Investment Advisers Modernization Act of 2016

Bill: 114-hr-5424
Sponsor: full_name: Rep. Hurt, Robert [R-VA-5]
Introduced: 2016-06-09
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)
Latest action: action_date: 2016-09-12
text: Received in the Senate and Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.

Summaries:
action_date: 2016-06-09
action_desc: Introduced in House
text: <p><b>Investment Advisers Modernization Act of 2016</b></p> <p>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.</p> <p>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:</p> <ul> <li>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</li> <li>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.</li> </ul> <p>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.</p> <p>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.</p> <p>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.</p> <p>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.</p> <p>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.</p> <p>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.</p> <p>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.</p> <p>On the other hand, the SEC may not:</p> <ul> <li>amend a specified regulation to extend its requirements and prohibitions concerning investment company sales literature to offerings of securities issued by private funds, or</li> <li>adopt substantially similar rules applicable to such offerings.</li> </ul> <p>This bill shall not apply to advisory services supplied to an investment company registered under the Investment Company Act of 1940.</p>

action_date: 2016-07-21
action_desc: Reported to House with amendment(s)
text: <p><b>Investment Advisers Modernization Act of 2016</b></p> <p>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.</p> <p>(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.</p> <p>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.</p> <p>The SEC shall waive the application of specified antifraud prohibitions to advisers who advertise exclusively to:</p> <ul> <li>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;</li> <li>knowledgeable employees of any private fund to which the investment adviser acts as an investment adviser;</li> <li>qualified purchasers; or</li> <li> 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).</li> </ul> <p>(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.</p> <p>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.</p> <p>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: </p> <ul> <li>the investment adviser;</li> <li>affiliated or supervised persons;</li> <li>officers, directors, and employees of affiliated persons;</li> <li>family members (or former family members) of such persons; or</li> <li>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. </ul> <p>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.</p>  <p>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.</p> <p>(Sec. 4) On the other hand, the SEC may not:</p> <ul> <li>amend a specified regulation to extend its requirements and prohibitions concerning investment company sales literature to offerings of securities issued by private funds, or</li> <li>adopt substantially similar rules applicable to such offerings.</li> </ul> <p>(Sec. 5) This bill shall not apply to advisory services supplied to an investment company registered under the Investment Company Act of 1940.</p> <p>(Sec. 6) Any regulation referred to in this bill includes any successor regulation.</p>

action_date: 2016-09-09
action_desc: Passed House amended
text: <p><b>Investment Advisers Modernization Act of 2016</b></p> <p>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.</p> <p>(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.</p> <p>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.</p> <p>The SEC shall waive the application of specified antifraud prohibitions to advisers who advertise exclusively to:</p> <ul> <li>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;</li> <li>knowledgeable employees of any private fund to which the investment adviser acts as an investment adviser;</li> <li>qualified purchasers; or</li> <li> 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).</li> </ul> <p>(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.</p> <p>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.</p> <p>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.</p> <p>(Sec. 4) On the other hand, the SEC may not:</p> <ul> <li>amend a specified regulation to extend its requirements and prohibitions concerning investment company sales literature to offerings of securities issued by private funds, or</li> <li>adopt substantially similar rules applicable to such offerings.</li> </ul> <p>(Sec. 5) This bill shall not apply to advisory services supplied to an investment company registered under the Investment Company Act of 1940.</p> <p>(Sec. 6) Any regulation referred to in this bill includes any successor regulation.</p>

tv_txt: I 114th CONGRESS 2d Session H. R. 5424 IN THE HOUSE OF REPRESENTATIVES June 9, 2016 Mr. Hurt of Virginia (for himself, Mr. Vargas , Mr. Foster , and Mr. Stivers ) introduced the following bill; which was referred to the Committee on Financial Services A BILL To amend the Investment Advisers Act of 1940 and to direct the Securities and Exchange Commission to amend its rules to modernize certain requirements relating to investment advisers, and for other purposes.

