I

107TH CONGRESS

1ST SESSION H. R. 1408

To safeguard the public from fraud in the financial services industry, to

streamline and facilitate the antifraud information-sharing efforts of Federal and State regulators, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

APRIL 4, 2001

Mr. ROGERS of Michigan (for himself, Mr. OXLEY, Mrs. KELLY, Mr. BACHUS,

and Mr. TIBERI) introduced the following bill; which was referred to the

Committee on Financial Services, and in addition to the Committees on

the Judiciary, and Agriculture, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions

as fall within the jurisdiction of the committee concerned

A BILL

To safeguard the public from fraud in the financial services

industry, to streamline and facilitate the antifraud information-sharing efforts of Federal and State regulators,

and for other purposes.

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; TABLE OF CONTENTS.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Financial Services Antifraud Network Act of 2001’’.
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1 (b) TABLE OF CONTENTS.—The table of contents of

2 this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Purposes.

TITLE I—ANTIFRAUD SUBCOMMITTEE

Sec. 101. Establishment.

Sec. 102. Duties of the Subcommittee.

Sec. 103. Chairperson; term of chairperson; meetings; officers and staff.

Sec. 104. Purposes of the Subcommittee.

Sec. 105. Powers of the Subcommittee.

Sec. 106. Agreement on cost structure.

Sec. 107. Agency supervisory privilege.

Sec. 108. Confidentiality of information.

Sec. 109. Liability provisions.

Sec. 110. Authorization for identification and criminal background check.

Sec. 111. Definitions.

Sec. 112. Technical and conforming amendments to other Acts.

TITLE II—SECURITIES INDUSTRY COORDINATION

Subtitle A—Disciplinary Information

Sec. 201. Investment Advisers Act of 1940.

Sec. 202. Securities Exchange Act of 1934.

Subtitle B—Preventing Migration of Rogue Financial Professionals to the

Securities Industry

Sec. 211. Securities Exchange Act of 1934.

Sec. 212. Investment Advisers Act of 1940.

3 SEC. 2. PURPOSES.

4 The purposes of this Act are—

5 (1) to safeguard the public from fraud in the fi6 nancial services industry;

7 (2) to streamline the antifraud coordination ef8 forts of Federal and State regulators and prevent

9 failure to communicate essential information;

10 (3) to reduce duplicative information requests

11 by, and other inefficiencies of, financial services reg12 ulation;
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1 (4) to assist financial regulators in detecting

2 patterns of fraud, particularly patterns that only be3 come apparent when viewed across the full spectrum

4 of the financial services industry; and

5 (5) to take advantage of Internet technology

6 and other advanced data-sharing technology to mod7 ernize the fight against fraud in all of its evolving

8 manifestations and permutations.

9 TITLE I—ANTIFRAUD

10 SUBCOMMITTEE

11 SEC. 101. ESTABLISHMENT.

12 (a) IN GENERAL.—There shall be within the Presi13 dent’s Working Group on Financial Markets (as estab14 lished by Executive Order Numbered 12631) a sub15 committee to be known as the ‘Antifraud Subcommittee’

16 (hereafter in this title referred to as the ‘Subcommittee’)

17 which shall consist of the following members:

18 ‘‘(1) The Secretary of the Treasury, or a des19 ignee of the Secretary.

20 ‘‘(2) The Chairman of the Securities and Ex21 change Commission or a designee of the Chairman.

22 ‘‘(3) A State insurance commissioner des23 ignated by the National Association of Insurance

24 Commissioners, or a designee of such commissioner.
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1 (b) FINANCIAL LIAISONS.—The following shall serve

2 as liaisons between the Subcommittee and the agencies

3 represented by each such liaison:

4 (1) A representative of each Federal banking

5 agency appointed by the head of each such agency.

6 (2) A representative of the Commodity Futures

7 Trading Commission appointed by the Commodity

8 Futures Trading Commission.

9 (3) A representative of the National Credit

10 Union Administration appointed by the National

11 Credit Union Administration Board.

12 (4) A representative of the Farm Credit Admin13 istration, appointed by the Farm Credit Administra14 tion Board.

15 (5) A representative of the Federal Housing Fi16 nance Board, appointed by such Board.

17 (6) A representative of the Office of Federal

18 Housing Enterprise Oversight of the Department of

19 Housing and Urban Development appointed by the

20 Director of such Office.

21 (7) A representative of State bank supervisors

22 designated by the Conference of State Bank Super23 visors.
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1 (8) A representative of State credit union su2 pervisors designated by the National Association of

3 State Credit Union Supervisors.

4 (9) A representative of State securities adminis5 trators designated by the North American Securities

6 Administrators Association.

7 (10) A representative of State insurance com8 missioners designated by the National Association of

9 Insurance Commissioners.

10 (11) A representative of the National Associa11 tion of Securities Dealers appointed by the National

12 Association of Securities Dealers.

13 (12) A representative of the National Futures

14 Association appointed by the National Futures Asso15 ciation.

16 (13) Any other financial liaison as the Sub17 committee may provide to represent any other finan18 cial regulator, including self-regulatory agencies or

19 organizations that maintain significant databases on

20 persons engaged in the business of conducting finan21 cial activities, designated in the manner provided by

22 the Subcommittee.

23 (c) OTHER LIAISONS.—The following shall serve as

24 liaisons between the Subcommittee and the agencies rep25 resented by each such liaison:
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1 (1) A representative of the Department of Jus2 tice appointed by the Attorney General.

3 (2) A representative of the Federal Bureau of

4 Investigation appointed by the Director of such Bu5 reau.

6 (3) A representative of the United States Secret

7 Service appointed by the Director of such Service.

8 (4) Any other liaison as the Subcommittee may

9 provide to represent any other regulator, including

10 self-regulatory agencies or organizations that main11 tain significant databases on persons engaged in the

12 business of conducting financial activities, des13 ignated in the manner provided by the Sub14 committee.

15 (d) VACANCY.—If, for any reason, the position of any

16 member of or liaison to the Subcommittee is not filled

17 within a reasonable period of time after being created or

18 becoming vacant, the President shall appoint a person to

19 fill the position after consulting the agency or entity to

20 be represented by such member or liaison, and to the ex21 tent possible, shall appoint such person from a list of pos22 sible representatives submitted by such agency or entity.

23 (e) REORGANIZATION AUTHORITY.—If the President

24 disbands the Working Group referred to in subsection (a),

25 the President shall provide for the reorganization of the
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1 Subcommittee in such manner as the President determines

2 to be appropriate.

3 SEC. 102. DUTIES OF THE SUBCOMMITTEE.

4 (a) IN GENERAL.—The duties of the Subcommittee

5 are as follows:

6 (1) To coordinate access by the participants to

7 antifraud databases of various regulators, by facili8 tating the establishment, maintenance, and use of a

9 computer network of existing antifraud information

10 maintained by such regulators with respect to per11 sons engaged in the business of conducting financial

12 activities.

13 (2) Coordinate access by each participating reg14 ulator to such computer network in a manner that

15 allows the regulator to review, at a minimal cost, ex16 isting information in the databases of other regu17 lators, as a part of licensure, change of control, or

18 investigation, of any person engaged in the business

19 of conducting financial activities.

20 (3) Coordinate information-sharing, where ap21 propriate, among State, Federal, and international

22 financial regulators and law enforcement agencies

23 where sufficient privacy and confidentiality safe24 guards exist.
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1 (4) Coordinate development by participants of a

2 name-relationship index for persons engaged in the

3 business of conducting financial activities using ex4 isting information from the databases of regulators.

5 (5) Advise regulators in updating their anti6 fraud databases to better coordinate with the com7 puter network.

