Investment Advisers Modernization Act of 2016

Bill: 114-hr-5424
Sponsor: Rep. Hurt, Robert [R-VA-5]
Introduced: 2016-06-09 in the House
Policy area: Finance and Financial Sector
Subjects: Administrative law and regulatory procedures
Business records
Financial services and investments
Fraud offenses and financial crimes
Marketing and advertising
Securities
Securities and Exchange Commission (SEC)

Summary:
action_date: 2016-06-09
text: 

Investment Advisers Modernization Act of 2016

 
This bill directs the Securities and Exchange Commission (SEC) to amend specified regulations for investment advisers as they apply to private equity firms and private investment funds.
 
A specified regulation regarding books and records that investment advisers must maintain shall be amended to declare that an investment adviser is not required to maintain:
 
 
any communications or materials (including any made available in a secure electronic or physical data room) used in connection with due diligence for a prospective investment, if the communications or materials are subject to a confidentiality agreement; or
 
any written communications regarding recommendations, advise, purchase or sell orders, or the receipt, disbursement or delivery of funds or securities if they are sent and received only by supervised persons of the investment adviser.
 
 
The bill revises the disclaimer that, in the case of an investment adviser that is a partnership, an assignment shall not be deemed to result from the death, withdrawal, sale or transfer of minority interests to apply the disclaimer also to minority members, shareholders, for other equity owners of the investment adviser.
 
The Investment Advisers Act of 1940 is amended to repeal the requirement that advisers organized as partnerships notify the other party to an investment adviser contract every time there is a change in the composition of the partnership.
 
The SEC shall waive the application of specified antifraud prohibitions to advisers who advertise exclusively to accredited investors, qualified clients, qualified purchasers, or knowledgeable employees.
 
Another regulation shall declare that an investment adviser is not required to deliver a brochure or brochure supplement to a client that is a limited partnership, limited liability company, or other pooled investment vehicle for which each limited partner, member, or other equity owner has received, before purchasing a security issued by the pooled investment vehicle, a prospectus, private placement memorandum, or other offering document containing (to the extent material to the private fund offering) substantially the same information as would be required by Part 2A or 2B of Form ADV.
 
The SEC must amend a certain regulation regarding Form PF which registered investment advisers with at least $150 million in private funds assets under management must file with the SEC to report information about the private funds that they manage. This amendment shall state that an investment adviser to a private fund is not required to report any information beyond that which is required by sections 1a and 1b of Form PF unless it is a large hedge fund adviser or a large liquidity fund adviser.
 
The SEC shall also amend the regulation requiring that client funds and securities of which an investment adviser has custody are verified by actual examination periodically by an independent public accountant. The current &quot;privately offered securities&quot; exemptions from this custody rule must apply to both certificated and uncertificated securities and exempt special purpose vehicles managed by private fund sponsors and co-investment funds that hold only one investment.
 
The SEC shall amend the proxy voting regulation to waive its application to any voting authority exercised by an investment adviser regarding client securities that are not public securities.
 
On the other hand, the SEC may not:
 
 
amend a specified regulation to extend its requirements and prohibitions concerning investment company sales literature to offerings of securities issued by private funds, or
 
adopt substantially similar rules applicable to such offerings.
 
 
This bill shall not apply to advisory services supplied to an investment company registered under the Investment Company Act of 1940.

action_date: 2016-07-21
text: 

Investment Advisers Modernization Act of 2016

 
This bill directs the Securities and Exchange Commission (SEC) to amend specified regulations for investment advisers as they apply to private equity firms and private investment funds.
 
(Sec. 2) The bill revises the disclaimer that, in the case of an investment adviser that is a partnership, an assignment shall not be deemed to result from the death, withdrawal, sale or transfer of minority interests to apply the disclaimer also to minority members, shareholders, for other equity owners of the investment adviser. Qualified clients of an investment adviser may consent to an assignment of the investment adviser contract at the time they enter into an advisory contract.
 
The Investment Advisers Act of 1940 is amended to repeal the requirement that advisers organized as partnerships notify the other party to an investment adviser contract every time there is a change in the composition of the partnership.
 