1. Short title This Act may be cited as the Investment Advisers Modernization Act of 2016 . 2. Modernizing certain requirements relating to investment advisers (a) Maintenance of books and records Not later than 90 days after the date of the enactment of this Act, the Securities and Exchange Commission shall amend section 275.204–2 of title 17, Code of Federal Regulations, to provide that an investment adviser is not required to maintain— (1) any communications or materials (including communications or materials 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 (2) any written communications required by paragraph (a)(7) of such section, if the communications are sent and received only by supervised persons of the investment adviser. (b) Investment advisory contracts (1) Assignment (A) Assignment defined Section 202(a)(1) of the Investment Advisers Act of 1940 ( 15 U.S.C. 80b–2(a)(1) ) is amended by striking ; but and all that follows and inserting ; but no assignment of an investment advisory contract shall be deemed to result from the death or withdrawal, or the sale or transfer of the interests, of a minority of the members, partners, shareholders, or other equity owners of the investment adviser having only a minority interest in the business of the investment adviser, or from the admission to the investment adviser of one or more members, partners, shareholders, or other equity owners who, after such admission, shall be only a minority of the members, partners, shareholders, or other equity owners and shall have only a minority interest in the business. . (B) Consent to assignment by qualified clients Section 205(a)(2) of the Investment Advisers Act of 1940 ( 15 U.S.C. 80b–5(a)(2) ) is amended by inserting before the semicolon the following: , except that if such other party is a qualified client (as defined in section 275.205–3 of title 17, Code of Federal Regulations, or any successor thereto), such other party may provide such consent at the time the parties enter into, extend, or renew such contract . (2) Not required to provide for notification of change in membership of partnership Section 205 of the Investment Advisers Act of 1940 ( 15 U.S.C. 80b–5 ) is amended— (A) in subsection (a)— (i) in paragraph (1), by striking the semicolon and inserting ; or ; (ii) in paragraph (2), by striking ; or and inserting a period; and (iii) by striking paragraph (3); and (B) in subsection (d), by striking paragraphs (2) and (3) of subsection (a) and inserting subsection (a)(2) . (c) Advertising rule (1) In general Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.206(4)–1 of title 17, Code of Federal Regulations, to provide that paragraphs (a)(1) and (a)(2) of such section do not apply to an advertisement that an investment adviser publishes, circulates, or distributes solely to persons described in paragraph (2) of this subsection. (2) Persons described A person is described in this paragraph if such person is, or the investment adviser reasonably believes such person is— (A) a qualified client (as defined in section 275.205–3 of title 17, Code of Federal Regulations), determined as of the time of the publication, circulation, or distribution of the advertisement rather than immediately prior to or after entering into the investment advisory contract referred to in such section; (B) a knowledgeable employee (as defined in section 270.3c–5 of title 17, Code of Federal Regulations) of any private fund to which the investment adviser acts as an investment adviser; (C) a qualified purchaser (as defined in section 2(a) of the Investment Company Act of 1940 ( 15 U.S.C. 80a–2(a) )); or (D) an accredited investor (as defined in section 230.501 of title 17, Code of Federal Regulations), determined as if the investment adviser were the issuer of securities referred to in such section and the time of the publication, circulation, or distribution of the advertisement were the sale of such securities. 3. Removing duplicative burdens and appropriately tailoring certain requirements (a) Brochure delivery Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.204–3(c) of title 17, Code of Federal Regulations, to provide 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 an understanding of the pooled investment vehicle, the business of the pooled investment vehicle, and the securities being offered by the pooled investment vehicle) substantially the same information as would be required by Part 2A or 2B of Form ADV at the time of delivery of the brochure or brochure supplement, as the case may be. (b) Form PF Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.204(b)–1 of title 17, Code of Federal Regulations, to provide 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 such investment adviser is a large hedge fund adviser or a large liquidity fund