8 (6) Consider establishing a tracking and record9 keeping procedure that allows a record of the inquir10 ies made through the network and the information

11 transferred through the network by one regulator to

12 another to be maintained, in such manner as the

13 Subcommittee considers to be appropriate.

14 (7) After the end of each year, transmit to the

15 Congress a summary of the coordination efforts un16 dertaken by the Subcommittee during the preceding

17 year and a description of any impediments to or rec18 ommended legislation for facilitating such efforts.

19 (b) CRITERIA FOR NETWORK WITH RESPECT TO

20 ANY PERSON ENGAGED IN THE BUSINESS OF CON21 DUCTING FINANCIAL ACTIVITIES.—

22 (1) FINAL DISCIPLINARY AND FORMAL EN23 FORCEMENT ACTIONS.—Each regulator that is rep24 resented by a member of the Subcommittee under

25 section 101(a) or by a financial liaison to the Sub-
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1 committee under section 101(b) shall allow any par2 ticipant access, through the network, to any public

3 final disciplinary or formal enforcement action by

4 the member or financial liaison which is accessible

5 electronically relating to fraudulent, wrongful, or

6 dishonest conduct of persons engaged in the business

7 of conducting financial activities.

8 (2) OTHER INFORMATION.—Subject to such

9 limitations and criteria that may be established by

10 any participant in accordance with subsection (c) re11 garding the access to information maintained by

12 such participant and the requirements of subsection

13 (d), each participant may permit access through the

14 network to the following information as it relates to

15 persons engaged in the business of conducting finan16 cial activities:

17 (A) To the extent the regulator determines

18 the disclosure to be appropriate and cost-effec19 tive, information concerning—

20 (i) the registrations, licenses, ap21 proved applications, or notices that have

22 been granted or approved by, or are other23 wise within the regulatory jurisdiction of,

24 the participant and are in effect with re-
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1 spect to any person engaged in the busi2 ness of conducting financial activities; and

3 (ii) any significant affiliations or

4 name-relationships of such person on

5 which the participant maintains records.

6 (B) To the extent the regulator determines

7 the disclosure to be appropriate, information

8 concerning investigations conducted by the par9 ticipant, such as the issuance of a notice of

10 charges or on-going investigations after notice

11 has been provided to the subject of the inves12 tigation, public notice has been given, or some

13 public action has been taken in connection with

14 the investigation.

15 (C) To the extent the participant deter16 mines the disclosure to be appropriate, con17 sumer complaints relating to fraudulent activi18 ties or matters within the jurisdiction of the re19 questing member or liaison.

20 (D) To the extent the appropriate Federal

21 banking agency and the Secretary of the Treas22 ury may determine the disclosure to be appro23 priate, suspicious activity reports filed in ac24 cordance with section 5318(g) of title 31,

25 United States Code, and regulations prescribed
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1 by the Secretary under such section, or pursu2 ant to regulations prescribed by the appropriate

3 Federal banking agency, particularly where

4 such reports reference persons engaged in the

5 business of conducting financial activities other

6 than a depository institution or an institution7 affiliated party (as defined in section 3 of the

8 Federal Deposit Insurance Act).

9 (E) To the extent the appropriate State in10 surance commissioner determines the disclosure

11 to be appropriate, special activity reports from

12 any State insurance commissioner, including

13 the National Association of Insurance Commis14 sioners only to the extent such association is

15 acting as the agent of, and is subject to the

16 oversight of, such insurance commissioner.

17 (F) Any other regulatory or supervisory in18 formation that any participant may determine

19 to be appropriate to provide access to through

20 the network, including financial records or ex21 amination reports.

22 (3) USE OF CENTRALIZED DATABASES.—

23 (A) IN GENERAL.—A member or financial

24 liaison shall be deemed to have met the require25 ments of paragraph (1) if the Subcommittee de-
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1 termines that the participants have access to a

2 centralized database that contains information

3 on public final disciplinary or formal enforce4 ment actions sufficiently similar to that de5 scribed in paragraph (1).

6 (B) FACTORS FOR DETERMINATION.—The

7 Subcommittee shall make the determination

8 under subparagraph (A) on an ongoing basis,

9 considering both short-term costs and techno10 logical limitations, as well as the need for long11 term comprehensive coverage, and other appro12 priate factors.

13 (C) STATE SUPERVISORS.—It is the sense

14 of the Congress that the National Association

15 of Insurance Commissioners, the Conference of

16 State Bank Supervisors, the National Associa17 tion of State Credit Union Supervisors, and the

18 North American Securities Administrators As19 sociation should develop model guidelines for

20 their respective regulated financial industries,

21 where appropriate, to promote uniform stand22 ards for sharing information with the network

23 under this section.

24 (c) FINANCIAL REGULATOR CONTROL OF ACCESS.—
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1 (1) IN GENERAL.—Except as provided in para2 graph (4), each participant that allows access to its

3 databases by other participants through the network

4 may establish parameters for controlling or limiting

5 such access, including the regulation of—

6 (A) the type or category of information

7 that may be accessed by other participants and

8 the extent to which any such type or category

9 of information may be accessed;

10 (B) the participants that may have access

11 to the database or any specific type or category

12 of information in the database; and

13 (C) The disclosure by any other participant

14 of any type or category of information that may

15 be accessed by the participant.

16 (2) PROCEDURES.—Any action by a participant

17 under paragraph (1) may be established by regula18 tions, orders, or guidelines or on a case-by-case

19 basis.

20 (3) DISCLAIMER.—

21 (A) IN GENERAL.—The Subcommittee and

22 a participant shall ensure that any transfer of

23 information under this section, other than in24 formation described in subsection (b)(1), from

25 such participant to another participant be sub-
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1 ject to a disclaimer that the information

2 accessed may be unsubstantiated and may not

3 be relied on as the sole basis for denying any

4 application or license.

5 (B) SUBCOMMITTEE FLEXIBILITY.—The

6 Subcommittee may prescribe such guidelines or

7 procedures as the Subcommittee determines to

8 be appropriate governing the location and fre9 quency of disclaimers under this paragraph and

10 the manner in which any such disclaimer shall

11 be made.

12 (4) FINAL DISCIPLINARY AND FORMAL EN13 FORCEMENT ACTIONS NOT SUBJECT TO LIMITA14 TION.—This subsection, and standards or proce15 dures adopted by any participant under this sub16 section, shall not apply with respect to information

17 described in subsection (b)(1).

18 (5) NO EFFECT ON PUBLIC OR COMPANY AC19 CESS.—It is the sense of the Congress that it is not

20 the intent of this section to replace, supersede, or

21 otherwise affect access to any databases existing on

22 the date of the enactment of this Act which are ac23 cessible by the public or persons engaged in the

24 business of conducting financial activities.
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1 (d) ELIGIBILITY REQUIREMENTS FOR STATE SECU2 RITIES ADMINISTRATORS.—No State securities adminis3 trator shall be eligible to be a participant and access the

4 network maintained by the Subcommittee unless—

5 (1) such State securities administrator partici6 pates in a centralized database for broker-dealers,

7 broker-dealer agents, investment advisers, and in8 vestment advisor representatives, registered or re9 quired to be registered, as designated by the North

10 American Securities Administrators Association; and

11 (2) such State securities administrator requires

12 the broker-dealer, broker-dealer agent, investment

13 adviser, or investment adviser representative, cur14 rently registered or required to be registered, to file

15 any application, amendment to an application, or a

16 renewal of an application through the centralized

17 registration database.

