such investment adviser that is a member 

16 of the association and that is also reg17 istered as a broker or dealer under section 

18 15 of the Securities Exchange Act of 1934 

19 or that is controlling, controlled by, or 

20 under common control with such a broker 

21 or dealer; 

22 ‘‘(F) provide for the equitable allocation of 

23 reasonable dues, fees, and other charges among 

24 members and other persons using any facility 


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1 or system that the association operates or con2 trols; 

3 ‘‘(G) provide for the issuance by the asso4 ciation of an annual report on the operations, 

5 performance, and financial condition of the as6 sociation and any financial arrangement be7 tween the association and any company directly 

8 controlling, controlled by, or under common 

9 control with the association, and for the sub10 mission of the report to the Commission and for 

11 the publication of the report; 

12 ‘‘(H) establish appropriate procedures and 

13 criteria for investment advisers to become mem14 bers of the association; 

15 ‘‘(I) establish appropriate procedures to 

16 register persons associated with members, to re17 quire supervisory systems for members and per18 sons associated with members, and to discipline 

19 its members and persons associated with its 

20 members for violations of the provisions of this 

21 title or the rules and regulations thereunder, 

22 and the rules of the association; 

23 ‘‘(J) provide for substantively equivalent 

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1 spect to business conduct requirements and ex2 aminations, as provided under the rules of any 

3 other national investment adviser association 

4 registered with the Commission; and 

5 ‘‘(K) require the association to— 

6 ‘‘(i) implement and maintain a com7 prehensive information security program 

8 that meets administrative, technical, and 

9 physical safeguards as the Commission 

10 shall by rule determine, and that contains 

11 strong and risk-based information security 

12 controls to protect all information that the 

13 association is required to protect from un14 authorized internal or external disclosure 

15 or dissemination (including, without limita16 tion, a member’s confidential or propri17 etary information, or examination or in18 spection reports and documents prepared 

19 by the association or other regulatory au20 thority); 

21 ‘‘(ii) obtain, every 3 years, a com22 prehensive, independent review of the asso23 ciation’s information security program and 

24 the association’s compliance with its infor25 mation security policies and procedures 


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1 conducted by an independent reviewer who 

2 is qualified data security professional; 

3 ‘‘(iii) within 45 days after the receipt 

4 of such independent reviewer’s report on 

5 the association’s information security pro6 gram and the association’s compliance with 

7 its security policies and procedures, submit 

8 the annual report to the Commission to9 gether with the independent reviewer’s at10 testation in writing that addresses— 

11 ‘‘(I) whether the association’s in12 formation security policies and proce13 dures conform to the Commission’s in14 formation security standards; 

15 ‘‘(II) whether the strength of the 

16 association’s information security con17 trols meet recognized industry stand18 ards; 

19 ‘‘(III) whether the independent 

20 reviewer’s tests revealed any material 

21 weaknesses in the association’s infor22 mation security controls; 

23 ‘‘(IV) whether the association 

24 complies with its information security 

25 policy and procedures; and 


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1 ‘‘(V) any other requirements as 

2 the Commission may by rule deter3 mine; and 

4 ‘‘(iv) provide notice promptly to the 

5 Commission, any affected member, or any 

6 affected person associated with any mem7 ber of any unauthorized access to— 

8 ‘‘(I) the association’s information 

9 systems; or 

10 ‘‘(II) the confidential or propri11 etary information of the member or 

12 associated person. 

13 ‘‘(f) TIME PERIOD FOR MEMBERSHIP APPLICA14 TION.—A Commission determination to permit the reg15 istration of a national investment adviser association shall 

16 establish a reasonable period of time following the effective 

17 date of such registration for investment advisers to apply 

18 for membership in accordance with the rules of the asso19 ciation. 

