Investment Adviser Oversight Act of 2012 - Amends the Investment Advisers Act of 1940 to require investment advisers to register with a registered national investment adviser association, unless exempted according to specified criteria.
Prescribes registration requirements and procedures.
Requires each national investment adviser association to conduct an annual conference to which representatives from the state securities administrators association and the Securities and Exchange Commission (SEC) shall be invited to participate in order to foster cooperation between such entities.
Sets forth procedures for: (1) approval of registration; and (2) discipline of members by a national investment adviser association, including membership denial and summary suspension.
Grants the SEC enforcement authority including suspension and expulsion of members and removal or censure of officers and directors.
[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4624 Introduced in House (IH)]
112th CONGRESS
2d Session
H. R. 4624
To amend the Investment Advisers Act of 1940 to provide for the
registration and oversight of national investment adviser associations.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
April 25, 2012
Mr. Bachus (for himself and Mrs. McCarthy of New York) introduced the
following bill; which was referred to the Committee on Financial
Services
_______________________________________________________________________
A BILL
To amend the Investment Advisers Act of 1940 to provide for the
registration and oversight of national investment adviser associations.
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 ``Investment Adviser Oversight Act of
2012''.
SEC. 2. REGISTRATION AND OVERSIGHT OF NATIONAL INVESTMENT ADVISER
ASSOCIATIONS.
The Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.) is
amended by inserting after section 203A the following new sections:
``SEC. 203B. REGISTRATION OF NATIONAL INVESTMENT ADVISER ASSOCIATIONS.
``(a) Registration Requirement.--Except as provided in subsection
(b), it shall be unlawful for any investment adviser registered under
section 203 or that is regulated or required to be regulated as an
investment adviser in a State in which it maintains its principal
office and place of business to make use of the mails or any means or
instrumentality of interstate commerce in connection with the person's
business as an investment adviser unless the investment adviser has
applied to be a member of a registered national investment adviser
association registered in accordance with this section and section 203C
within the time period provided by the Commission under subsection (f).
No investment adviser shall be required to be a member of more than one
registered national investment adviser association.
``(b) Exemptions.--The provisions of subsection (a) shall not apply
to the following investment advisers:
``(1) Any investment adviser one or more of whose clients
is an investment company registered under the Investment
Company Act of 1940.
``(2) Any investment adviser that has total assets under
management 90 percent or more of which are attributable
individually or in the aggregate to one or more of the
following persons with which the investment adviser has entered
into a written investment advisory agreement:
``(A) A client that is not `in the United States'
in accordance with the definitions in section 202.
``(B) A qualified purchaser as defined in section
2(a)(51) of the Investment Company Act of 1940.
``(C) An issuer that would be an investment
company, as defined in section 3 of the Investment
Company Act of 1940, but for section 3(c)(10) of that
Act.
``(D) An issuer that would be an investment
company, as defined in section 3 of the Investment
Company Act of 1940, but for section 3(c)(11) of that
Act.
``(E) A private fund.
``(F) An issuer that would be an investment
company, as defined in section 3 of the Investment
Company Act of 1940, but for section 3(c)(5)(C) of that
Act.
``(G) An issuer that would be an investment
company, as defined in section 3 of the Investment
Company Act of 1940, but for Rule 3a-7 issued under
that Act (17 C.F.R. 270.3a-7).
``(H) A company that has elected to be a business
development company pursuant to section 54 of the
Investment Company Act of 1940 and has not withdrawn
its election.
``(I) An investment adviser registered under
section 203 or that is regulated or required to be
regulated as an investment adviser in a State in which
it maintains its principal office and place of
business.
``(J) A broker or dealer registered under section
15 of the Securities Exchange Act of 1934; and
``(K) An employees' securities company that has
been granted an exemption under section 6(b) of the
Investment Company Act of 1940 and any such company
that has filed an application for an exemption under
that section and that, under Commission rule, is exempt
pending final determination of such application by the
Commission.
``(3) Any investment adviser that is controlling,
controlled by, or under common control with one or more
investment advisers described in paragraph (1) or (2)
(hereafter referred to as `affiliated investment advisers') if
the affiliated investment advisers and all such investment
advisers described in such paragraph, have combined assets
under management 90 percent or more of which are attributable
to one or more of the types of clients described in paragraph
(1) and subparagraphs (A) through (K) of paragraph (2), unless
the Commission, by order, determines that such affiliated
investment adviser is an independent affiliate.
``(4) Any investment adviser that is a member of any other
national investment adviser association registered with the
Commission.
``(5) Any other investment adviser or class of investment
advisers that the Commission may exempt by rule or regulation
consistent with section 206A.
``(c) Independent Affiliate Definition and Determination.--
``(1) Definition.--For purposes of subsection (b)(3), the
term `independent affiliate' means any affiliated investment
adviser with compliance programs, operations, and businesses
that are sufficiently independent from those of the investment
advisers described in subsection (b)(1) or (2) that membership
by any such affiliated investment adviser in a registered
national investment adviser association is necessary in the
public interest and for the protection of investors or in
furtherance of the purposes of this title.