adviser (as such terms are defined in such Form). (c) Frequency of transaction reports by access persons Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.204A–1 of title 17, Code of Federal Regulations, so as to provide that, in the case of an investment adviser that acts as an investment adviser solely to one or more clients that primarily own or hold securities that are not public securities (regardless of whether such securities were public securities at the time of acquisition by the client or clients), the code of ethics required by such section shall require the access persons of the investment adviser to submit the transaction reports described in paragraph (b)(2) of such section at a frequency specified by the investment adviser, but not less frequently than annually. (d) Custody rule Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.206(4)–2 of title 17, Code of Federal Regulations, as follows: (1) The Commission shall provide additional exceptions to the independent verification requirement of paragraph (a)(4) of such section for an investment adviser with respect to funds and securities of a limited partnership (or a limited liability company or other type of pooled investment vehicle), as follows: (A) An exception that applies if the outstanding securities (other than short-term paper, as defined in section 2(a) of the Investment Company Act of 1940 ( 15 U.S.C. 80a–2(a) )) of the pooled investment vehicle are beneficially owned exclusively by— (i) the investment adviser; (ii) affiliated persons of the investment adviser; (iii) supervised persons of the investment adviser; (iv) officers, directors, and employees of the affiliated persons of the investment adviser; (v) family members and former family members (as such terms are defined in section 275.202(a)(11)(G)–1 of title 17, Code of Federal Regulations) of persons described in clause (iii) or (iv); or (vi) officers, directors, employees, or affiliated persons of, or persons who provide, have provided, or have entered into a contract to provide services to— (I) the investment adviser of the pooled investment vehicle; (II) one or more clients of the investment adviser of the pooled investment vehicle; or (III) issuers from which the pooled investment vehicle or any other client of the investment adviser of the pooled investment vehicle has acquired securities, such as the portfolio company of a private fund. (B) 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. (2) Consistent with, and expanding on, IM Guidance Update No. 2013–04, titled Privately Offered Securities under the Investment Advisers Act Custody Rule , published by the Division of Investment Management of the Commission, the Commission shall, with respect to the exception for certain privately offered securities in paragraph (b)(2) of such section— (A) remove the requirement of clause (i)(B) of such paragraph (relating to the uncertificated nature and recordation of ownership of the securities); and (B) remove the requirement of clause (ii) of such paragraph (relating to audit and financial statement distribution requirements with respect to securities of pooled investment vehicles). (e) Proxy voting rule Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.206(4)–6 of title 17, Code of Federal Regulations, to provide that such section does not apply to any voting authority with respect to client securities that are not public securities. 4. Facilitating robust capital formation by preventing regulatory mismatch The Commission may not— (1) amend section 230.156 of title 17, Code of Federal Regulations, to extend the provisions of such section to offerings of securities issued by private funds; or (2) adopt rules applicable to offerings of securities issued by private funds that are substantially the same as the provisions of such section. 5. Exclusion of advisory services to registered investment companies This Act shall not apply with respect to advisory services provided, or proposed to be provided, to an investment company registered under the Investment Company Act of 1940 ( 15 U.S.C. 80a–1 et seq. ). 6. References to regulations In this Act, any reference to a regulation shall be construed to refer to such regulation or any successor thereto. 7. Definitions In this Act: (1) Public security The term public security means a security issued by an issuer that— (A) is required to submit reports under section 13(a) or 15(d) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78m(a) ; 78o(d)); or (B) has a security that is listed or traded on any exchange or organized market operating in a foreign jurisdiction. (2) Terms defined in Investment Advisers Act of 1940 The terms defined in section 202(a) of the Investment Advisers Act of 1940 ( 15 U.S.C. 80b–2(a) ) have the meanings given such terms in such section.