20 ‘‘(g) RULES OF CONSTRUCTION.— 

21 ‘‘(1) NON-PREEMPTION OF STATE AUTHOR22 ITY.—Nothing in this section shall be construed to 

23 limit or detract from or otherwise preempt the au24 thority of any State securities commission (or any 

25 agency or office performing similar functions) to 


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1 adopt rules, investigate possible violations of State 

2 law, initiate enforcement proceedings, or otherwise 

3 regulate any investment adviser that is subject to 

4 State authority under section 203A(a). 

5 ‘‘(2) INFORMATION SHARING.—Nothing in this 

6 Act shall be construed to limit the authority of any 

7 national investment adviser association, whether or 

8 not it is also a self-regulatory organization reg9 istered under the Securities Exchange Act of 1934, 

10 to share any information in its possession with a 

11 Federal, State, or local governmental agency, nor 

12 shall the sharing of information be construed to be 

13 the action of such an agency. 

14 ‘‘(h) ANNUAL CONFERENCE.— 

15 ‘‘(1) REQUIREMENT.—In order to foster co16 operation between national investment adviser asso17 ciations and any association composed of duly con18 stituted representatives of State governments one of 

19 whose primary assignment is the regulation of in20 vestment advisers within those States (hereafter re21 ferred to as ‘State securities administrators associa22 tion’), each national investment adviser association 

23 shall conduct an annual conference as well as such 

24 other meetings as are determined necessary, to 

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1 ministrators association and the Commission shall 

2 be invited to participate. 

3 ‘‘(2) PURPOSE.—One purpose of the conference 

4 shall be the discussion by the State securities admin5 istrators association, each national investment ad6 viser association and the Commission, concerning 

7 those States that have adopted a State examination 

8 plan under subsection (e)(2)(E)(i) and the proposed 

9 methodology of those State examinations. 

10 ‘‘(3) REPORT.—Promptly following each con11 ference, each national investment adviser association 

12 shall submit a report to Congress, describing those 

13 States that the State securities administrators asso14 ciation has identified as having adopted a State ex15 amination plan, and providing any information avail16 able to the national investment adviser association 

17 concerning the States’ proposed methodology of their 

18 examinations and the extent to which those States 

19 have been able to meet their previously submitted 

20 State examination plans. 

21 ‘‘SEC. 203C. OVERSIGHT OF NATIONAL INVESTMENT AD22 VISER ASSOCIATIONS. 

23 ‘‘(a) PROCEDURES FOR APPROVAL OF REGISTRA24 TION.— 


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1 ‘‘(1) IN GENERAL.—The Commission shall, 

2 upon the filing of an application for registration as 

3 a national investment adviser association pursuant 

4 to section 203B, publish notice of the filing and af5 ford interested persons an opportunity to submit 

6 written data, views, and arguments concerning such 

7 application. Within 90 days of the date of publica8 tion of such notice (or within such longer period as 

9 to which the applicant consents), the Commission 

10 shall— 

11 ‘‘(A) by order, grant such registration; or 

12 ‘‘(B) institute proceedings to determine 

13 whether registration should be denied. 

14 ‘‘(2) PROCEEDINGS FOR DENIAL.—The pro15 ceedings to determine whether registration should be 

16 denied shall include notice of the grounds for denial 

17 under consideration and opportunity for hearing and 

18 shall be concluded within 180 days of the date of 

19 publication of notice of the filing of the application 

20 for registration. At the conclusion of such pro21 ceedings, the Commission, by order, shall grant or 

22 deny registration. The Commission may extend the 

23 time for conclusion of such proceedings for up to 90 

24 days if it finds good cause for such extension and 


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1 publishes its reasons for so finding or for such 

2 longer period as to which the applicant consents. 

3 ‘‘(3) BASIS FOR APPROVAL.—The Commission 

4 shall grant such registration if it finds that the re5 quirements of this title and the rules and regulations 

6 thereunder with respect to the applicant are satis7 fied. The Commission shall deny such registration if 

8 it does not make such finding. 

9 ‘‘(4) WITHDRAWAL.—A national investment ad10 viser association may, upon such terms and condi11 tions as the Commission, by rule, considers nec12 essary or appropriate in the public interest and for 

13 the protection of investors or otherwise in further14 ance of the purposes of this title, withdraw from reg15 istration by filing a written notice of withdrawal 

16 with the Commission. If the Commission finds that 

17 any national investment adviser association is no 

18 longer in existence or has ceased to do business in 

19 the capacity specified in its application for registra20 tion, the Commission, by order, shall cancel its reg21 istration. 

