(b) CONFORMING AMENDMENTS.—Section 203 of
such Act is further amended—
(1) in subsection (e)(6) (as redesignated by
subsection (a) of this section), by striking ‘‘this
paragraph (5)’’ and inserting ‘‘this paragraph (6)’’;
(2) in subsection (f)—
(A) by striking ‘‘paragraph (1), (4), (5), or
(7)’’ and inserting ‘‘paragraph (1), (5), (6), or
(8)’’; and
(B) by striking ‘‘paragraph (3)’’ and in-
serting ‘‘paragraph (4)’’; and
(3) in subsection (i)(1)(D), by striking ‘‘section
203(e)(5) of this title’’ and inserting ‘‘subsection
(e)(6) of this section’’.
SEC. 9. CONFIDENTIALITY.
Section 208 of the Investment Advisers Act of 1940
(15 U.S.C. 80b–8), as amended by section 7, is further
amended by adding at the end the following new sub-
section:
‘‘(f) DISCLOSURE OF CLIENT INFORMATION PROHIB-
ITED.—
‘‘(1) ADVISER DISCLOSURE.—It shall be unlaw-
ful for any investment adviser to disclose any per-
sonally identifiable financial information with respect
to any client unless required by law to do so, or un-
less—
‘‘(A) the client has been adequately in-
formed of the proposed information disclosure,
in accordance with rules prescribed by the Com-
mission, and (i) has been afforded the oppor-
tunity, in accordance with such rules, to object
to the disclosure, and (ii) has not objected or
has affirmatively consented;
‘‘(B) the information disclosed is necessary
and appropriate in order to establish an advi-
sory or brokerage account or to effect or at-
tempt to effect a transaction for the client;
‘‘(C) the information (i) is requested by
representatives of the Commission, a State
agency whose primary assignment is the regula-
tion of the securities business, or a self-regu-
latory organization, or (ii) is requested by sub-
poena; or
‘‘(D) the information is requested by the
client’s auditors or accountants.
‘‘(2) SECONDARY DISCLOSURE.—It is unlawful
for any person to whom information is disclosed for
the purpose described in paragraph (1)(B) to use
such information for any purpose other than the ef-
fectuation of the client’s transaction.’’.
SEC. 10. CUSTODIANSHIP.
(a) FINDINGS.—The Congress finds that—
(1) most clients of investment advisers who give
their advisers discretionary authority over their secu-
rities and funds provide for the safekeeping of their
securities and funds with a custodian;
(2) it is a customary business practice for
custodians to provide reports of the transactions in
client accounts directly to clients;
(3) such direct reporting provides an important
safeguard against improper use of client assets; and
(4) permitting advisers to serve as the sole re-
cipient of custodial account communications has al-
lowed, and may continue to allow, unscrupulous per-
sons to misuse client assets, causing substantial
losses for those clients.
(b) REPORT.—The Commission, within 18 months of
enactment of this Act, after consultation with the appro-
priate Federal banking agencies (as such term is defined
in section 3(q) of the Federal Deposit Insurance Act),
shall submit a report to Congress—
(1) analyzing the risks to investors when an in-
vestment adviser is made the sole recipient of com-
munications from the custodian or when an invest-
ment adviser or affiliate thereof serves as the custo-
dian; and
(2) making any recommendations the Commis-
sion believes are necessary to eliminate or reduce
these risks.
Passed the House of Representatives May 4, 1993.
Attest:
Clerk.
HR 578 EH——2