``(2) Determination.--The Commission's determination under
such subsection (b)(3) shall be made by order at the earlier of
180 days from receipt by the Commission of a request from any
national investment adviser association or investment adviser
for such a determination, or the date of the first on-site
examination of such affiliated investment adviser conducted by
the Commission after the date of enactment of this section. The
Commission may, by order, determine that an investment adviser
that the Commission had previously determined to be an
independent affiliate is no longer an independent affiliate due
to changes in its compliance programs, operations, or
businesses.
``(3) Notification.--The Commission shall promptly notify
all national investment adviser associations of any
determination that an investment adviser is an independent
affiliate. In addition to the authority to determine by order
that a particular investment adviser is an independent
affiliate, the Commission shall have authority from time to
time to exempt by rule, regulation or order, any class of
investment advisers that the Commission determines are
independent affiliates.
``(d) Procedure for Registration.--An association of investment
advisers may be registered as a national investment adviser association
by filing with the Commission an application for registration in such
form, and containing the rules of the association and such other
information and documents, as the Commission, by rule, may prescribe as
necessary or appropriate in the public interest or for the protection
of investors or otherwise in furtherance of the provisions of this
title.
``(e) Requirements for Registration.--An association of investment
advisers shall not be registered as a national investment adviser
association unless the Commission determines that--
``(1) such association is so organized and has the capacity
to be able to carry out the purposes of this title and to
enforce compliance by its members and persons associated with
its members with the provisions of this title, the rules and
regulations thereunder, and the rules of the association; and
``(2) the rules of the association--
``(A) assure a fair representation of the public
interest and the association's members in the selection
of the association's board of directors and the
administration of its affairs and provide that a
majority of its directors shall not be associated with
any member of the association or other self-regulatory
organization registered under the Securities Exchange
Act of 1934, or any investment adviser, broker, or
dealer;
``(B) are designed to prevent fraudulent and
manipulative acts and practices, to protect investors
and the public interest, and to promote business
conduct standards for its members consistent with their
obligations to investors under this title and the rules
thereunder and are not designed to impose any schedule
or fixed rates of fees to be charged by its members or
to regulate by virtue of any authority conferred by
this title matters not related to the purposes of this
title or the administration of the association;
``(C) are necessary in furtherance of, and are
consistent with, the principles and provisions of this
title and the rules thereunder, and the fiduciary
standards applicable to investment advisers under this
title or State law, and do not unnecessarily duplicate,
overlap, or conflict with any existing provision of
this title or the rules thereunder;
``(D) are necessary or appropriate in light of the
business of registered investment advisers and do not
impose any burden on the ability of members to compete
in the market for financial services that is not
necessary or appropriate in the public interest or for
the protection of investors or otherwise in furtherance
of the provisions of this title;
``(E) provide for periodic examinations of its
members and persons associated with its members to
determine compliance with the applicable provisions of
this title, the rules and regulations thereunder, and
the rules of the association, and for consultation with
the Commission in the development of such an
examination program, except that the association--
``(i) shall not conduct periodic
examinations of any investment adviser in a
State--
``(I) in which the investment
adviser is regulated or required to be
regulated and maintains its principal
office and place of business; and
``(II) that has adopted a plan to
conduct an on-site examination of all
such investment advisers on average at
least once every four years (hereafter
referred to as a `State examination
plan'); and
``(ii) may conduct examinations for cause
of any such investment adviser that is a member
of the association and may conduct a periodic
examinations of any such investment adviser
that is a member of the association and that is
also registered as a broker or dealer under
section 15 of the Securities Exchange Act of
1934 or that is controlling, controlled by, or
under common control with such a broker or
dealer;
``(F) provide for the equitable allocation of
reasonable dues, fees, and other charges among members
and other persons using any facility or system that the
association operates or controls;
``(G) provide for the issuance by the association
of an annual report on the operations, performance, and
financial condition of the association and any
financial arrangement between the association and any
company directly controlling, controlled by, or under
common control with the association, and for the
submission of the report to the Commission and for the
publication of the report;
``(H) establish appropriate procedures and criteria
for investment advisers to become members of the
association;
``(I) establish appropriate procedures to register
persons associated with members, to require supervisory
systems for members and persons associated with
members, and to discipline its members and persons
associated with its members for violations of the
provisions of this title or the rules and regulations
thereunder, and the rules of the association;
``(J) provide for substantively equivalent
regulation and oversight of members and associated
persons of members, including with respect to business
conduct requirements and examinations, as provided
under the rules of any other national investment
adviser association registered with the Commission; and
``(K) require the association to--
``(i) implement and maintain a
comprehensive information security program that
meets administrative, technical, and physical
safeguards as the Commission shall by rule
determine, and that contains strong and risk-
based information security controls to protect
all information that the association is
required to protect from unauthorized internal
or external disclosure or dissemination
(including, without limitation, a member's
confidential or proprietary information, or
examination or inspection reports and documents
prepared by the association or other regulatory
authority);
``(ii) obtain, every 3 years, a
comprehensive, independent review of the
association's information security program and
the association's compliance with its
information security policies and procedures
conducted by an independent reviewer who is
qualified data security professional;
``(iii) within 45 days after the receipt of
such independent reviewer's report on the
association's information security program and
the association's compliance with its security
policies and procedures, submit the annual
report to the Commission together with the
independent reviewer's attestation in writing
that addresses--
``(I) whether the association's
information security policies and
procedures conform to the Commission's
information security standards;
``(II) whether the strength of the
association's information security
controls meet recognized industry
standards;
``(III) whether the independent
reviewer's tests revealed any material
weaknesses in the association's
information security controls;
``(IV) whether the association
complies with its information security
policy and procedures; and
``(V) any other requirements as the
Commission may by rule determine; and
``(iv) provide notice promptly to the
Commission, any affected member, or any
affected person associated with any member of
any unauthorized access to--
``(I) the association's information
systems; or
``(II) the confidential or
proprietary information of the member
or associated person.