22 ‘‘(b) PROCEDURES FOR APPROVAL OF RULES AND

23 RULE CHANGES.— 

24 ‘‘(1) FILING AND PUBLICATION BY COMMIS25 SION.— 


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1 ‘‘(A) FILING.—Each national investment 

2 adviser association shall file with the Commis3 sion, in accordance with such rules as the Com4 mission may prescribe, any proposed rule or 

5 any proposed change in, addition to, or deletion 

6 from the rules of the association (in this para7 graph collectively referred to as a ‘proposed rule 

8 change’) accompanied by a concise statement of 

9 the basis and purpose of, and the terms of sub10 stance of, or a description of the subjects and 

11 issues involved with, the proposed rule change. 

12 ‘‘(B) EXPLANATION AND COMMENTS.—The 

13 national investment adviser association shall ex14 plain in its public filing with the Commission 

15 the nature of comments that it received, includ16 ing those from the industry or consumer 

17 groups, concerning the potential costs or bene18 fits of the proposed rule or proposed rule 

19 change, and shall provide a response to those 

20 comments in its public filing with the Commis21 sion, including an explanation of any amend22 ments to the proposed rule or proposed rule 

23 change that were made in response to those 

24 comments and a description of significant alter25 natives to the proposed rule change that were 


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1 suggested in those comments and the reasons 

2 that the national investment adviser association 

3 did not any propose them. 

4 ‘‘(C) PUBLICATION.—The Commission 

5 shall, as soon as practicable upon the filing of 

6 any proposed rule change, publish notice there7 of together with the terms of substance of the 

8 proposed rule change or a description of the 

9 subjects and issues involved. The Commission 

10 shall give interested persons an opportunity to 

11 submit written data, views, and arguments con12 cerning such proposed rule change. 

13 ‘‘(2) DETERMINATION.—Not later than 35 days 

14 after the date of publication of notice of the filing 

15 of a proposed rule change in accordance with para16 graph (1), or within such longer period as the Com17 mission may designate if it finds a longer period to 

18 be appropriate and publishes its reasons for so find19 ing or as to which the national investment adviser 

20 association consents, the Commission shall— 

21 ‘‘(A) by order, approve the proposed rule 

22 change; or 

23 ‘‘(B) institute proceedings to determine 

24 whether the proposed rule change should be dis25 approved. 


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1 ‘‘(3) PROCEEDINGS FOR DISAPPROVAL.—The 

2 proceedings to determine whether the proposed rule 

3 change should be disapproved shall include notice of 

4 the grounds for disapproval under consideration and 

5 opportunity for hearing and shall be concluded with6 in 180 days of the date of publication of notice of 

7 the filing of the proposed rule change. At the conclu8 sion of the proceedings, the Commission, by order, 

9 shall approve or disapprove the proposed rule 

10 change. The Commission may extend the time for 

11 conclusion of the proceedings for up to 60 days if it 

12 finds good cause for the extension and publishes its 

13 reasons for so finding or for such longer period to 

14 which the national investment adviser association 

15 consents. 

16 ‘‘(4) BASIS FOR APPROVAL.—The Commission 

17 shall approve a proposed rule change of a national 

18 investment adviser association if it finds that the 

19 proposed rule change is consistent with the require20 ments of this title, the rules thereunder, and the 

21 rules and regulations applicable to the national in22 vestment adviser association. The Commission shall 

23 disapprove a proposed rule change of a national in24 vestment adviser association if it does not make this 

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1 posed rule change before the 30th day after the date 

2 of publication of notice of its filing, unless the Com3 mission finds good cause for so doing and publishes 

4 its reasons for so finding. 

5 ‘‘(5) STAY PENDING APPROVAL.—No proposed 

6 rule of any national investment adviser association, 

7 and no proposed rule change of such an association, 

8 including any rule or proposed rule change con9 cerning any assessment, fee, or other charge im10 posed by the association, shall take effect unless ap11 proved by the Commission after public notice and 

12 opportunity for comment. 

13 ‘‘(6) EFFECTIVE DATE.—Notwithstanding para14 graph (5), no proposed rule of any national invest15 ment adviser association shall take effect within 1 

16 year after the date of enactment of this section, un17 less the Commission determines that an earlier effec18 tive date is appropriate to facilitate the effective op19 eration of the association’s examination or enforce20 ment programs, the organization and management 

21 of the association, or the Commission’s oversight of 

22 the association. 