tv_txt: IB Union Calendar No. 540 114th CONGRESS 2d Session H. R. 5424 [Report No. 114–698] IN THE HOUSE OF REPRESENTATIVES June 9, 2016 Mr. Hurt of Virginia (for himself, Mr. Vargas , Mr. Foster , and Mr. Stivers ) introduced the following bill; which was referred to the Committee on Financial Services July 21, 2016 Additional sponsors: Ms. Sinema and Mr. Hultgren July 21, 2016 Reported with an amendment, committed to the Committee of the Whole House on the State of the Union, and ordered to be printed Strike out all after the enacting clause and insert the part printed in italic For text of introduced bill, see copy of bill as introduced on June 9, 2016 A BILL To amend the Investment Advisers Act of 1940 and to direct the Securities and Exchange Commission to amend its rules to modernize certain requirements relating to investment advisers, and for other purposes.

1. Short title This Act may be cited as the Investment Advisers Modernization Act of 2016 . 2. Modernizing certain requirements relating to investment advisers (a) Investment advisory contracts (1) Assignment (A) Assignment defined Section 202(a)(1) of the Investment Advisers Act of 1940 ( 15 U.S.C. 80b–2(a)(1) ) is amended by striking ; but and all that follows and inserting ; but no assignment of an investment advisory contract shall be deemed to result from the death or withdrawal, or the sale or transfer of the interests, of a minority of the members, partners, shareholders, or other equity owners of the investment adviser having only a minority interest in the business of the investment adviser, or from the admission to the investment adviser of one or more members, partners, shareholders, or other equity owners who, after such admission, shall be only a minority of the members, partners, shareholders, or other equity owners and shall have only a minority interest in the business. . (B) Consent to assignment by qualified clients Section 205(a)(2) of the Investment Advisers Act of 1940 ( 15 U.S.C. 80b–5(a)(2) ) is amended by inserting before the semicolon the following: , except that if such other party is a qualified client (as defined in section 275.205–3 of title 17, Code of Federal Regulations, or any successor thereto), such other party may provide such consent at the time the parties enter into, extend, or renew such contract . (2) Not required to provide for notification of change in membership of partnership Section 205 of the Investment Advisers Act of 1940 ( 15 U.S.C. 80b–5 ) is amended— (A) in subsection (a)— (i) in paragraph (1), by striking the semicolon and inserting ; or ; (ii) in paragraph (2), by striking ; or and inserting a period; and (iii) by striking paragraph (3); and (B) in subsection (d), by striking paragraphs (2) and (3) of subsection (a) and inserting subsection (a)(2) . (b) Advertising rule (1) In general Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.206(4)–1 of title 17, Code of Federal Regulations, to provide that paragraphs (a)(1) and (a)(2) of such section do not apply to an advertisement that an investment adviser publishes, circulates, or distributes solely to persons described in paragraph (2) of this subsection. (2) Persons described A person is described in this paragraph if such person is, or the investment adviser reasonably believes such person is— (A) a qualified client (as defined in section 275.205–3 of title 17, Code of Federal Regulations), determined as of the time of the publication, circulation, or distribution of the advertisement rather than immediately prior to or after entering into the investment advisory contract referred to in such section; (B) a knowledgeable employee (as defined in section 270.3c–5 of title 17, Code of Federal Regulations) of any private fund to which the investment adviser acts as an investment adviser; (C) a qualified purchaser (as defined in section 2(a) of the Investment Company Act of 1940 ( 15 U.S.C. 80a–2(a) )); or (D) an accredited investor (as defined in section 230.501 of title 17, Code of Federal Regulations), determined as if the investment adviser were the issuer of securities referred to in such section and the time of the publication, circulation, or distribution of the advertisement were the sale of such securities. 