[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3857 Reported in House (RH)]
<DOC>
Union Calendar No. 865
115th CONGRESS
2d Session
H. R. 3857
[Report No. 115-894, Part I]
To amend the Securities Exchange Act of 1934 to establish standards of
conduct for brokers and dealers that are in the best interest of their
retail customers.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
September 27, 2017
Mrs. Wagner (for herself, Mr. Barr, Mr. Messer, Mr. Trott, Mr. Posey,
Mr. Williams, Mr. Budd, Mr. Hollingsworth, and Mr. Kustoff of
Tennessee) introduced the following bill; which was referred to the
Committee on Financial Services, and in addition to the Committees on
Ways and Means, and Education and the Workforce, for a period to be
subsequently determined by the Speaker, in each case for consideration
of such provisions as fall within the jurisdiction of the committee
concerned
August 10, 2018
Reported from the Committee on Financial Services
August 10, 2018
Referral to the Committees on Ways and Means and Education and the
Workforce extended for a period ending not later than November 16, 2018
November 16, 2018
Referral to the Committees on Ways and Means and Education and the
Workforce extended for a period ending not later than December 28, 2018
December 28, 2018
Additional sponsors: Mr. Luetkemeyer, Mr. Hill, Mr. Hultgren, Ms.
Tenney, Ms. McSally, Mr. Rothfus, and Mr. Sessions
December 28, 2018
Committees on Ways and Means and Education and the Workforce
discharged; committed to the Committee of the Whole House on the State
of the Union and ordered to be printed
_______________________________________________________________________
A BILL
To amend the Securities Exchange Act of 1934 to establish standards of
conduct for brokers and dealers that are in the best interest of their
retail customers.
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 ``Protecting Advice for Small Savers
Act of 2017'' or the ``PASS Act of 2017''.
SEC. 2. REPEAL OF DEPARTMENT OF LABOR FIDUCIARY RULE.
The final rule of the Department of Labor titled ``Definition of
the Term `Fiduciary' Conflict of Interest Rule--Retirement Investment
Advice'' and related prohibited transaction exemptions published April
8, 2016 (81 Fed. Reg. 20946), shall have no force or effect.
SEC. 3. STANDARDS OF CONDUCT FOR BROKERS AND DEALERS.
(a) Standard of Conduct for Brokers and Dealers When Making
Recommendations to Retail Customers.--
(1) In general.--The second subsection (k) of section 15 of
the Securities Exchange Act of 1934 (15 U.S.C. 78o(k))
(relating to standards of conduct) is amended to read as
follows:
``(k) Standard of Conduct for Recommendations to Retail
Customers.--
``(1) In general.--The standard of conduct for a broker or
dealer (or registered representative) when providing
recommendations to a retail customer is as follows:
``(A) Recommendation to retail customer.--When a
broker or dealer (or registered representative) makes a
recommendation to a retail customer, the recommendation
shall be in the retail customer's best interest at the
time it is made by--
``(i) reflecting reasonable diligence; and
``(ii) reflecting the reasonable care,
skill, and prudence that a broker or dealer (or
registered representative) would exercise based
on the customer's investment profile.
``(B) Disclosure to retail customer.--
``(i) In general.--Before a broker or
dealer (or registered representative) executes
a transaction for the first time for each
retail customer based on a recommendation to
such retail customer, such broker or dealer (or
registered representative) shall disclose prior
to the point of sale to such customer, in a
clear and concise manner--
``(I) the type and scope of
services the broker or dealer (or
registered representative) provides;
``(II) the standard of conduct that
applies to the relationship;
``(III) the types of compensation
the broker or dealer (or registered
representative) receives; and
``(IV) any material conflict of
interest.
``(ii) Content of disclosure.--The
Commission may issue regulations determining
the content of the disclosure required in
clause (i). Such regulations may provide for a
disclosure of fees received by the broker or
dealer, whether from the retail customer or a
third party, prior to the execution of the
transaction.
``(C) Material conflict of interest.--A broker or
dealer (or registered representative) shall avoid,
disclose, or otherwise reasonably manage any material
conflict of interest with a retail customer.
``(2) Nonviolation of standard of conduct.--The following
is not, by itself, a violation of the standard of conduct
described in paragraph (1):
``(A) The receipt of compensation, including
transaction-based compensation, by a broker or dealer
(or registered representative) or any affiliate of such
broker or dealer (or registered representative).
