Financial Exploitation Prevention Act of 2023

Subjects: Finance and Financial Sector


<html><body><pre>[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[S. 1481 Introduced in Senate (IS)]

&lt;DOC&gt;






118th CONGRESS
  1st Session
                                S. 1481

  To amend the Investment Company Act of 1940 to postpone the date of 
 payment or satisfaction upon redemption of certain securities in the 
 case of the financial exploitation of specified adults, and for other 
                               purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              May 9, 2023

Mr. Hagerty (for himself and Mr. Tester) introduced the following bill; 
which was read twice and referred to the Committee on Banking, Housing, 
                           and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
  To amend the Investment Company Act of 1940 to postpone the date of 
 payment or satisfaction upon redemption of certain securities in the 
 case of the financial exploitation of specified adults, and for other 
                               purposes.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Financial Exploitation Prevention 
Act of 2023''.

SEC. 2. REDEMPTION OF CERTAIN SECURITIES POSTPONED.

    (a) In General.--Section 22 of the Investment Company Act of 1940 
(15 U.S.C. 80a-22) is amended by adding at the end the following:
    ``(h) Requirements With Respect to Non-Institutional Direct At-Fund 
Accounts.--
            ``(1) Election.--
                    ``(A) In general.--A registered open-end investment 
                company and a transfer agent described in paragraph (2) 
                may elect to comply with the requirements under 
                paragraph (2) and subsection (i) by notifying the 
                Commission of that election.
                    ``(B) Effect of election.--Paragraph (2) and 
                subsection (i) shall only apply to a registered open-
                end investment company and a transfer agent that have 
                made an election under subparagraph (A).
            ``(2) Requirements.--In the case of a customer who is a 
        holder of a non-institutional account held directly with a 
        registered open-end investment company and serviced by a 
        transfer agent (commonly known as a `direct-at-fund account'), 
        the company and transfer agent shall--
                    ``(A) request from that customer the name and 
                contact information of at least 1 individual who--
                            ``(i) is, at the time of that request, an 
                        adult; and
                            ``(ii) may be contacted with respect to 
                        that account;
                    ``(B) document and retain the information received 
                under subparagraph (A); and
                    ``(C) disclose to that customer in writing 
                (including through electronic delivery) that such 
                company or transfer agent may contact an individual 
                specified under subparagraph (A) with respect to the 
                account of that customer to--
                            ``(i) address possible financial 
                        exploitation of that customer;
                            ``(ii) confirm the contact information or 
                        health status of that customer; or
                            ``(iii) identify any legal guardian, 
                        executor, trustee, or holder of a power of 
                        attorney with respect to the customer.
    ``(i) Redemption of Certain Securities Postponed.--
            ``(1) In general.--Notwithstanding subsection (e), a 
        registered open-end investment company or a transfer agent 
        acting on behalf of such a company may postpone the date of 
        payment or satisfaction upon redemption of any redeemable 
        security in accordance with its terms for more than seven days 
        after the tender of such security to such company or its agent 
        designated for that purpose for redemption if such company or 
        agent reasonably believes that--
                    ``(A) that redemption is requested by a security 
                holder who is a specified adult; and
                    ``(B) financial exploitation has occurred, is 
                occurring, or has been attempted with respect to that 
                redemption.
            ``(2) Duration.--
                    ``(A) In general.--Except as provided in 
                subparagraphs (B) and (C), a registered open-end 
                investment company or a transfer agent acting on behalf 
                of such company may postpone the date of payment or 
                satisfaction upon redemption of a redeemable security 
                under paragraph (1) for a period of not more than 15 
                business days.
                    ``(B) Extension upon determination of 
                exploitation.--The period described in subparagraph (A) 
                may be extended by an additional 10 business days if 
                the registered open-end investment company or a 
                transfer agent acting on behalf of such a company--
                            ``(i) reasonably believes that--
                                    ``(I) the redemption is requested 
                                by a security holder who is a specified 
                                adult; and
                                    ``(II) financial exploitation has 
                                occurred, is occurring, or has been 
                                attempted with respect to such 
                                redemption;
                            ``(ii) subject to subparagraph (D), not 
                        later than 2 days after making a determination 
                        under clause (i), notifies the individuals 
                        specified by that security holder under 
                        subsection (h)(2)(A) in writing (including 
                        through electronic delivery) of the extension 
                        of the period described in subparagraph (A) 
                        under this subparagraph and the reason for that 
                        extension;
                            ``(iii) initiates an internal review of the 
                        facts and circumstances relating to the 
                        determination under clause (i);
                            ``(iv) holds amounts relating to the 
                        delayed payment or satisfaction upon redemption 
                        of the redeemable security in a demand deposit 
                        account; and
                            ``(v) documents and retains records related 
                        to carrying out clause (iv) and includes those 
                        records in the first required account statement 
                        of the security holder provided after the date 
                        on which the determination is made under clause 
                        (i).
                    ``(C) Extension by government.--A State regulator, 
                administrative agency of competent jurisdiction, or 