23 ‘‘(7) SUMMARY EFFECTIVENESS.— 

24 ‘‘(A) IN GENERAL.—Notwithstanding any 

25 other provision of this subsection, a proposed 


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1 rule change may be put into effect summarily 

2 if it appears to the Commission that such ac3 tion is necessary for the protection of investors 

4 or the safeguarding of securities or funds. Any 

5 proposed rule change so put into effect shall be 

6 filed promptly thereafter in accordance with the 

7 provisions of paragraph (1). 

8 ‘‘(B) AMENDMENTS.—Any proposed rule 

9 change of a national investment adviser associa10 tion which has taken effect under subparagraph 

11 (A) may be enforced by the national investment 

12 adviser association to the extent it is not incon13 sistent with the provisions of this title, the rules 

14 and regulations thereunder, and applicable Fed15 eral law. The Commission, by rule, may abro16 gate, add to, and delete from (in this subsection 

17 collectively referred to as ‘amend’) the rules of 

18 an association as the Commission considers nec19 essary or appropriate to ensure the fair admin20 istration of the national investment adviser as21 sociation, to conform its rules to requirements 

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1 poses of this title, in the manner provided for 

2 herein. 

3 ‘‘(8) NOTIFICATION AND OPPORTUNITY TO

4 COMMENT.—The Commission shall notify the na5 tional investment adviser association and publish no6 tice of any proposed rulemaking in the Federal Reg7 ister. The notice shall include the text of the pro8 posed amendment to the rules of the association and 

9 a statement of the Commission’s reasons, including 

10 any pertinent facts, for commencing the proposed 

11 rulemaking. The Commission shall give interested 

12 persons an opportunity for a hearing. 

13 ‘‘(9) STATEMENT OF BASIS FOR DETERMINA14 TION.—A rule adopted under this subsection shall 

15 incorporate the text of the amendment to the rules 

16 of the association and a statement of the Commis17 sion’s basis for and purpose in amending such rules. 

18 This statement shall include an identification of any 

19 facts on which the Commission considers its deter20 mination to amend the rules of the association to be 

21 based, including the reasons for the Commission’s 

22 conclusions as to any of such facts which were dis23 puted in the rulemaking. 

24 ‘‘(10) APA RULEMAKING PROCEDURES.— 


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1 ‘‘(A) Except where a hearing is provided in 

2 paragraphs (1) through (9), rulemaking under 

3 this subsection shall be in accordance with the 

4 procedures specified in section 553 of title 5, 

5 United States Code, for notice-and-comment 

6 rulemaking. 

7 ‘‘(B) Nothing in this subsection shall be 

8 construed to impair or limit the Commission’s 

9 power to make, or to modify or alter the proce10 dures the Commission may follow in making 

11 rules and regulations pursuant to any other au12 thority under this title. 

13 ‘‘(C) Any amendment to the rules of a na14 tional investment adviser association made by 

15 the Commission under this subsection shall be 

16 considered for all purposes of this title to be 

17 part of the rules of the association and shall not 

18 be considered to be a rule of the Commission. 

19 ‘‘(c) DISCIPLINE OF MEMBERS.— 

20 ‘‘(1) IN GENERAL.—In any proceeding by a na21 tional investment adviser association to determine 

22 whether a member or person associated with a mem23 ber should be disciplined (other than a summary 

24 proceeding pursuant to paragraph (3)), the national 

25 investment adviser association shall bring specific 


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1 charges, notify the member or person associated 

2 with a member of, and give the member or person 

3 an opportunity to defend against, such charges, and 

4 keep a record. A determination by the national in5 vestment adviser association to impose a disciplinary 

6 sanction shall be supported by a statement setting 

7 forth— 

8 ‘‘(A) any act or practice in which the mem9 ber or person associated with a member has 

10 been found to have engaged, or which the mem11 ber or person associated with a member has 

12 been found to have omitted; 

13 ‘‘(B) the specific provision of this title, the 

14 rules or regulations thereunder, or the rules of 

15 the association which any such act or practice, 

16 or omission to act, violates; and 

17 ‘‘(C) the sanction imposed and the reason 

18 for it. 