18 (e) ELIGIBILITY REQUIREMENTS FOR STATE INSUR19 ANCE COMMISSIONERS.—

20 (1) IN GENERAL.—No State insurance commis21 sioner shall be eligible to access the network main22 tained by the Subcommittee unless—

23 (A) such State insurance commissioner

24 participates with other State insurance commis25 sioners in a centralized database that, with re-
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1 spect to persons engaged in the business of in2 surance, address—

3 (i) disciplinary actions taken against

4 persons engaged in the business of insur5 ance;

6 (ii) suspicious activities or ongoing in7 vestigations of persons engaged in the

8 business of insurance;

9 (iii) consumer complaints concerning

10 a person engaged in the business of insur11 ance; and

12 (iv) corporate and other business af13 filiations or relationships; and

14 (B) the State insurance department which

15 such commissioner represents meets one of the

16 following accreditation requirements at the time

17 of access to the network:

18 (i) Is accredited by the National Asso19 ciation of Insurance Commissioners.

20 (ii) Has an application for accredited

21 status pending with the National Associa22 tion of Insurance Commissioners.

23 (iii) Has a determination by the Sub24 committee in effect that such State insur25 ance department meets or exceeds the
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1 standards established by the National As2 sociation of Insurance Commissioners for

3 accreditation.

4 (2) QUALIFICATION OF NAIC NETWORKS.—A

5 State insurance commissioner shall be deemed to

6 have met the requirements of paragraph (1)(A) if

7 the commissioner participates in—

8 (A) the following networks maintained by

9 the National Association of Insurance Commis10 sioners:

11 (i) Producer Database.

12 (ii) Regulatory Information Retrieval

13 System.

14 (iii) Special Activities Database.

15 (iv) Complaints Database; or

16 (B) each network or database designated

17 by the National Association of Insurance Com18 missioners as a successor to any network de19 scribed in subparagraph (A).

20 (f) SUBCOMMITTEE STANDARDS.—The Sub21 committee shall consider developing policies or guidelines

22 for participants setting forth—

23 (1) how to denote which types of information

24 are to receive different levels of privileges or con25 fidential treatment; and
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1 (2) how entities or associations that act as

2 agents for financial regulators should denote such

3 agency status when acting in that capacity.

4 (g) DEADLINE FOR ESTABLISHING NETWORK.—The

5 computer network which is required under subsection

6 (a)(1) shall be established before the end of the 2-year

7 period beginning on the date of the enactment of the Fi8 nancial Services Antifraud Network Act of 2001 or such

9 other time as the Subcommittee may determine to be ap10 propriate.

11 (h) OTHER SHARING ARRANGEMENTS NOT AF12 FECTED.—No provision of this section shall be construed

13 as limiting or otherwise affecting the authority of a partic14 ipant to provide any person, including another participant,

15 access to any information in accordance with any provision

16 of law other than this Act.

17 SEC. 103. CHAIRPERSON; TERM OF CHAIRPERSON; MEET18 INGS; OFFICERS AND STAFF.

19 (a) CHAIRPERSON.—

20 (1) SELECTION.—The Subcommittee shall se21 lect the Chairperson of the Subcommittee from

22 among the members of the Subcommittee.

23 (2) TERM.—The term of the Chairperson shall

24 be 2 years.
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1 (b) MEETINGS.—The Subcommittee shall meet at the

2 call of the Chairperson or a majority of the members when

3 there is business to be conducted.

4 (c) QUORUM.—A majority of members of the Sub5 committee shall constitute a quorum.

6 (d) MAJORITY VOTE.—Decisions of the Sub7 committee shall be made by the vote of a majority of the

8 members of the Subcommittee.

9 (e) OFFICERS AND STAFF.—The Chairperson of the

10 Subcommittee shall appoint such officers and staff as may

11 be necessary to carry out the functions of this title.

12 SEC. 104. PURPOSES OF THE SUBCOMMITTEE.

13 The purposes of the Subcommittee shall include the

14 purposes of this Act and the promotion of greater cross15 industry efficiency, effectiveness, and coordination, in gen16 eral, across all sectors of our Nation’s financial markets.

17 SEC. 105. POWERS OF THE SUBCOMMITTEE.

18 (a) IN GENERAL.—The Subcommittee shall have

19 such powers as are necessary to carry out the duties and

20 functions under this section.

21 (b) INFORMATION TO FACILITATE COORDINATION.—

22 Each agency and entity represented by a member or liai23 son shall, to the extent permitted by law, provide the Sub24 committee such information, concerning the databases

25 maintained by the agency or entity, as the Subcommittee
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1 may require to perform the duties described in section

2 102(a).

3 (c) SERVICE OF MEMBERS AND LIAISONS.—Members

4 of and liaisons to the Subcommittee shall serve without

5 additional compensation for their work on the Sub6 committee.

7 (d) ADMINISTRATIVE AND TECHNICAL SUPPORT.—

8 The Subcommittee may request that any agency or entity

9 represented by a member or liaison provide the Sub10 committee with any administrative, technical, or other

11 support service that the Subcommittee determines is nec12 essary or appropriate for it to perform the duties described

13 in section 102(a).

14 SEC. 106. AGREEMENT ON COST STRUCTURE.

15 (a) IN GENERAL.—The Subcommittee shall deter16 mine the means for providing for the necessary costs of

17 carrying out the purposes of this title.

18 (b) CONSULTATION AND AGREEMENT ON FEES AND

19 CONTRIBUTIONS.—Notwithstanding any other provision

20 of this title, the Subcommittee may not impose any fee

21 or assessment on, or apportion any contribution against,

22 any member or liaison under this section in connection

23 with allowing such member or liaison access through the

24 network unless—
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1 (1) the Subcommittee consults with such mem2 ber or liaison; and

3 (2) the member or liaison consents to the

4 amounts, or on a schedule, of such fees, assess5 ments, or contributions.

6 (c) REIMBURSEMENT OF PARTICIPANT COSTS.—Be7 fore allowing access by the Subcommittee or a participant

8 to any information described in section 102, other than

9 access described in subsection (b)(1) of such section, a

10 member or liaison may request the reimbursement of rea11 sonable costs for providing such access.

12 (d) REVIEW OF OPTIMAL NETWORKING METHODS.—

13 Before the end of the 120-day period beginning on the

14 date of the enactment of this Act, the Comptroller General

15 shall submit a report to the Committee on Financial Serv16 ices of the House of Representatives and the Committee

17 on Banking, Housing, and Urban Affairs of the Senate

18 regarding the most efficient and cost-effective methods for

19 the Subcommittee to fulfill its duties under this title.

20 SEC. 107. AGENCY SUPERVISORY PRIVILEGE.

21 (a) DEFINITIONS.—For purposes of this section, the

22 following definitions shall apply:

23 (1) SUPERVISORY PROCESS.—The term ‘super24 visory process’ means any activity engaged in by a

25 financial regulator to carry out the official respon-
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1 sibilities of the financial regulator with regard to the

2 regulation or supervision of persons engaged in the

3 business of conducting financial activities.

4 (2) CONFIDENTIAL SUPERVISORY INFORMA5 TION.—Subject to paragraph (3), the term ‘con6 fidential supervisory information’ means any of the

7 following information, or any portion of any such in8 formation, which is treated as, or considered to be,

9 confidential information by a financial regulator, re10 gardless of the form or format in which the informa11 tion is created, conveyed, or maintained:

12 (A) Any report of examination, inspection,

13 visitation, or investigation, and information pre14 pared or collected by the financial regulator in

15 connection with the supervisory process, includ16 ing any computer file, work paper, or similar

17 information.

18 (B) Any correspondence or communication

19 from a financial regulator to a person engaged

20 in the business of conducting financial activities

21 relating to an examination, inspection, visita22 tion, or investigation by a financial regulator.

23 (C) Any correspondence, communication,

24 or document, including any compliance and

25 other reports, created by or on behalf of a per-
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1 son engaged in the business of conducting fi2 nancial activities in response to any request, in3 quiry, or directive from a financial regulator in

4 connection with any examination, inspection,

5 visitation, or investigation and provided to a fi6 nancial regulator.