                court of competent jurisdiction may extend the period 
                described in subparagraph (A).
                    ``(D) Notification.--
                            ``(i) Exception.--Subparagraph (B)(ii) 
                        shall not apply if a registered open-end 
                        investment company or transfer agent acting on 
                        behalf of such a company reasonably believes 
                        that an individual required to be notified 
                        under that subparagraph is, has been, or will 
                        subject the security holder who identified that 
                        individual under subsection (h)(2)(A) to 
                        financial exploitation.
                            ``(ii) Reasonable efforts.--An open-end 
                        investment company or transfer agent acting on 
                        behalf of such a company shall be considered in 
                        compliance with subparagraph (B)(ii) if that 
                        company or transfer agent makes a reasonable 
                        effort to contact the individuals specified by 
                        a security holder under subsection (h)(2)(A).
                    ``(E) Internal procedures.--An open-end investment 
                company or transfer agent acting on behalf of such a 
                company shall establish procedures to carry out the 
                requirements under this subsection, including 
                procedures--
                            ``(i) relating to the identification and 
                        reporting of matters relating to the financial 
                        exploitation of specified adults;
                            ``(ii) to determine whether to release or 
                        reinvest delayed redemption proceeds, taking 
                        into account the facts and circumstances of 
                        each case, should the internal review under 
                        subparagraph (B)(iii) support the reasonable 
                        belief described in subparagraph (B)(i);
                            ``(iii) identifying each employee of the 
                        company or transfer agent with authority to 
                        establish, extend, or terminate a period 
                        described in paragraph (1) or subparagraph (A);
                            ``(iv) in the case of a transfer agent, 
                        that are reasonably designed to ensure that the 
                        employees of the transfer agent comply with 
                        this subsection; and
                            ``(v) in the case of an open-end investment 
                        company, establishing periodic reporting 
                        requirements under which a transfer agent 
                        acting on behalf of the company shall notify 
                        the company of--
                                    ``(I) each extension under 
                                subparagraph (B) authorized by the 
                                transfer agent;
                                    ``(II) each finding by the transfer 
                                agent under subparagraph (B)(i);
                                    ``(III) each notification under 
                                subparagraph (B)(ii) carried out by the 
                                transfer agent; and
                                    ``(IV) the results of each internal 
                                review initiated by the transfer agent 
                                under subparagraph (B)(iii).
                    ``(F) Information included in certain statements.--
                An open-end investment company shall include in each 
                prospectus or statement of additional information a 
                notification that the company or a transfer agent 
                acting on behalf of the company may postpone redemption 
                of certain securities under this subsection.
                    ``(G) Record retention.--An open-end investment 
                company or transfer agent acting on behalf of such a 
                company shall--
                            ``(i) document and retain records of--
                                    ``(I) each postponement of 
                                redemption under subparagraphs (A), 
                                (B), and (C);
                                    ``(II) each finding under 
                                subparagraph (B)(i);
                                    ``(III) the name and position of 
                                each employee described in subparagraph 
                                (E)(iii);
                                    ``(IV) each notification carried 
                                out under subparagraph (B)(ii); and
                                    ``(V) the results of each internal 
                                review initiated under subparagraph 
                                (B)(iii); and
                            ``(ii) make the records described in clause 
                        (i) available to the Commission at the request 
                        of the Commission.
            ``(3) Specified adult defined.--In this subsection, the 
        term `specified adult' means an individual who--
                    ``(A) is not younger than 65 years of age; or
                    ``(B) is not younger than 18 years of age and who a 
                registered open-end investment company or a transfer 
                agent acting on behalf of such a company reasonably 
                believes has a mental or physical impairment that 
                renders the individual unable to protect the interests 
                of the individual.''.
    (b) Recommendations.--
            (1) In general.--Not later than 1 year after the date of 
        enactment of this Act, the Securities and Exchange Commission, 
        in consultation with the entities specified in paragraph (2), 
        shall submit to Congress a report that includes recommendations 
        regarding the regulatory and legislative changes necessary to 
        address the financial exploitation of security holders who are 
        specified adults (as defined in subsection (i)(3) of section 22 
        of the Investment Company Act of 1940 (15 U.S.C. 80a-22), as 
        added by this section).
            (2) Consultation.--The entities specified in this paragraph 
        are as follows:
                    (A) The Commodity Futures Trading Commission.
                    (B) The Director of the Bureau of Consumer 
                Financial Protection.
                    (C) The Financial Industry Regulatory Authority.
                    (D) The North American Securities Administrators 
                Association.
                    (E) The Board of Governors of the Federal Reserve 
                System.
                    (F) The Comptroller of the Currency.
                    (G) The Federal Deposit Insurance Corporation.
                                 &lt;all&gt;
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