``(B) The recommendation by a broker or dealer (or
registered representative) to a retail customer of
principal transactions (including cross transactions),
or the recommendation of affiliated, unaffiliated, or
proprietary products or services, or a limited range of
products or services.
``(3) No requirement to recommend least expensive
product.--Nothing in this subsection shall require a broker or
dealer (or registered representative) to recommend the least
expensive security or investment strategy (however quantified)
or to analyze all possible securities, other products, or
investment strategies before making a recommendation.
``(4) Definitions.--In this subsection:
``(A) Compensation.--The term `compensation'
includes commissions or sales charges, or other fees or
variable compensation, for or related to the sale of
securities or for the servicing of customer accounts,
whether paid by the retail customer or received from a
third party.
``(B) Customer's investment profile.--The term
`customer's investment profile' has the meaning of such
term as described in Rule 2111 of the Financial
Industry Regulatory Authority as of the date of the
enactment of this subsection.
``(C) Institutional account.--The term
`institutional account' has the same meaning given such
term in Rule 4512 of the Financial Industry Regulatory
Authority as of the date of the enactment of this
subsection.
``(D) Material conflict of interest.--The term
`material conflict of interest' means a financial
interest of a broker or dealer (or registered
representative) that a reasonable person would expect
to affect the impartiality of a recommendation.
``(E) Reasonable diligence.--The term `reasonable
diligence' has the meaning of such term as described in
Rule 2111 of the Financial Industry Regulatory
Authority as of the date of the enactment of this
subsection.
``(F) Recommendation.--The term `recommendation'
means either of the following recommendations (under
the meaning ascribed to such term in Rule 2111 of the
Financial Industry Regulatory Authority) for which the
broker or dealer (or registered representative) making
the recommendation receives or will receive
compensation:
``(i) A non-discretionary recommendation to
buy, hold, or sell securities, or to follow an
investment strategy involving securities, for
taxable or non-taxable accounts.
``(ii) A non-discretionary recommendation
to rollover or transfer assets in an employer-
sponsored retirement plan to an individual
retirement account.
``(G) Retail customer.--The term `retail customer'
means a natural person or legal entity, or the legal
representative of such natural person or legal entity,
in each case other than an institutional account, who--
``(i) receives a recommendation from a
broker or dealer (or registered
representative); and
``(ii) implements such recommendation with
such broker or dealer primarily for personal,
family, retirement, or household purposes.
``(5) Supersession.--The provisions of this subsection
shall supersede and preempt State law, other than a State law
that regulates insurance products that are not securities,
insofar as they may now or hereafter relate to a broker or
dealer, or registered representative of a broker or dealer.
``(6) Fiduciary status under erisa, the internal revenue
code, the investment advisers act of 1940, or other fiduciary
regimes.--The fact that a person may owe, or may in fact comply
with, the standard of conduct under this subsection shall not
mean or create any presumption that such person is a
`fiduciary' under the Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1001 et seq.), section 4975 of the Internal
Revenue Code of 1986, the Investment Advisers Act of 1940 (15
U.S.C. 80b et seq.), or any other Federal, State, or local
statutory or regulatory fiduciary regime.''.
(2) Application.--The amendment made by paragraph (1) shall
apply to brokers and dealers (or registered representative) on
the date that is 18 months after the date of the enactment of
this Act.
(b) Rulemaking Authority.--Section 913 of the Dodd-Frank Wall
Street Reform and Consumer Protection Act is amended to read as
follows:
``SEC. 913. OBLIGATIONS OF BROKERS AND DEALERS AND OTHER PERSONS AND
ENTITIES.
``(a) Rulemaking.--
``(1) Rulemaking by the commission.--The Commission may
issue regulations as the Commission determines is necessary to
facilitate compliance by brokers and dealers (including their
registered representative) with the obligations of such brokers
and dealers (and their registered representative) under the
second subsection (k) of section 15 of the Securities Exchange
Act of 1934 only if such rulemaking does not impose any
obligation related to standard of care on a broker or dealer
(or its registered representative) that is in addition to,
duplicative of, or inconsistent with, the obligations set forth
in such subsection.
``(2) Rulemaking by the secretary of labor and the
secretary of the treasury.--After the date of the enactment of
the PASS Act of 2017, the Secretary of Labor and the Secretary
of the Treasury shall not promulgate any regulation under the
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1001
et seq.) or section 4975 of the Internal Revenue Code of 1986,
respectively, defining the circumstances under which a person
is considered a fiduciary that would impose any obligation on a
broker or dealer (or its registered representative) or on a
life insurer fulfilling the term `insurance company' as defined
in section 3(a)(2) of the Securities Act of 1933 (or its agents
or distributors) that is in addition to, duplicative of, or
inconsistent with, the obligations set forth in such subsection
(k) of section 15 of the Securities Exchange Act of 1934 (15
U.S.C. 78o).