7 (D) Any record of a financial regulator to

8 the extent it contains information derived from

9 any report, correspondence, communication or

10 other information described in subparagraph

11 (A), (B), or (C).

12 (3) ORDINARY BUSINESS RECORDS EX13 CLUDED.—The term ‘confidential supervisory infor14 mation’ shall not include—

15 (A) any book or record in the possession of

16 the person engaged in the business of con17 ducting financial activities that is routinely pre18 pared by or on behalf of such person and main19 tained in the ordinary course of business; or

20 (B) any information required to be made

21 publicly available—

22 (i) by any applicable Federal law or

23 regulation; or

24 (ii) in the case of confidential super25 visory information of a State financial reg-
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1 ulator, any applicable State law or regula2 tion that specifically refers to such type of

3 information.

4 (b) FINANCIAL REGULATOR SUPERVISORY PRIVI5 LEGE.—

6 (1) PRIVILEGE ESTABLISHED.—

7 (A) IN GENERAL.—All confidential super8 visory information shall be the property of the

9 financial regulator that created the information,

10 or requested the information from a person en11 gaged in the business of conducting financial

12 activities, and shall be privileged from disclo13 sure to any other person.

14 (B) PROHIBITION ON UNAUTHORIZED DIS15 CLOSURES.—No person in possession of con16 fidential supervisory information may disclose

17 such information, in whole or in part, without

18 the prior authorization of the financial regu19 lator that created the information, or requested

20 the information from a person engaged in the

21 business of conducting financial activities, ex22 cept for a disclosure made in published statis23 tical material that does not disclose, either di24 rectly or when used in conjunction with publicly

25 available information, the affairs of any person.
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1 (C) AGENCY WAIVER.—The financial regu2 lator described in subparagraph (A) may waive,

3 in whole or in part, in the discretion of the reg4 ulator, any privilege established under this

5 paragraph.

6 (2) EXCEPTIONS.—

7 (A) IN GENERAL.—No provision of para8 graph (1) shall be construed as preventing ac9 cess to confidential supervisory information by

10 duly authorized committees of the United

11 States Congress or the Comptroller General of

12 the United States.

13 (B) AGENCY OVERSIGHT.—No financial

14 regulator which is subject to the oversight of a

15 Federal agency may assert the privilege de16 scribed in paragraph (1) to prevent access to

17 confidential supervisory information by such

18 Federal agency.

19 (c) TREATMENT OF FOREIGN SUPERVISORY INFOR20 MATION.—In any proceeding before a Federal or State

21 court of the United States, in which a person seeks to

22 compel production or disclosure by a foreign financial reg23 ulator with network access in accordance with section

24 102(a)(3), any other financial regulator, or any other per25 son, of information or a document prepared or collected
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1 by a foreign financial regulator that would, had they been

2 prepared or collected by a Federal financial regulator, be

3 confidential supervisory information for purposes of this

4 section, the information or document shall be privileged

5 to the same extent that the information and documents

6 of Federal financial regulators are privileged under this

7 title.

8 (d) OTHER PRIVILEGES NOT WAIVED BY DISCLO9 SURE TO FINANCIAL REGULATOR.—The submission by a

10 person engaged in the business of conducting financial ac11 tivities of any information to a Federal financial regulator,

12 a State financial regulator, or a foreign financial regulator

13 described in subsection (c) for any purpose in the course

14 of the supervisory process of such financial regulator shall

15 not waive, destroy, or otherwise affect any privilege such

16 person may claim with respect to such information under

17 Federal or State law.

18 (e) DISCOVERY AND DISCLOSURE OF INFORMA19 TION.—

20 (1) INFORMATION AVAILABLE ONLY FROM FI21 NANCIAL REGULATOR.—

22 (A) IN GENERAL.—No person or financial

23 regulator may disclose, in whole or in part, any

24 confidential supervisory information to any per25 son who seeks such information through sub-
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1 poena, discovery procedures, or other process

2 from any such person or regulator, except that

3 such information may be sought in accordance

4 with this section from the financial regulator

5 that created the information or requested the

6 information from a person engaged in the busi7 ness of conducting financial activity.

8 (B) PROCEDURE FOR REQUESTS SUB9 MITTED TO FINANCIAL REGULATOR.—Any re10 quest for discovery or disclosure of confidential

11 supervisory information shall be made to the fi12 nancial regulator that created the information,

13 or requested the information from a person en14 gaged in the business of conducting financial

15 activities, which shall determine within a rea16 sonable time period whether to disclose such in17 formation pursuant to procedures and criteria

18 established by the financial regulator.

19 (C) NOTIFICATION.—

20 (i) IN GENERAL.—Before any finan21 cial regulator releases information that was

22 requested from a person engaged in the

23 business of conducting financial activities

24 to a person under subparagraph (B), no25 tice and a reasonable time for comment
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1 shall be provided to the person from whom

2 such information was requested unless

3 such information—

4 (I) is being provided to another

5 financial regulator, liaison, or Federal

6 or State government (or any agency

7 or instrumentality of any such govern8 ment);

9 (II) is being sought for use in a

10 criminal proceeding or investigation or

11 a regulatory or supervisory enforce12 ment or disciplinary action or inves13 tigation; or

14 (III) was originally created, or

15 included in information created, by

16 the financial regulator.

17 (ii) PROCEDURES AND REQUIRE18 MENTS.—The notice and time period re19 quired by clause (i) shall be in accordance

20 with the procedures and requirements that

21 the financial regulator releasing the infor22 mation may establish by regulation or oth23 erwise.

24 (2) FEDERAL COURT JURISDICTION OVER DIS25 PUTES.—
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1 (A) IN GENERAL.—In any action or pro2 ceeding in which a party seeks to compel disclo3 sure of confidential supervisory information, a

4 financial regulator may, in its sole discretion,

5 elect to remove the action or proceeding on the

6 disclosure issue to Federal court, and any such

7 Federal court shall have exclusive jurisdiction.

8 (B) JUDICIAL REVIEW.—Judicial review of

9 the final action of a financial regulator with re10 gard to the disposition of a request for con11 fidential supervisory information shall be before

12 a district court of the United States of com13 petent jurisdiction, subject to chapter 7 of part

14 I of title 5, United States Code.

15 (f) AUTHORITY TO INTERVENE.—In the case of any

16 action or proceeding to compel compliance with a sub17 poena, order, discovery request, or other judicial or admin18 istrative process with respect to any confidential super19 visory information relating to any person engaged in the

20 business of conducting financial activities, a financial reg21 ulator may intervene in such action or proceeding, and

22 such person may intervene with such regulator, for the

23 purpose of—

24 (1) enforcing the limitations established in

25 paragraph (1) of subsections (b) and (e);
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1 (2) seeking the withdrawal of any compulsory

2 process with respect to such information; and

3 (3) registering appropriate objections with re4 spect to the action or proceeding to the extent the

5 action or proceeding relates to or involves such infor6 mation.

7 (g) RIGHT TO APPEAL.—Any court order that com8 pels production of confidential supervisory information

9 may be immediately appealed by the financial regulator

10 and the order compelling production shall be automatically

11 stayed, pending the outcome of such appeal.

12 (h) REGULATIONS.—

13 (1) AUTHORITY TO PRESCRIBE.—Each financial

14 regulator may prescribe such regulations as the reg15 ulator considers to be appropriate, after consultation

16 with the other financial regulators (to the extent the

17 prescribing financial regulator considers appropriate

18 and feasible), to carry out the purposes of this sec19 tion.