19 ‘‘(2) PROCEDURES AND DETERMINATION.—In 

20 any proceeding by a national investment adviser as21 sociation to determine whether a person shall be de22 nied membership, barred from becoming associated 

23 with a member, or prohibited or limited with respect 

24 to access to services offered by the national invest25 ment adviser association, the national investment 


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1 adviser association shall notify the person of, and 

2 give such person an opportunity to be heard on, the 

3 specific grounds for denial, bar, prohibition, or limi4 tation under consideration, and keep a record. A de5 termination by the national investment adviser asso6 ciation to deny membership, bar a person from be7 coming associated with a member, or prohibit or 

8 limit a person with respect to access to services of9 fered by the national investment adviser association 

10 shall be supported by a statement setting forth the 

11 specific grounds on which the denial, bar, prohibi12 tion, or limitation is based. 

13 ‘‘(3) SUMMARY SUSPENSION AND SUBSEQUENT

14 PROCEDURES.—A national investment adviser asso15 ciation may summarily— 

16 ‘‘(A) suspend a member or person associ17 ated with a member who has been and is ex18 pelled or suspended from any self-regulatory or19 ganization or barred or suspended from being 

20 associated with a member of any self-regulatory 

21 organization; 

22 ‘‘(B) suspend a member who is in such fi23 nancial or operating difficulty that the national 

24 investment adviser association determines and 

25 so notifies the Commission that the member 


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1 cannot be permitted to continue to do business 

2 as a member and serve the interest of investors, 

3 creditors, other members, or the national in4 vestment adviser association; or 

5 ‘‘(C) limit or prohibit any person with re6 spect to access to services offered by the na7 tional investment adviser association if subpara8 graph (A) or (B) is applicable to such person 

9 or, in the case of a person who is not a mem10 ber, if the national investment adviser associa11 tion determines that such person does not meet 

12 the qualification requirements or other pre13 requisites for such access and such person can14 not be permitted to continue to have such ac15 cess and serve the interest of investors, credi16 tors, members, or the national investment ad17 viser association. Any person aggrieved by any 

18 such summary action shall be promptly afforded 

19 an opportunity for a hearing by the national in20 vestment adviser association in accordance with 

21 the provisions of paragraph (1) or (2). The 

22 Commission, by order, may stay any such sum23 mary action on its own motion or upon applica24 tion by any person aggrieved thereby, if the 

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1 tice and opportunity for hearing (which hearing 

2 may consist solely of the submission of affida3 vits or presentation of oral arguments) that 

4 such stay is consistent with the public interest 

5 and the protection of investors. 

6 ‘‘(d) FINAL DISCIPLINARY SANCTION.— 

7 ‘‘(1) NOTICE.—If any national investment ad8 viser association imposes any final disciplinary sanc9 tion on any member, denies membership to any ap10 plicant, or prohibits or limits any person in respect 

11 to access to services offered by the national invest12 ment adviser association, or if any national invest13 ment adviser association imposes any final discipli14 nary sanction on any person associated with a mem15 ber, or bars any person from becoming associated 

16 with a member, the national investment adviser as17 sociation shall promptly file notice thereof with the 

18 Commission and publish the notice. The notice shall 

19 be in such form and contain such information as the 

20 Commission, by rule, may prescribe as necessary or 

21 appropriate in furtherance of the purposes of this 

22 title. 

23 ‘‘(2) REVIEW.—Any action with respect to 

24 which a national investment adviser association is 

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1 ject to review by the Commission, on its own motion, 

2 or upon application by any person aggrieved thereby 

3 filed within 30 days after the date such notice was 

4 both filed with the Commission and received by such 

5 aggrieved person, or within such longer period as the 

6 Commission may determine. Application to the Com7 mission for review, or the institution of review by the 

8 Commission on its own motion, shall not operate as 

9 a stay of the action unless the Commission otherwise 

10 orders, summarily or after notice and opportunity 

11 for hearing on the question of a stay (which hearing 

12 may consist solely of the submission of affidavits or 

13 presentation of oral arguments). The Commission 

14 may establish for appropriate cases an expedited 

15 procedure for consideration and determination of the 

16 question of a stay. 