The SEC shall waive the application of specified antifraud prohibitions to advisers who advertise exclusively to:
 
 
qualified clients, determined as of the time of the publication, circulation, or distribution of the advertisement rather than immediately before or after entering into the investment advisory contract;
 
knowledgeable employees of any private fund to which the investment adviser acts as an investment adviser;
 
qualified purchasers; or
 
 accredited investors (determined as if the investment adviser were the securities issuer and the time of the publication, circulation, or distribution of the advertisement were the sale of such securities).
 
 
(Sec. 3) Another regulation shall declare that an investment adviser is not required to deliver a brochure or brochure supplement to a client that is a limited partnership, limited liability company, or other pooled investment vehicle for which each limited partner, member, or other equity owner has received, before purchasing a security issued by the pooled investment vehicle, a prospectus, private placement memorandum, or other offering document containing (to the extent material to the private fund offering) substantially the same information as would be required by Part 2A or 2B of Form ADV.
 
The SEC must amend a certain regulation regarding Form PF which registered investment advisers with at least $150 million in private funds assets under management must file with the SEC to report information about the private funds that they manage. This amendment shall state that an investment adviser to a private fund is not required to report any information beyond that which is required by sections 1a and 1b of Form PF unless it is a large hedge fund adviser or a large liquidity fund adviser.
 
The SEC shall also amend the regulation requiring that client funds and securities of which an investment adviser has custody are verified by actual examination periodically by an independent public accountant. The current &quot;privately offered securities&quot; exemptions from this custody rule must apply to the outstanding securities (except short-term paper) of the pooled investment vehicle beneficially owned exclusively by: 
 
 
the investment adviser;
 
affiliated or supervised persons;
 
officers, directors, and employees of affiliated persons;
 
family members (or former family members) of such persons; or
 
officers, directors, and employees or affiliated persons of, or persons who provide, have provided, or who have entered a contract to provide services to the investment adviser of the pooled investment vehicle, one or more of the adviser's clients, or to issuers from which the pooled investment vehicle or any other client of the vehicle's investment adviser has acquired securities, such as the portfolio company of a private fund. 
 
The SEC must also make an exception that applies if the pooled investment vehicle has been established to hold only the securities of a single issuer in which one or more pooled investment vehicles managed by the investment adviser have acquired a controlling interest.
 
The SEC shall amend the proxy voting regulation to waive its application to any voting authority exercised by an investment adviser regarding client securities that are not public securities.
 
(Sec. 4) On the other hand, the SEC may not:
 
 
amend a specified regulation to extend its requirements and prohibitions concerning investment company sales literature to offerings of securities issued by private funds, or
 
adopt substantially similar rules applicable to such offerings.
 
 
(Sec. 5) This bill shall not apply to advisory services supplied to an investment company registered under the Investment Company Act of 1940.
 
(Sec. 6) Any regulation referred to in this bill includes any successor regulation.

action_date: 2016-09-09
text: 

Investment Advisers Modernization Act of 2016

 
This bill directs the Securities and Exchange Commission (SEC) to amend specified regulations for investment advisers as they apply to private equity firms and private investment funds.
 
(Sec. 2) The bill revises the disclaimer that, in the case of an investment adviser that is a partnership, an assignment shall not be deemed to result from the death, withdrawal, sale or transfer of minority interests to apply the disclaimer also to minority members, shareholders, for other equity owners of the investment adviser. Qualified clients of an investment adviser may consent to an assignment of the investment adviser contract at the time they enter into an advisory contract.
 
The Investment Advisers Act of 1940 is amended to repeal the requirement that advisers organized as partnerships notify the other party to an investment adviser contract every time there is a change in the composition of the partnership.
 
The SEC shall waive the application of specified antifraud prohibitions to advisers who advertise exclusively to:
 
 
qualified clients, determined as of the time of the publication, circulation, or distribution of the advertisement rather than immediately before or after entering into the investment advisory contract;
 
knowledgeable employees of any private fund to which the investment adviser acts as an investment adviser;
 
qualified purchasers; or
 
 accredited investors (determined as if the investment adviser were the securities issuer and the time of the publication, circulation, or distribution of the advertisement were the sale of such securities).
 
 
(Sec. 3) The SEC must amend a certain regulation regarding Form PF which registered investment advisers with at least $150 million in private funds assets under management must file with the SEC to report information about the private funds that they manage. This amendment shall state that an investment adviser to a private fund is not required to report any information beyond that which is required by sections 1a and 1b of Form PF unless it is a large hedge fund adviser or a large liquidity fund adviser.
 