20 (2) AUTHORITY TO REQUIRE NOTICE.—Any

21 regulations prescribed by a financial regulator under

22 paragraph (1) may require any person in possession

23 of confidential supervisory information to notify the

24 financial regulator whenever the person is served

25 with a subpoena, order, discovery request, or other
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1 judicial or administrative process requiring the per2 sonal attendance of such person as a witness or re3 quiring the production of such information in any

4 proceeding.

5 (i) ACCESS IN ACCORDANCE WITH REGULATIONS

6 AND ORDERS.—Notwithstanding any other provision of

7 this section, a financial regulator may, without waiving

8 any privilege, authorize access to confidential supervisory

9 information created by such agency, or requested by such

10 regulator from any person engaged in the business of con11 ducting financial activities, for any appropriate govern12 mental, law enforcement, or public purpose in accordance

13 with agency regulations or orders.’’.

14 SEC. 108. CONFIDENTIALITY OF INFORMATION.

15 (a) IN GENERAL.—

16 (1) FINANCIAL REGULATORS.—Except as other17 wise provided in this section or section 107, any re18 quirement under Federal or State law regarding the

19 privacy or confidentiality of any information or ma20 terial in the possession of any participant to the

21 Subcommittee, and any privilege arising under Fed22 eral or State law (including the rules of any Federal

23 or State court) with respect to such information or

24 material, shall continue to apply to such information

25 or material—
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1 (A) after the information or material has

2 been disclosed to another participant through

3 the network; and

4 (B) while the information or material is

5 held by the Subcommittee, whether acquired di6 rectly or through the network.

7 (2) CERTAIN INSURANCE INFORMATION.—Ex8 cept as otherwise provided in this section or section

9 107, any requirement under Federal or State law re10 garding the privacy or confidentiality of any infor11 mation or material in the possession of the National

12 Association of Insurance Commissioners, or any

13 member or affiliate of the Association, and any

14 privilege arising under Federal or State law (includ15 ing the rules of any Federal or State court) with re16 spect to such information or material, shall continue

17 to apply to such information or material after the in18 formation has been disclosed to the Association, or

19 any other member or affiliate of the Association,

20 through the computer network maintained by the

21 Association.

22 (3) NONAPPLICABILITY OF CERTAIN REQUIRE23 MENTS.—

24 (A) IN GENERAL.—Information or material

25 that is subject to a privilege or confidentiality
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1 under any other paragraph of this subsection

2 shall not be subject to—

3 (i) disclosure under any Federal or

4 State law governing the disclosure to the

5 public of information held by an officer or

6 an agency of the Federal Government or

7 the respective State; or

8 (ii) subpoena or discovery, or admis9 sion into evidence, in any private civil ac10 tion or administrative process,

11 unless with respect to any privilege held by a

12 participant with respect to such information or

13 material, the participant waives, in whole or in

14 part, in the discretion of the participant, such

15 privilege.

16 (4) TREATMENT OF CERTAIN INTERNATIONAL

17 FINANCIAL REGULATORS.—Except as otherwise pro18 vided in this section or section 107, any inter19 national regulator that is allowed by the Sub20 committee, pursuant to section 103(a)(3), to access

21 the network shall be considered to be a participant

22 financial regulator for purposes of this section and

23 section 107.

24 (b) PREEMPTION OF STATE LAW.—Any State law re25 lating to the disclosure of confidential supervisory infor-
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•HR 1408 IH

1 mation that is the property of any participant or any in2 formation or material to which subsection (a) applies that

3 is inconsistent with any provision of section 107 or sub4 section (a) of this section shall be superseded by the re5 quirements of such provision to the extent of the inconsist6 ency.

7 (c) DUTY OF FINANCIAL REGULATOR TO MAINTAIN

8 CONFIDENTIALITY.—A participant may not receive,

9 download, copy, or otherwise maintain any information or

10 material from any other member of or liaison to the Sub11 committee through the network unless—

12 (1) the participant maintains a system that en13 ables the participant to maintain full compliance

14 with the requirements of sections 102 and 107 and

15 this section, with respect to such information and

16 material; and

17 (2) if and to the extent required by the Sub18 committee, a record is maintained of each attempt

19 to access such information and material, and the

20 identity of the person making the attempt, in order

21 to prevent evasions of such requirements.

22 SEC. 109. LIABILITY PROVISIONS.

23 (a) NO LIABILITY FOR GOOD FAITH DISCLO24 SURES.—
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1 (1) IN GENERAL.—An entity described in para2 graph (2), the members and affiliates of such entity,

3 the officers and employees of such entity, member,

4 or affiliate, the Subcommittee, and officers and em5 ployees of the Subcommittee shall not be subject to

6 any civil action or proceeding for monetary damages

7 by reason of the action or omission of any officer or

8 employee of such entity, member, affiliate, or Sub9 committee, while acting within the scope of his or

10 her office or employment, relating to collecting, fur11 nishing, or disseminating, directly or through any

12 network maintained by the entity or the Sub13 committee, regulatory information, including sus14 picious or special activity reports, concerning or re15 lated to persons engaged in the business of con16 ducting financial activities.

17 (2) ENTITIES DESCRIBED.—The entities re18 ferred to in paragraph (1) are as follows:

19 (A) The National Association of Insurance

20 Commissioners.

21 (B) The Conference of State Bank Super22 visors.

23 (C) The North American Securities Ad24 ministrators Association.
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1 (D) The National Association of Securities

2 Dealers.

3 (E) The National Futures Association.

4 (F) The National Association of State

5 Credit Union Supervisors.

6 (b) CRIMINAL LIABILITY FOR INTENTIONAL UNLAW7 FUL DISCLOSURES.—Whoever willfully discloses to any

8 person any information or material maintained by a par9 ticipant concerning any person engaged in the business of

10 conducting financial activities knowing the disclosure to

11 be in violation of any provision of this title requiring the

12 confidentiality of such information or material, or estab13 lishing a privilege from disclosure for any participant

14 which has not been waived by the participant, shall be

15 fined in accordance with title 18, United States Code, or

16 imprisoned not more than 5 years, or both.

17 (c) FULL, CONTINUED PROTECTION UNDER THE SO18 CALLED ‘‘FEDERAL TORT CLAIMS ACT’’.—No provision

19 of this Act shall be construed as reducing or limiting any

20 protection provided for any Federal agency, or any officer

21 or employee of any Federal agency, under section 2679

22 of title 28, United States Code.
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1 SEC. 110. AUTHORIZATION FOR IDENTIFICATION AND

2 CRIMINAL BACKGROUND CHECK.

3 (a) AUTHORIZATION AND DUTIES OF THE ANTI4 FRAUD SUBCOMMITTEE.—Upon the request of a financial

5 regulator, the Antifraud Subcommittee shall—

6 (1) obtain from the Attorney General criminal

7 background records corresponding to fingerprints or

8 other biometric identification provided by the Sub9 committee; and

10 (2) screen the records obtained under para11 graph (1) to provide to the requesting financial reg12 ulator (or such regulator’s designated representative

13 under subsection (i)(1)) any information relating to

14 any crime for which a person could be barred under

15 Federal law by such regulator with respect to the fi16 nancial activities over which the regulator has juris17 diction.

18 (b) FORM OF REQUEST.—A request under subsection

19 (a) shall include a copy of any necessary identification in20 formation required by the Attorney General, such as the

21 name and fingerprints of the person about whom the

22 record is requested and a statement signed by the person

23 acknowledging that the regulator (or such regulator’s des24 ignated representative under subsection (i)(1)) may re25 quest the search.
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1 (c) ATTORNEY GENERAL AUTHORIZATION.—Upon

2 receiving a request described in subsection (b), the Attor3 ney General shall—

4 (1) search the records of the Criminal Justice

5 Information Services Division of the Federal Bureau

6 of Investigation, and any other similar database over

7 which the Attorney General has authority and deems

8 appropriate, for any criminal background records

9 (including wanted persons information) cor10 responding to the identification information provided

11 under subsection (b); and

12 (2) provide such records to the Subcommittee

13 for screening.