17 ‘‘(e) REVIEW OF FINAL SANCTION.— 

18 ‘‘(1) IN GENERAL.—In any proceeding to review 

19 a final disciplinary sanction imposed by a national 

20 investment adviser association on a member or a 

21 person associated with a member, after notice and 

22 opportunity for hearing (which hearing may consist 

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1 tunity for the presentation of supporting reasons to 

2 affirm, modify, or set aside the sanction)— 

3 ‘‘(A) if the Commission finds that such 

4 member or person associated with a member 

5 has engaged in such acts or practices, or has 

6 omitted such acts, as the national investment 

7 adviser association has found him or her to 

8 have engaged in or omitted that such acts or 

9 practices, or omissions to act, are in violation of 

10 such provisions of this title, the rules or regula11 tions thereunder, or the rules of the association, 

12 as have been specified in the determination of 

13 the national investment adviser association, and 

14 that such provisions are, and were applied in a 

15 manner, consistent with the purposes of this 

16 title, the Commission, by order, shall so declare 

17 and, as appropriate, affirm the sanction im18 posed by the national investment adviser asso19 ciation, modify the sanction in accordance with 

20 paragraph (2), or remand to the national in21 vestment adviser association for further pro22 ceedings; or 

23 ‘‘(B) if the Commission does not make any 

24 such finding it shall, by order, set aside the 

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1 viser association and, if consistent with the pur2 poses of this title, remand to the national in3 vestment adviser association for further pro4 ceedings. 

5 ‘‘(2) REDUCTION OR REVOCATION OF SANC6 TION.—If the Commission, having due regard for 

7 the public interest, the protection of investors, and 

8 the policies and purposes of this title, finds after a 

9 proceeding in accordance with paragraph (1) that a 

10 sanction imposed by a national investment adviser 

11 association on a member or person associated with 

12 a member imposes any burden on competition not 

13 necessary or appropriate in furtherance of the pur14 poses of this title or is excessive or oppressive, the 

15 Commission may cancel, reduce, or require the rev16 ocation of such sanction. 

17 ‘‘(f) REVIEW OF DENIAL OF MEMBERSHIP.—In any 

18 proceeding to review the denial of membership in a na19 tional investment adviser association to any applicant, the 

20 barring of any person from becoming associated with a 

21 member, or the prohibition or limitation by a national in22 vestment adviser association of any person with respect 

23 to access to services offered by the national investment 

24 adviser association— 


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1 ‘‘(1) if the Commission, after notice and oppor2 tunity for hearing (which hearing may consist solely 

3 of consideration of the record before the national in4 vestment adviser association and opportunity for the 

5 presentation of supporting reasons to dismiss the 

6 proceeding or set aside the action of the national in7 vestment adviser association) finds that the specific 

8 grounds on which the denial, bar, prohibition or lim9 itation is based exist in fact, that the denial, bar, 

10 prohibition, or limitation is in accordance with the 

11 rules of the association, and that the rules are and 

12 were applied in a manner consistent with the pur13 poses of this title, the Commission, by order, shall 

14 dismiss the proceeding; or 

15 ‘‘(2) if the Commission does not make any such 

16 finding or it finds that the denial, bar, prohibition 

17 or limitation imposes any burden on competition not 

18 necessary or appropriate in furtherance of the pur19 poses of this title, the Commission, by order, shall 

20 set aside the action of the national investment ad21 viser association and require it to admit the appli22 cant to membership or participation, permit the per23 son to become associated with a member, or grant 

24 the person access to services offered by the national 

25 investment adviser association. 


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1 ‘‘(g) COMPLIANCE.— 

2 ‘‘(1) IN GENERAL.—Every registered national 

3 investment adviser association shall comply with the 

4 provisions of this title, the rules and regulations 

5 thereunder, and its own rules, and (subject to the 

6 provisions of paragraph (2) and the rules there7 under) absent reasonable justification or excuse, en8 force compliance with such provisions by its mem9 bers and persons associated with a member. The 

10 Commission shall conduct regular and routine in11 spections, at least annually, of the registered na12 tional investment adviser association, to ensure that 

13 the association complies with the provisions of this 

14 title and the rules and regulations thereunder. 