The SEC shall also amend the regulation requiring that client funds and securities of which an investment adviser has custody are verified by actual examination periodically by an independent public accountant.
 
The SEC shall amend the proxy voting regulation to waive its application to any voting authority exercised by an investment adviser regarding client securities that are not public securities.
 
(Sec. 4) On the other hand, the SEC may not:
 
 
amend a specified regulation to extend its requirements and prohibitions concerning investment company sales literature to offerings of securities issued by private funds, or
 
adopt substantially similar rules applicable to such offerings.
 
 
(Sec. 5) This bill shall not apply to advisory services supplied to an investment company registered under the Investment Company Act of 1940.
 
(Sec. 6) Any regulation referred to in this bill includes any successor regulation.


Legislative actions:
action_date: 2016-09-12
text: Received in the Senate and Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
action_date: 2016-09-09
text: Motion to reconsider laid on the table Agreed to without objection.
action_date: 2016-09-09
text: On passage Passed by the Yeas and Nays: 261 - 145 (Roll no. 495).
action_date: 2016-09-09
text: Passed/agreed to in House: On passage Passed by the Yeas and Nays: 261 - 145 (Roll no. 495).
action_date: 2016-09-09
text: On motion to recommit with instructions Failed by the Yeas and Nays: 176 - 232 (Roll no. 494).
action_date: 2016-09-09
text: Considered as unfinished business. (consideration: CR H5244-5246)
action_date: 2016-09-09
text: POSTPONED PROCEEDINGS - At the conclusion of debate on the Torres motion to recommit, the Chair put the question on adoption of the motion and by voice vote, announced the noes had prevailed. Mrs. Torres demanded the yeas and nays and the Chair postponed further proceedings on the motion to recommit until later in the legislative day.
action_date: 2016-09-09
text: The previous question on the motion to recommit with instructions was ordered without objection. (consideration: CR H5244)
action_date: 2016-09-09
text: DEBATE - The House proceeded with 10 minutes of debate on the Torres motion to recommit with instructions pending a reservation of a point of order. The instructions contained in the motion seek to require the bill to be reported back to the House with an amendment to add at the end of the bill a section pertaining to Report on Emergency Vehicle Response Times of Companies Owned by Private Funds. Subsequently, the reservation was removed.
action_date: 2016-09-09
text: Mrs. Torres moved to recommit with instructions to the Committee on Financial Services. (consideration: CR H5238-5239, H5244-5245; text: CR H5238-5239)
action_date: 2016-09-09
text: DEBATE - Pursuant to the provisions of H.Res. 844, the House proceeded with 10 minutes of debate on the Foster amendment.
action_date: 2016-09-09
text: DEBATE - The House proceeded with one hour of debate on H.R. 5424.
action_date: 2016-09-09
text: Rule provides for consideration of H.R. 2357 and H.R. 5424.
action_date: 2016-09-09
text: Considered under the provisions of rule H. Res. 844. (consideration: CR H5230-5239; text of measure as reported in House: CR H5230-5231)
action_date: 2016-09-09
text: ORDER OF PROCEDURE - Mr. Hurt asked unanimous consent that the question of adopting a motion to recommit on H.R. 5424 may be subject to postponement as though under clause 8 of rule 20.
action_date: 2016-09-08
text: Rule H. Res. 844 passed House.
action_date: 2016-09-06
text: Rules Committee Resolution H. Res. 844 Reported to House. Rule provides for consideration of H.R. 2357 and H.R. 5424.
action_date: 2016-07-21
text: Placed on the Union Calendar, Calendar No. 540.
action_date: 2016-07-21
text: Reported (Amended) by the Committee on Financial Services. H. Rept. 114-698.
action_date: 2016-07-21
text: Reported (Amended) by the Committee on Financial Services. H. Rept. 114-698.
action_date: 2016-06-16
text: Ordered to be Reported (Amended) by the Yeas and Nays: 47 - 12.
action_date: 2016-06-16
text: Committee Consideration and Mark-up Session Held.
action_date: 2016-06-15
text: Committee Consideration and Mark-up Session Held.
action_date: 2016-06-09
text: Referred to the House Committee on Financial Services.
action_date: 2016-06-09
text: Introduced in House
action_date: 2016-06-09
text: Introduced in House
action_date: 2016-05-17
text: Hearings Held by the Subcommittee on Capital Markets and Government Sponsored Enterprises Prior to Introduction and Referral.