14 (d) PERMISSIBLE USES OF INFORMATION.—A finan15 cial regulator may use information obtained under this

16 section for regulatory or law enforcement purposes and

17 disclose such information to any other financial regulator

18 or Federal or State governmental agency, for regulatory

19 or law enforcement purposes, if the recipient agrees to

20 maintain the confidentiality of such records.

21 (e) LIMITATION ON USE OF INFORMATION.—Infor22 mation obtained under this section may be used only—

23 (1) by the authorized recipient of such informa24 tion; and
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•HR 1408 IH

1 (2) for the purpose of determining the suit2 ability of the person about whom the information is

3 obtained for engaging in the business of conducting

4 financial activities.

5 (f) PENALTY FOR IMPROPER USE.—Whoever know6 ingly uses any information obtained under this section for

7 an unauthorized purpose shall be imprisoned for not more

8 than 2 years or fined under title 18, United States Code,

9 or both.

10 (g) RELIANCE ON INFORMATION.—A financial regu11 lator (or such regulator’s designated representative under

12 subsection (i)(1)) who reasonably relies on information

13 provided under this section shall not be liable in any action

14 based on an employment determination resulting from the

15 incompleteness or inaccuracy of such information.

16 (h) SAFE HARBOR.—No person engaged in the busi17 ness of conducting financial activities shall be subject to

18 any civil action or proceeding for monetary damages or

19 any action brought under section 1033(e)(1)(B) of title

20 18, United States Code, for permitting an individual to

21 engage in the business of conducting financial activities

22 in violation of section 1033(e)(1)(A) of such title, if such

23 individual is licensed, or approved (as part of an applica24 tion or otherwise), by a financial regulator that performs

25 criminal background checks under this section, unless
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1 such person has actual knowledge that the individual is

2 in violation of section 1033(e)(1)(A) of such title and that

3 the violation would not be known to the financial regu4 lator.

5 (i) DESIGNATION OF REPRESENTATIVE.—

6 (1) IN GENERAL.—A financial regulator may

7 designate a representative, to be approved by the

8 Antifraud Subcommittee, for facilitating requests

9 and exchanges of information under this section be10 tween the financial regulator and the Subcommittee.

11 (2) SENSE OF CONGRESS REGARDING REP12 RESENTATIVES OF INSURANCE REGULATORS.—It is

13 the sense of the Congress that—

14 (A) each State insurance commissioner

15 should designate the National Association of In16 surance Commissioners as a representative

17 under paragraph (1);

18 (B) persons engaged in the business of in19 surance should be able to use the National As20 sociation of Insurance Commissioners to facili21 tate obtaining fingerprints and supplying identi22 fication information for use in background

23 checks under this section on a multijuris24 dictional basis;
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1 (C) the National Association of Insurance

2 Commissioners should maintain a database to

3 obtain records under this section for use by

4 State insurance commissioners to reduce mul5 tiple or duplicative fingerprinting requirements

6 and criminal background checks; and

7 (D) other financial regulators that require

8 fingerprints and criminal background checks

9 should similarly coordinate efforts to reduce du10 plication for persons engaged in the business of

11 conducting multiple types financial activities.

12 (j) SENSE OF CONGRESS REGARDING USE OF

13 DETAILEES.—It is the sense of the Congress that a crimi14 nal background records screening described in subsection

15 (a)(2) may be performed by a detailee of the requesting

16 financial regulator (or such regulator’s designated rep17 resentative under subsection (i)(1)), if such detailee does

18 not disclose to such regulator (or representative) informa19 tion from such records other than the resulting screened

20 information described in subsection (a)(2).

21 (k) FEES.—The Attorney General and the Antifraud

22 Subcommittee may charge a reasonable fee for the provi23 sion of information under this section.

24 (l) RULE OF CONSTRUCTION.—This section shall not

25 be interpreted—
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1 (1) to provide independent authorization for a

2 financial regulator to require fingerprinting as a

3 part of a licensure or other application; or

4 (2) to require a financial regulator to perform

5 criminal background checks under this section.

6 (m) REGULATIONS.—The Attorney General may pre7 scribe regulations to carry out this section.

8 SEC. 111. DEFINITIONS.

9 For purposes of this title, the following definitions

10 shall apply:

11 (1) FEDERAL BANKING AGENCY.—The term

12 ‘‘Federal banking agency’’ has the same meaning as

13 given in section 3(z) of the Federal Deposit Insur14 ance Act.

15 (2) FINANCIAL ACTIVITIES.—The term ‘‘finan16 cial activities’’ means activities that are financial in

17 nature or are incidental to a financial activity (as

18 defined under section 4(k) of the Bank Holding

19 Company Act of 1956).

20 (3) FINANCIAL REGULATOR.—The term ‘‘finan21 cial regulator’’ means—

22 (A) each Federal banking agency;

23 (B) the Securities and Exchange Commis24 sion;
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1 (C) the Commodity Futures Trading Com2 mission;

3 (D) the National Credit Union Administra4 tion;

5 (E) the Farm Credit Administration;

6 (F) the Federal Housing Finance Board;

7 (G) the Federal Trade Commission, with

8 respect to creditors subject to the jurisdiction of

9 the Commission under section 108(c) of the

10 Truth in Lending Act;

11 (H) the Director of the Office of Federal

12 Housing Enterprise Oversight of the Depart13 ment of Housing and Urban Development;

14 (I) any State bank supervisor (as defined

15 in section 3(r) of the Federal Deposit Insurance

16 Act), including the Conference of State Bank

17 Supervisors only to the extent—

18 (i) such conference is acting as an

19 agent of, and is subject to the oversight of,

20 any such State bank supervisor; and

21 (ii) the conference provides notice to

22 the Subcommittee when it is acting in such

23 capacity as an agent;
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1 (J) any State insurance commissioner, in2 cluding the National Association of Insurance

3 Commissioners only to the extent—

4 (i) such association is acting as the

5 agent of, and is subject to the oversight of,

6 any such insurance commissioner; and

7 (ii) the association provides notice to

8 the Subcommittee when it is acting in such

9 capacity as an agent;

10 (K) any State securities administrator, in11 cluding the North American Securities Adminis12 trators Association only to the extent—

13 (i) such association is acting as the

14 agent of, and is subject to the oversight of,

15 any such securities administrator; and

16 (ii) the association provides notice to

17 the Subcommittee when it is acting in such

18 capacity as an agent;

19 (L) any State credit union supervisor, in20 cluding the National Association of State Credit

21 Union Supervisors only to the extent—

22 (i) such association is acting as the

23 agent of, and is subject to the oversight of,

24 any such credit union supervisor; and
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1 (ii) the association provides notice to

2 the Subcommittee when it is acting in such

3 capacity as an agent;

4 (M) the National Association of Securities

5 Dealers, only to the extent that—

6 (i) such association is acting in con7 nection with the financial services industry

8 and is subject to the oversight of the Secu9 rities and Exchange Commission; and

10 (ii) the association provides notice to

11 the Subcommittee when it is acting in such

12 capacity;

13 (N) the National Futures Association, only

14 to the extent that—

15 (i) such association is acting in con16 nection with the financial services industry

17 and is subject to the oversight of the Com18 modity Futures Trading Commission or

19 the Securities and Exchange Commission;

20 and

21 (ii) the association provides notice to

22 the Subcommittee when it is acting in such

23 capacity; and

24 (O) any other self-regulatory organization

25 that engages in or coordinates regulatory and
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1 enforcement activities, with respect to any per2 son engaged in the business of conducting fi3 nancial activities, that is subject to the over4 sight of the Securities and Exchange Commis5 sion or the Commodity Futures Trading Com6 mission.