``(b) Exemption Available to Certain Persons With Respect to
Manufacture or Sale of Annuities.--
``(1) Exemption.--With respect to the manufacture or sale
of annuities within paragraphs (2) or (8) of section 3(a) of
the Securities Act of 1933 (15 U.S.C. 77c(a)) or section 989J
of the Dodd-Frank Wall Street Reform and Consumer Protection
Act (15 U.S.C. 77c note), a person regulated by a State
insurance regulator may rely on the exemptions in section
408(b)(21) of the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1108(b)(21)) and section 4975(d)(24) of the
Internal Revenue Code of 1986 (as added by the PASS Act of
2017) only if--
``(A) such person adopts and implements practices
on a nationwide basis for the sale of annuity contracts
that meet or exceed the minimum requirements set forth
in the second subsection (k) of section 15 of the
Securities Exchange Act of 1934 (15 U.S.C. 78o) and
such person is subject to regulation or examination by
a State insurance regulator for purposes of assessing
market conduct; or
``(B) such person complies with a standard
substantially similar to such subsection (k) and is
regulated by a State insurance regulator with respect
to annuities within paragraphs (2) or (8) of section
3(a) of the Securities Act of 1933 (15 U.S.C. 77c(a))
or section 989J of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (15 U.S.C. 77c note).
``(2) Coordination and cooperation.--Upon the request of
any State insurance regulator, the Commission or the Financial
Industry Regulatory Authority shall provide such reasonable
assistance to the requesting Authority as needed in connection
with the coordination or implementation of this section.
``(3) Definition of state insurance regulator.--As used in
this subsection, the term `State insurance regulator' means the
principal insurance regulatory authority of a State, the
District of Columbia, any territory of the United States,
Puerto Rico, Guam, American Samoa, the Trust Territory of the
Pacific Islands, the Virgin Islands, and the Northern Mariana
Islands.
``(c) Additional Exemptions.--A person who complies with a standard
substantially similar to the second subsection (k) of section 15 of the
Securities Exchange Act of 1934 (15 U.S.C. 78o) may rely on the
exemptions in section 408(b)(21) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1108(b)(21)) and section 4975(d)(24) of
the Internal Revenue Code of 1986 (as added by the PASS Act of 2017)
only if such person is--
``(1) registered as an investment adviser under the
Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.) or
under the laws of the State in which the person maintains its
principal office and place of business; or
``(2) a bank or similar financial institution supervised by
the United States or a State, or a savings association (as
defined in section 3(b)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1813(b)(1)).''.
(c) Exemption From Prohibited Transactions for Brokers and Dealers,
and Other Persons and Entities, When Making Recommendations to Retail
Customers.--
(1) Section 408(b) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1108(b)) is amended by adding
at the end the following:
``(21) Any transaction involving a recommendation made by a
broker or dealer (including its registered representative), or
other persons or entities, that is subject to the requirements
of the second subsection (k) of section 15 of the Securities
Exchange Act of 1934 (15 U.S.C. 78o(k)).''.
(2) Section 4975(d) of the Internal Revenue Code of 1986 is
amended by adding at the end the following:
``(24) any transaction involving a recommendation made by a
broker or dealer (including its registered representatives), or
other persons or entities, that is subject to the requirements
of the second subsection (k) of section 15 of the Securities
Exchange Act of 1934 (15 U.S.C. 78o(k)).''.
(d) Repeal of Certain Provisions.--The following provisions are
hereby repealed:
(1) The second subsection (l) and subsection (m) of section
15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o).
(2) Subsections (g), (h), and (i) of section 211 of the
Investment Advisers Act of 1940 (15 U.S.C. 80b-11).
Union Calendar No. 865
115th CONGRESS
2d Session
H. R. 3857
[Report No. 115-894, Part I]
_______________________________________________________________________
A BILL
To amend the Securities Exchange Act of 1934 to establish standards of
conduct for brokers and dealers that are in the best interest of their
retail customers.
_______________________________________________________________________
December 28, 2018
Committees on Ways and Means and Education and the Workforce
discharged; committed to the Committee of the Whole House on the State
of the Union and ordered to be printed