3. Removing duplicative burdens and appropriately tailoring certain requirements (a) Brochure delivery Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.204–3(c) of title 17, Code of Federal Regulations, to provide 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 an understanding of the pooled investment vehicle, the business of the pooled investment vehicle, and the securities being offered by the pooled investment vehicle) substantially the same information as would be required by Part 2A or 2B of Form ADV at the time of delivery of the brochure or brochure supplement, as the case may be. (b) Form PF Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.204(b)–1 of title 17, Code of Federal Regulations, to provide 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 such investment adviser is a large hedge fund adviser or a large liquidity fund adviser (as such terms are defined in such Form). (c) Custody rule Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.206(4)–2 of title 17, Code of Federal Regulations, as follows: (1) The Commission shall provide additional exceptions to the independent verification requirement of paragraph (a)(4) of such section for an investment adviser with respect to funds and securities of a limited partnership (or a limited liability company or other type of pooled investment vehicle), as follows: (A) An exception that applies if the outstanding securities (other than short-term paper, as defined in section 2(a) of the Investment Company Act of 1940 ( 15 U.S.C. 80a–2(a) )) of the pooled investment vehicle are beneficially owned exclusively by— (i) the investment adviser; (ii) affiliated persons of the investment adviser; (iii) supervised persons of the investment adviser; (iv) officers, directors, and employees of the affiliated persons of the investment adviser; (v) family members and former family members (as such terms are defined in section 275.202(a)(11)(G)–1 of title 17, Code of Federal Regulations) of persons described in clause (iii) or (iv); or (vi) officers, directors, employees, or affiliated persons of, or persons who provide, have provided, or have entered into a contract to provide services to— (I) the investment adviser of the pooled investment vehicle; (II) one or more clients of the investment adviser of the pooled investment vehicle; or (III) issuers from which the pooled investment vehicle or any other client of the investment adviser of the pooled investment vehicle has acquired securities, such as the portfolio company of a private fund. (B) 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. (2) Consistent with, and expanding on, IM Guidance Update No. 2013–04, titled Privately Offered Securities under the Investment Advisers Act Custody Rule , published by the Division of Investment Management of the Commission, the Commission shall, with respect to the exception for certain privately offered securities in paragraph (b)(2) of such section— (A) remove the requirement of clause (i)(B) of such paragraph (relating to the uncertificated nature and recordation of ownership of the securities); and (B) remove the requirement of clause (ii) of such paragraph (relating to audit and financial statement distribution requirements with respect to securities of pooled investment vehicles). (d) Proxy voting rule Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.206(4)–6 of title 17, Code of Federal Regulations, to provide that such section does not apply to any voting authority with respect to client securities that are not public securities. 4. Facilitating robust capital formation by preventing regulatory mismatch The Commission may not— (1) amend section 230.156 of title 17, Code of Federal Regulations, to extend the provisions of such section to offerings of securities issued by private funds; or (2) adopt rules applicable to offerings of securities issued by private funds that are substantially the same as the provisions of such section. 5. Exclusion of advisory services to registered investment companies This Act shall not apply with respect to advisory services provided, or proposed to be provided, to an investment company registered under the Investment Company Act of 1940 ( 15 U.S.C. 80a–1 et seq. ). 6. References to regulations In this Act, any reference to a regulation shall be construed to refer to such regulation or any successor thereto. 7. Definitions In this Act: (1) Public security The term public security means a security issued by an issuer that— (A) is required to submit reports under section 13(a) or 15(d) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78m(a) ; 78o(d)); or (B) has a security that is listed or traded on any exchange or organized market operating in a foreign jurisdiction. (2) Terms defined in Investment Advisers Act of 1940 The terms defined in section 202(a) of the Investment Advisers Act of 1940 ( 15 U.S.C. 80b–2(a) ) have the meanings given such terms in such section.