15 ‘‘(2) RELIEF OF RESPONSIBILITY.—The Com16 mission, by rule, consistent with the public interest 

17 and the protection of investors, and the other poli18 cies and purposes of this title, may relieve any na19 tional investment adviser association of any respon20 sibility under this title to enforce compliance with 

21 any provision of this title or the rules or regulations 

22 thereunder by any member of the national invest23 ment adviser association or any class of such mem24 bers or persons associated with a member. 


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1 ‘‘(h) ENFORCEMENT AUTHORITY OF THE COMMIS2 SION.— 

3 ‘‘(1) SUSPENSION, CENSURE AND LIMITATION

4 ON ASSOCIATIONS.—If in its opinion such action is 

5 necessary or appropriate in the public interest, for 

6 the protection of investors, or otherwise in further7 ance of the purposes of this title, the Commission 

8 may, by order, suspend for a period not exceeding 

9 12 months or revoke the registration of a national 

10 investment adviser association, or to censure or im11 pose limitations upon the activities, functions, and 

12 operations of the national investment adviser asso13 ciation, if the Commission finds, on the record after 

14 notice and opportunity for hearing, that the national 

15 investment adviser association has violated or is un16 able to comply with any provision of this title, the 

17 rules or regulations thereunder, or its own rules, or 

18 without reasonable justification or excuse has failed 

19 to enforce compliance with any such provision by a 

20 member or a person associated with a member. 

21 ‘‘(2) SUSPENSION AND EXPULSION OF MEM22 BERS.—If in its opinion such action is necessary or 

23 appropriate in the public interest, for the protection 

24 of investors, or otherwise in furtherance of the pur25 poses of this title, the Commission may, by order, 


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•HR 4624 IH

1 suspend for a period not exceeding 12 months or 

2 expel from a national investment adviser association 

3 any member, if the member is subject to an order 

4 of the Commission pursuant to section 203(e) or if 

5 the Commission finds, on the record after notice and 

6 opportunity for hearing, that the member has will7 fully violated, or has participated in any transaction 

8 with or for any other person who the member had 

9 reason to believe was violating with respect to such 

10 transaction, any provision of the Securities Act of 

11 1933, the Securities Exchange Act of 1934, the In12 vestment Company Act of 1940, this title, the Com13 modity Exchange Act, or the rules or regulations 

14 under any of such statutes, or the rules of the Mu15 nicipal Securities Rulemaking Board. 

16 ‘‘(3) OTHER BARS.—If in its opinion, such ac17 tion is necessary or appropriate in the public inter18 est, for the protection of investors, or otherwise in 

19 furtherance of the purposes of this title, the Com20 mission may, by order, suspend for a period not ex21 ceeding 12 months or bar any person from being as22 sociated with a member of a national investment ad23 viser association, if the person is subject to an order 

24 of the Commission under section 203(f) or if the 

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1 portunity for hearing, that the person has willfully 

2 violated, or has participated in any transaction with 

3 any other person who the person associated with a 

4 member had reason to believe was violating with re5 spect to the transaction, any provision of the Securi6 ties Act of 1933, the Securities Exchange Act of 

7 1934, the Investment Company Act of 1940, this 

8 title, or the rules or regulations under any of those 

9 statutes, or the rules of the Municipal Securities 

10 Rulemaking Board. 

11 ‘‘(4) REMOVAL OR CENSURE OF OFFICERS AND

12 DIRECTORS.—If in its opinion such action is nec13 essary or appropriate in the public interest, for the 

14 protection of investors, or otherwise in furtherance 

15 of the purposes of this title, the Commission may, by 

16 order, remove from office or censure any officer, di17 rector or any person performing similar functions of 

18 a national investment adviser association, if the 

19 Commission finds, on the record after notice and op20 portunity for hearing, that such person has willfully 

21 violated any provision of this title, the rules or regu22 lations thereunder, or the rules of the national in23 vestment adviser association, willfully abused his au24 thority, or without reasonable justification or excuse 

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1 sion by any member or person associated with a 

2 member.’’. 

Æ 


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