7 (4) PARTICIPANT.—The term ‘‘participant’’

8 means any regulator which—

9 (A) is represented by a member of, or a li10 aison to, the Subcommittee; and

11 (B) is allowed access to the network by the

12 Subcommittee.

13 (5) PERSON ENGAGED IN THE BUSINESS OF

14 CONDUCTING FINANCIAL ACTIVITIES.—The term

15 ‘‘person engaged in the business of conducting finan16 cial activities’’ includes, to the extent appropriate

17 under the laws applicable to the jurisdiction of a fi18 nancial regulator over such person—

19 (A) any director, officer, employee, or con20 trolling stockholder of, or agent for, any such

21 person;

22 (B) any other person who has filed or is

23 required to file a change-in-control notice with

24 the appropriate financial regulator before ac25 quiring control of such person; and
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1 (C) any shareholder, consultant, joint ven2 ture partner, and any other person, including

3 an independent contractor, as determined by

4 the appropriate financial regulator (by regula5 tion or case-by-case) who participates in the

6 conduct of the affairs of such person.

7 (6) STATE INSURANCE COMMISSIONER.—The

8 term ‘‘State insurance commissioner’’ means any of9 ficer, agency, or other entity of any State which has

10 primary regulatory authority over the business of in11 surance and over any person engaged in the business

12 of insurance to the extent of such activities, in such

13 State.

14 (7) STATE SECURITIES ADMINISTRATOR.—The

15 term ‘‘State securities administrator’’ means the se16 curities commission (or any agency or office per17 forming like functions) of any State.

18 SEC. 112. TECHNICAL AND CONFORMING AMENDMENTS TO

19 OTHER ACTS.

20 (a) Subsection (b) of section 552a of title 5, United

21 States Code, is amended—

22 (1) by striking ‘‘or’’ at the end of paragraph

23 (11);

24 (2) by striking the period at the end of para25 graph (12) and inserting ‘‘; or’’; and
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1 (3) by inserting after paragraph (12) the fol2 lowing new paragraph:

3 ‘‘(13) for recordkeeping, licensing, and other

4 regulatory and law enforcement purposes in accord5 ance with title I of the Financial Services Antifraud

6 Network Act of 2001—

7 ‘‘(A) through a computer network or

8 name-relationship index maintained by the

9 Antifraud Subcommittee under such title; or

10 ‘‘(B) to a multistate database maintained

11 by the National Association of Insurance Com12 missioners and any subsidiary or affiliate of

13 such association, subject to the requirements of

14 such title.’’.

15 (b) Section 1113 of the Financial Institutions Regu16 latory and Interest Rate Control Act of 1978 (12 U.S.C.

17 3413) is amended by adding at the end the following new

18 subsection:

19 ‘‘(r) This title shall not apply to disclosure by a finan20 cial regulator represented by a member of or liaison to

21 the Antifraud Subcommittee of information which is sub22 ject to section 107 or 108 of the Financial Services Anti23 fraud Network Act of 2001 to the extent the disclosure

24 is made in accordance with the requirements of such

25 Act.’’.
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1 TITLE II—SECURITIES

2 INDUSTRY COORDINATION

3 Subtitle A—Disciplinary

4 Information

5 SEC. 201. INVESTMENT ADVISERS ACT OF 1940.

6 Section 204 of the Investment Advisers Act of 1940

7 (15 U.S.C. 80b–4) is amended—

8 (1) by striking ‘‘Every investment’’ and insert9 ing the following:

10 ‘‘(a) IN GENERAL.—Every investment’’; and

11 (2) by adding at the end the following:

12 ‘‘(b) FILING DEPOSITORIES.—The Commission, by

13 rule, may require an investment adviser—

14 ‘‘(1) to file with the Commission any fee, appli15 cation, report, or notice required to be filed by this

16 title or the rules issued under this title through any

17 entity designated by the Commission for that pur18 pose; and

19 ‘‘(2) to pay the reasonable costs associated with

20 such filing and the establishment and maintenance

21 of the systems required by subsection (c).

22 ‘‘(c) ACCESS TO DISCIPLINARY AND OTHER INFOR23 MATION.—

24 ‘‘(1) MAINTENANCE OF SYSTEM TO RESPOND

25 TO INQUIRIES.—The Commission shall require the
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1 entity designated by the Commission under sub2 section (b)(1)—

3 ‘‘(A) to establish and maintain a toll-free

4 telephone listing or other readily accessible elec5 tronic process to receive inquiries regarding dis6 ciplinary actions and proceedings and other in7 formation involving investment advisers and

8 persons associated with investment advisers;

9 and

10 ‘‘(B) to respond promptly to such inquir11 ies.

12 ‘‘(2) RECOVERY OF COSTS.—An entity des13 ignated by the Commission under subsection (b)(1)

14 may charge persons, other than individual investors,

15 reasonable fees for responses to inquiries made

16 under paragraph (1).

17 ‘‘(3) LIMITATION ON LIABILITY.—An entity

18 designated by the Commission under subsection

19 (b)(1) shall not have any liability to any person for

20 any actions taken or omitted in good faith under

21 this subsection.’’.

22 SEC. 202. SECURITIES EXCHANGE ACT OF 1934.

23 Subsection (i) of section 15A of the Securities Ex24 change Act of 1934 (15 U.S.C. 78o–3) is amended to read

25 as follows:
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1 ‘‘(i) OBLIGATION TO MAINTAIN DISCIPLINARY AND

2 OTHER DATA.—

3 ‘‘(1) MAINTENANCE OF SYSTEM TO RESPOND

4 TO INQUIRIES.—A registered securities association

5 shall—

6 ‘‘(A) establish and maintain a toll-free tele7 phone listing or other readily accessible elec8 tronic process to receive inquiries regarding dis9 ciplinary actions and proceedings and other in10 formation involving its members and their asso11 ciated persons and regarding disciplinary ac12 tions and proceedings and other information

13 that has been reported to the Central Registra14 tion Depository by any registered national secu15 rities exchange involving its members and their

16 associated persons; and

17 ‘‘(B) promptly respond to such inquiries.

18 ‘‘(2) RECOVERY OF COSTS.—Such association

19 may charge persons, other than individual investors,

20 reasonable fees for responses to such inquiries.

21 ‘‘(3) LIMITATION ON LIABILITY.—Such an asso22 ciation or exchange shall not have any liability to

23 any person for any actions taken or omitted in good

24 faith under this subsection.’’.
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1 Subtitle B—Preventing Migration

2 of Rogue Financial Profes3 sionals to the Securities Indus4 try

5 SEC. 211. SECURITIES EXCHANGE ACT OF 1934.

6 (a) BROKERS AND DEALERS.—Section 15(b) of the

7 Securities Exchange Act of 1934 (15 U.S.C. 78o(b)) is

8 amended—

9 (1) in paragraph (4), by striking subparagraphs

10 (F) and (G) and inserting the following:

11 ‘‘(F) is subject to any order of the Commission

12 barring or suspending the right of the person to be

13 associated with a broker or dealer.