July 21, 2016 Reported with an amendment, committed to the Committee of the Whole House on the State of the Union, and ordered to be printed

tv_txt: IB 114th CONGRESS 2d Session H. R. 5424 IN THE HOUSE OF REPRESENTATIVES AN ACT To amend the Investment Advisers Act of 1940 and to direct the Securities and Exchange Commission to amend its rules to modernize certain requirements relating to investment advisers, and for other purposes.

1. Short title This Act may be cited as the Investment Advisers Modernization Act of 2016 . 2. Modernizing certain requirements relating to investment advisers (a) Investment advisory contracts (1) Assignment (A) Assignment defined Section 202(a)(1) of the Investment Advisers Act of 1940 ( 15 U.S.C. 80b–2(a)(1) ) is amended by striking ; but and all that follows and inserting ; but no assignment of an investment advisory contract shall be deemed to result from the death or withdrawal, or the sale or transfer of the interests, of a minority of the members, partners, shareholders, or other equity owners of the investment adviser having only a minority interest in the business of the investment adviser, or from the admission to the investment adviser of one or more members, partners, shareholders, or other equity owners who, after such admission, shall be only a minority of the members, partners, shareholders, or other equity owners and shall have only a minority interest in the business. . (B) Consent to assignment by qualified clients Section 205(a)(2) of the Investment Advisers Act of 1940 ( 15 U.S.C. 80b–5(a)(2) ) is amended by inserting before the semicolon the following: , except that if such other party is a qualified client (as defined in section 275.205–3 of title 17, Code of Federal Regulations, or any successor thereto), such other party may provide such consent at the time the parties enter into, extend, or renew such contract . (2) Not required to provide for notification of change in membership of partnership Section 205 of the Investment Advisers Act of 1940 ( 15 U.S.C. 80b–5 ) is amended— (A) in subsection (a)— (i) in paragraph (1), by striking the semicolon and inserting ; or ; (ii) in paragraph (2), by striking ; or and inserting a period; and (iii) by striking paragraph (3); and (B) in subsection (d), by striking paragraphs (2) and (3) of subsection (a) and inserting subsection (a)(2) . (b) Advertising rule (1) In general Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.206(4)–1 of title 17, Code of Federal Regulations, to provide that paragraphs (a)(1) and (a)(2) of such section do not apply to an advertisement that an investment adviser publishes, circulates, or distributes solely to persons described in paragraph (2) of this subsection. (2) Persons described A person is described in this paragraph if such person is, or the investment adviser reasonably believes such person is— (A) a qualified client (as defined in section 275.205–3 of title 17, Code of Federal Regulations), determined as of the time of the publication, circulation, or distribution of the advertisement rather than immediately prior to or after entering into the investment advisory contract referred to in such section; (B) a knowledgeable employee (as defined in section 270.3c–5 of title 17, Code of Federal Regulations) of any private fund to which the investment adviser acts as an investment adviser; (C) a qualified purchaser (as defined in section 2(a) of the Investment Company Act of 1940 ( 15 U.S.C. 80a–2(a) )); or (D) an accredited investor (as defined in section 230.501 of title 17, Code of Federal Regulations), determined as if the investment adviser were the issuer of securities referred to in such section and the time of the publication, circulation, or distribution of the advertisement were the sale of such securities. 3. Removing duplicative burdens and appropriately tailoring certain requirements (a) Form PF Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.204(b)–1 of title 17, Code of Federal Regulations, to provide 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 such investment adviser is a large hedge fund adviser or a large liquidity fund adviser (as such terms are defined in such Form). (b) Custody rule Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.206(4)–2 of title 17, Code of Federal Regulations, consistent with, and expanding on, IM Guidance Update No. 2013–04, titled Privately Offered Securities under the Investment Advisers Act Custody Rule , published by the Division of Investment Management of the Commission, with respect to the exception for certain privately offered securities in paragraph (b)(2) of such section, so as to— (1) remove the requirement of clause (i)(B) of such paragraph (relating to the uncertificated nature and recordation of ownership of the securities); and (2) remove the requirement of clause (ii) of such paragraph (relating to audit and financial statement distribution requirements with respect to securities of pooled investment vehicles). (c) Proxy voting rule Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.206(4)–6 of title 17, Code of Federal Regulations, to provide that such section does not apply to any voting authority with respect to client securities that are not public securities. 4. Facilitating robust capital formation by preventing regulatory mismatch The Commission may not— (1) amend section 230.156 of title 17, Code of Federal Regulations, to extend the provisions of such section to offerings of securities issued by private funds; or (2) adopt rules applicable to offerings of securities issued by private funds that are substantially the same as the provisions of such section. 5. Exclusion of advisory services to registered investment companies This Act shall not apply with respect to advisory services provided, or proposed to be provided, to an investment company registered under the Investment Company Act of 1940 ( 15 U.S.C. 80a–1 et seq. ). 6. References to regulations In this Act, any reference to a regulation shall be construed to refer to such regulation or any successor thereto. 7. Definitions In this Act: (1) Public security The term public security means a security issued by an issuer that— (A) is required to submit reports under section 13(a) or 15(d) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78m(a) ; 78o(d)); or (B) has a security that is listed or traded on any exchange or organized market operating in a foreign jurisdiction. (2) Terms defined in Investment Advisers Act of 1940 The terms defined in section 202(a) of the Investment Advisers Act of 1940 ( 15 U.S.C. 80b–2(a) ) have the meanings given such terms in such section.

Passed the House of Representatives September 9, 2016. Karen L. Haas, Clerk.

tv_txt: IIB 114th CONGRESS 2d Session H. R. 5424 IN THE SENATE OF THE UNITED STATES September 12, 2016 Received; read twice and referred to the Committee on Banking, Housing, and Urban Affairs AN ACT To amend the Investment Advisers Act of 1940 and to direct the Securities and Exchange Commission to amend its rules to modernize certain requirements relating to investment advisers, and for other purposes.

