‘‘(3) WAIVER.—The Commission may, by rule,
permit an investment adviser to provide the state-
ment required by paragraph (1) no more frequently
than annually if the client knowingly waives, in writ-
ing, the right to obtain such statement more fre-
quently than annually.
‘‘(4) EXCEPTION.—This subsection shall not
apply with respect to any account for which the per-
son is not acting as an investment adviser.
‘‘(e) FACILITIES
FOR FILING RECORDS
AND RE-
PORTS; ACCESS TO DISCIPLINARY AND OTHER INFORMA-
TION.—
‘‘(1) FILING DEPOSITORIES.—The Commission,
by rule, may require any investment adviser—
‘‘(A) to file with the Commission any fee,
application, report, or notice required by this
title or by the rules issued under this title
through any entity designated by the Commis-
sion for that purpose; and
‘‘(B) to pay the reasonable costs associated
with (i) such filing, and (ii) the maintenance of
the toll-free telephone listing required by para-
graph (2).
‘‘(2) LISTING FOR TOLL-FREE INQUIRIES.—The
Commission shall require the entity designated by
the Commission to receive fees, applications, reports,
or notices pursuant to paragraph (1) to—
‘‘(A) establish and maintain a toll-free tele-
phone listing to receive inquiries regarding the
disciplinary and other information involving in-
vestment advisers and persons associated with
investment advisers; and
‘‘(B) respond promptly to such inquiries in
writing.
Such designated entity may charge persons, other
than individual investors, reasonable fees for the
cost of providing written responses to inquiries. Such
designated entity shall not have any liability to any
person for any actions taken or omitted in good
faith under this paragraph.’’.
(b) RULEMAKING REQUIRED.—The Commission shall
prescribe rules for purposes of subsections (b), (c), and
(d) of section 204 of the Investment Advisers Act of 1940
(as added by subsection (a) of this section) within one year
after the date of enactment of this Act.
SEC. 7. BOND REQUIREMENT.
Section 208 of the Investment Advisers Act of 1940
(15 U.S.C. 80b–8) is amended by adding at the end the
following:
‘‘(e) BOND REQUIREMENT.—
‘‘(1) IN GENERAL.—The Commission, by rules
for the protection of investors, shall require any in-
vestment adviser registered under section 203 who—
‘‘(A) is authorized to exercise investment
discretion, as defined in section 3(a)(35) of the
Securities Exchange Act of 1934, with respect
to an account,
‘‘(B) has access to the securities or funds
of a client, or
‘‘(C) is an investment adviser of an invest-
ment company, as defined in section 2(a)(20) of
the Investment Company Act of 1940,
to obtain a bond from a reputable fidelity insurance
company against larceny and embezzlement in such
reasonable amounts and covering such officers, part-
ners, directors, and employees of the investment ad-
viser as the Commission may prescribe.
‘‘(2) CONSIDERATIONS
IN
RULEMAKING.—In
implementing paragraph (1), the Commission shall
consider—
‘‘(A) the degree of risk to client assets that
is involved;
‘‘(B) the cost and availability of fidelity
bonds;
‘‘(C) existing fidelity bonding require-
ments; and
‘‘(D) any alternative means to protect cli-
ent assets.
‘‘(3) EXEMPTION
AUTHORITY.—The Commis-
sion by rule may exempt any person or class of per-
sons, under such terms and conditions and for such
periods as the Commission shall provide in such
rule, from the requirements of this subsection and
the rules thereunder.’’.
SEC. 8. DISQUALIFYING CONDUCT.
(a) AMENDMENT.—Section 203(e) of the Investment
Advisers Act of 1940 (15 U.S.C. 80b–3(e)) is amended—
(1) by redesignating paragraphs (3) through
(7) as paragraphs (4) through (8), respectively; and
(2) by inserting after paragraph (2) the follow-
ing new paragraph:
‘‘(3) has been convicted within ten years pre-
ceding the filing of any application for registration
or at any time thereafter of any crime that is pun-
ishable by imprisonment for one or more years and
that is not described in paragraph (2) of this sub-
section or of a substantially equivalent crime by a
foreign court of competent jurisdiction.’’.
(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:
DONNALD K. ANDERSON,
Clerk.
HR 578 RFS——2
HR 578 RFS——3