14 ‘‘(G) has been found by a foreign financial reg15 ulatory authority to have—

16 ‘‘(i) made or caused to be made in any ap17 plication for registration or report required to

18 be filed with a foreign financial regulatory au19 thority, or in any proceeding before a foreign fi20 nancial regulatory authority with respect to reg21 istration, any statement that was at the time

22 and in the light of the circumstances under

23 which it was made false or misleading with re24 spect to any material fact, or omitted to state

25 in any such application, report, or proceeding
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1 any material fact that is required to be stated

2 therein;

3 ‘‘(ii) violated any foreign statute or regula4 tion regarding securities, banking, thrift activi5 ties, credit union activities, insurance, or con6 tracts of sale of a commodity for future deliv7 ery, traded on or subject to the rules of a con8 tract market or any board of trade; or

9 ‘‘(iii) aided, abetted, counseled, com10 manded, induced, or procured the violation by

11 any other person of any provision of any statu12 tory provisions enacted by a foreign govern13 ment, or rules or regulations thereunder, re14 garding securities, banking, thrift activities,

15 credit union activities, insurance, or contracts

16 of sale of a commodity for future delivery trad17 ed on or subject to the rules of a contract mar18 ket or any board of trade, or to have failed rea19 sonably to supervise, with a view to preventing

20 violations of such statutory provisions, rules,

21 and regulations, another person who commits

22 such a violation, if such other person is subject

23 to his supervision.

24 ‘‘(H) is subject to any final order of a State se25 curities commission (or any agency or officer per-
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1 forming like functions), State authority that super2 vises or examines banks, thrifts, or credit unions,

3 State insurance commission (or any agency or office

4 performing like functions), an appropriate Federal

5 banking agency (as defined in section 3 of the Fed6 eral Deposit Insurance Act (12 U.S.C. 1813(q)), or

7 the National Credit Union Administration, that—

8 ‘‘(i) bars such person from association with

9 an entity regulated by such commission, author10 ity, agency, or officer, or from engaging in the

11 business of securities, insurance, banking, thrift

12 activities, or credit union activities; or

13 ‘‘(ii) constitutes a final order based on vio14 lations of any laws or regulations that prohibit

15 fraudulent, manipulative, or deceptive con16 duct.’’; and

17 (2) in paragraph (6)(A)(i), by striking ‘‘or

18 omission enumerated in subparagraph (A), (D), (E),

19 or (G)’’ and inserting ‘‘, or is subject to an order or

20 finding, enumerated in subparagraph (A), (D), (E),

21 (G), or (H)’’.

22 (b) MUNICIPAL SECURITIES BROKERS AND DEAL23 ERS.—Section 15B(c) of the Securities Exchange Act of

24 1934 (15 U.S.C. 78o–4(c)) is amended—

25 (1) in paragraph (2)—
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1 (A) by striking ‘‘or omission enumerated in

2 subparagraph (A), (D), (E), or (G)’’ and insert3 ing ‘‘, or is subject to an order or finding, enu4 merated in subparagraph (A), (D), (E), (G), or

5 (H)’’; and

6 (B) by striking ‘‘ten’’ and inserting ‘‘10’’;

7 (2) in paragraph (4)—

8 (A) by striking ‘‘or omission enumerated in

9 subparagraph (A), (D), (E), or (G)’’ and insert10 ing ‘‘, or is subject to an order or finding, enu11 merated in subparagraph (A), (D), (E), (G), or

12 (H)’’ and

13 (B) by striking ‘‘ten’’ and inserting ‘‘10’’;

14 (c) GOVERNMENT SECURITIES BROKERS AND DEAL15 ERS.—Section 15C(c)(1) of the Securities Exchange Act

16 of 1934 (15 U.S.C. 78o–5(c)(1)) is amended—

17 (1) in subparagraph (A), by striking ‘‘or omis18 sion enumerated in subparagraph (A), (D), (E), or

19 (G)’’ and inserting ‘‘, or is subject to an order or

20 finding, enumerated in subparagraph (A), (D), (E),

21 (G), or (H)’’; and

22 (2) in subparagraph (C), by striking ‘‘or omis23 sion enumerated in subparagraph (A), (D), (E), or

24 (G)’’ and inserting ‘‘, or is subject to an order or
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1 finding, enumerated in subparagraph (A), (D), (E),

2 (G), or (H)’’.

3 (d) CLEARANCE AND SETTLEMENT.—Section 17A(c)

4 of the Securities Exchange Act of 1934 (15 U.S.C. 78q–

5 1(c)) is amended—

6 (1) in paragraph (3)(A), by striking ‘‘enumer7 ated in subparagraph (A), (D), (E), or (G)’’ and in8 serting ‘‘, or is subject to an order or finding, enu9 merated in subparagraph (A), (D), (E), (G), or

10 (H)’’; and

11 (2) in paragraph (4)(C)—

12 (A) by striking ‘‘enumerated in subpara13 graph (A), (D), (E), or (G)’’ and inserting ‘‘,

14 or is subject to an order or finding, enumerated

15 in subparagraph (A), (D), (E), (G), or (H)’’;

16 and

17 (B) by striking ‘‘ten years’’ and inserting

18 ‘‘10 years’’.

19 (e) DEFINITION OF STATUTORY DISQUALIFICA20 TION.—Section 3(a)(39)(F) of the Securities Exchange

21 Act of 1934 (15 U.S.C. 78c(a)(39)(F)) is amended by

22 striking ‘‘has committed or omitted any act enumerated

23 in subparagraph (D), (E), or (G)’’ and inserting ‘‘has

24 committed or omitted any act, or is subject to an order
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1 or finding, enumerated in subparagraph (D), (E), (G), or

2 (H)’’.

3 SEC. 212. INVESTMENT ADVISERS ACT OF 1940.

4 (a) AUTHORITY TO DENY OR REVOKE REGISTRA5 TION BASED ON STATE (AND OTHER GOVERNMENTAL)

6 ADMINISTRATIVE ACTIONS.—Section 203(e) of the Invest7 ment Advisers Act of 1940 (15 U.S.C. 80b–3(e)) is

8 amended by striking paragraphs (7) and (8) and inserting

9 the following:

10 ‘‘(7) is subject to any order of the Commission

11 barring or suspending the right of the person to be

12 associated with an investment adviser.

13 ‘‘(8) has been found by a foreign financial regu14 latory authority, State securities commission (or any

15 State agency or officer performing similar func16 tions), State authority that supervises or examines

17 banks, thrifts, or credit unions, State insurance com18 mission (or any State agency or officer performing

19 similar functions), any appropriate Federal banking

20 agency (as such term is defined in section 3 of the

21 Federal Deposit Insurance Act (12 U.S.C. 1813(q)),

22 or the National Credit Union Administration to

23 have—

24 ‘‘(A) made or caused to be made in any

25 application for registration or report required to
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1 be filed with, or in any proceeding before, the

2 authority, commission, or agency any statement

3 that was, at the time and in light of the cir4 cumstances under which it was made, false or

5 misleading with respect to any material fact, or

6 omitted to state in any application or report

7 filed with, or in any proceeding before, the au8 thority, commission, or agency any material

9 fact that is required to be stated in the applica10 tion, report, or proceeding;

11 ‘‘(B) violated any foreign, State, or Fed12 eral statute or regulation regarding securities,

13 insurance, banking, thrift activities, credit

14 union activities, or contracts of sale of a com15 modity for future delivery traded on or subject

16 to the rules of a contract market or any board

17 of trade; or

18 ‘‘(C) aided, abetted, counseled, com19 manded, induced, or procured the violation by

20 any other person of any foreign, State, or Fed21 eral statute or regulation regarding securities,

22 insurance, banking, thrift activities, credit

23 union activities, or contracts of sale of a com24 modity for future delivery traded on or subject

25 to the rules of a contract market or any board
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1 of trade, or failed reasonably to supervise, with

2 a view to preventing violations of any such stat3 ute or regulation, another person who commits

4 such a violation, if the other person is subject

5 to his or its supervision.’’.

6 (b) BARS ON FELONS ASSOCIATED WITH INVEST7 MENT ADVISERS.—Section 203(f) of the Investment Ad8 visers Act of 1940 (15 U.S.C. 80b–3(f)) is amended by

9 inserting ‘‘or (3)’’ after ‘‘paragraph (2)’’.

Æ