1. Short title This Act may be cited as the Investment Advisers Modernization Act of 2016 . 2. Modernizing certain requirements relating to investment advisers (a) Investment advisory contracts (1) Assignment (A) Assignment defined Section 202(a)(1) of the Investment Advisers Act of 1940 ( 15 U.S.C. 80b–2(a)(1) ) is amended by striking ; but and all that follows and inserting ; but no assignment of an investment advisory contract shall be deemed to result from the death or withdrawal, or the sale or transfer of the interests, of a minority of the members, partners, shareholders, or other equity owners of the investment adviser having only a minority interest in the business of the investment adviser, or from the admission to the investment adviser of one or more members, partners, shareholders, or other equity owners who, after such admission, shall be only a minority of the members, partners, shareholders, or other equity owners and shall have only a minority interest in the business. . (B) Consent to assignment by qualified clients Section 205(a)(2) of the Investment Advisers Act of 1940 ( 15 U.S.C. 80b–5(a)(2) ) is amended by inserting before the semicolon the following: , except that if such other party is a qualified client (as defined in section 275.205–3 of title 17, Code of Federal Regulations, or any successor thereto), such other party may provide such consent at the time the parties enter into, extend, or renew such contract . (2) Not required to provide for notification of change in membership of partnership Section 205 of the Investment Advisers Act of 1940 ( 15 U.S.C. 80b–5 ) is amended— (A) in subsection (a)— (i) in paragraph (1), by striking the semicolon and inserting ; or ; (ii) in paragraph (2), by striking ; or and inserting a period; and (iii) by striking paragraph (3); and (B) in subsection (d), by striking paragraphs (2) and (3) of subsection (a) and inserting subsection (a)(2) . (b) Advertising rule (1) In general Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.206(4)–1 of title 17, Code of Federal Regulations, to provide that paragraphs (a)(1) and (a)(2) of such section do not apply to an advertisement that an investment adviser publishes, circulates, or distributes solely to persons described in paragraph (2) of this subsection. (2) Persons described A person is described in this paragraph if such person is, or the investment adviser reasonably believes such person is— (A) a qualified client (as defined in section 275.205–3 of title 17, Code of Federal Regulations), determined as of the time of the publication, circulation, or distribution of the advertisement rather than immediately prior to or after entering into the investment advisory contract referred to in such section; (B) a knowledgeable employee (as defined in section 270.3c–5 of title 17, Code of Federal Regulations) of any private fund to which the investment adviser acts as an investment adviser; (C) a qualified purchaser (as defined in section 2(a) of the Investment Company Act of 1940 ( 15 U.S.C. 80a–2(a) )); or (D) an accredited investor (as defined in section 230.501 of title 17, Code of Federal Regulations), determined as if the investment adviser were the issuer of securities referred to in such section and the time of the publication, circulation, or distribution of the advertisement were the sale of such securities. 3. Removing duplicative burdens and appropriately tailoring certain requirements (a) Form PF Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.204(b)–1 of title 17, Code of Federal Regulations, to provide 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 such investment adviser is a large hedge fund adviser or a large liquidity fund adviser (as such terms are defined in such Form). (b) Custody rule Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.206(4)–2 of title 17, Code of Federal Regulations, consistent with, and expanding on, IM Guidance Update No. 2013–04, titled Privately Offered Securities under the Investment Advisers Act Custody Rule , published by the Division of Investment Management of the Commission, with respect to the exception for certain privately offered securities in paragraph (b)(2) of such section, so as to— (1) remove the requirement of clause (i)(B) of such paragraph (relating to the uncertificated nature and recordation of ownership of the securities); and (2) remove the requirement of clause (ii) of such paragraph (relating to audit and financial statement distribution requirements with respect to securities of pooled investment vehicles). (c) Proxy voting rule Not later than 90 days after the date of the enactment of this Act, the Commission shall amend section 275.206(4)–6 of title 17, Code of Federal Regulations, to provide that such section does not apply to any voting authority with respect to client securities that are not public securities. 4. Facilitating robust capital formation by preventing regulatory mismatch The Commission may not— (1) amend section 230.156 of title 17, Code of Federal Regulations, to extend the provisions of such section to offerings of securities issued by private funds; or (2) adopt rules applicable to offerings of securities issued by private funds that are substantially the same as the provisions of such section. 5. Exclusion of advisory services to registered investment companies This Act shall not apply with respect to advisory services provided, or proposed to be provided, to an investment company registered under the Investment Company Act of 1940 ( 15 U.S.C. 80a–1 et seq. ). 6. References to regulations In this Act, any reference to a regulation shall be construed to refer to such regulation or any successor thereto. 7. Definitions In this Act: (1) Public security The term public security means a security issued by an issuer that— (A) is required to submit reports under section 13(a) or 15(d) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78m(a) ; 78o(d)); or (B) has a security that is listed or traded on any exchange or organized market operating in a foreign jurisdiction. (2) Terms defined in Investment Advisers Act of 1940 The terms defined in section 202(a) of the Investment Advisers Act of 1940 ( 15 U.S.C. 80b–2(a) ) have the meanings given such terms in such section.

Passed the House of Representatives September 9, 2016. Karen L. Haas, Clerk