``(f) Time Period for Membership Application.--A Commission
determination to permit the registration of a national investment
adviser association shall establish a reasonable period of time
following the effective date of such registration for investment
advisers to apply for membership in accordance with the rules of the
association.
``(g) Rules of Construction.--
``(1) Non-preemption of state authority.--Nothing in this
section shall be construed to limit or detract from or
otherwise preempt the authority of any State securities
commission (or any agency or office performing similar
functions) to adopt rules, investigate possible violations of
State law, initiate enforcement proceedings, or otherwise
regulate any investment adviser that is subject to State
authority under section 203A(a).
``(2) Information sharing.--Nothing in this Act shall be
construed to limit the authority of any national investment
adviser association, whether or not it is also a self-
regulatory organization registered under the Securities
Exchange Act of 1934, to share any information in its
possession with a Federal, State, or local governmental agency,
nor shall the sharing of information be construed to be the
action of such an agency.
``(h) Annual Conference.--
``(1) Requirement.--In order to foster cooperation between
national investment adviser associations and any association
composed of duly constituted representatives of State
governments one of whose primary assignment is the regulation
of investment advisers within those States (hereafter referred
to as `State securities administrators association'), each
national investment adviser association shall conduct an annual
conference as well as such other meetings as are determined
necessary, to which representatives from the State securities
administrators association and the Commission shall be invited
to participate.
``(2) Purpose.--One purpose of the conference shall be the
discussion by the State securities administrators association,
each national investment adviser association and the
Commission, concerning those States that have adopted a State
examination plan under subsection (e)(2)(E)(i) and the proposed
methodology of those State examinations.
``(3) Report.--Promptly following each conference, each
national investment adviser association shall submit a report
to Congress, describing those States that the State securities
administrators association has identified as having adopted a
State examination plan, and providing any information available
to the national investment adviser association concerning the
States' proposed methodology of their examinations and the
extent to which those States have been able to meet their
previously submitted State examination plans.
``SEC. 203C. OVERSIGHT OF NATIONAL INVESTMENT ADVISER ASSOCIATIONS.
``(a) Procedures for Approval of Registration.--
``(1) In general.--The Commission shall, upon the filing of
an application for registration as a national investment
adviser association pursuant to section 203B, publish notice of
the filing and afford interested persons an opportunity to
submit written data, views, and arguments concerning such
application. Within 90 days of the date of publication of such
notice (or within such longer period as to which the applicant
consents), the Commission shall--
``(A) by order, grant such registration; or
``(B) institute proceedings to determine whether
registration should be denied.
``(2) Proceedings for denial.--The proceedings to determine
whether registration should be denied shall include notice of
the grounds for denial under consideration and opportunity for
hearing and shall be concluded within 180 days of the date of
publication of notice of the filing of the application for
registration. At the conclusion of such proceedings, the
Commission, by order, shall grant or deny registration. The
Commission may extend the time for conclusion of such
proceedings for up to 90 days if it finds good cause for such
extension and publishes its reasons for so finding or for such
longer period as to which the applicant consents.
``(3) Basis for approval.--The Commission shall grant such
registration if it finds that the requirements of this title
and the rules and regulations thereunder with respect to the
applicant are satisfied. The Commission shall deny such
registration if it does not make such finding.
``(4) Withdrawal.--A national investment adviser
association may, upon such terms and conditions as the
Commission, by rule, considers necessary or appropriate in the
public interest and for the protection of investors or
otherwise in furtherance of the purposes of this title,
withdraw from registration by filing a written notice of
withdrawal with the Commission. If the Commission finds that
any national investment adviser association is no longer in
existence or has ceased to do business in the capacity
specified in its application for registration, the Commission,
by order, shall cancel its registration.
``(b) Procedures for Approval of Rules and Rule Changes.--
``(1) Filing and publication by commission.--
``(A) Filing.--Each national investment adviser
association shall file with the Commission, in
accordance with such rules as the Commission may
prescribe, any proposed rule or any proposed change in,
addition to, or deletion from the rules of the
association (in this paragraph collectively referred to
as a `proposed rule change') accompanied by a concise
statement of the basis and purpose of, and the terms of
substance of, or a description of the subjects and
issues involved with, the proposed rule change.
``(B) Explanation and comments.--The national
investment adviser association shall explain in its
public filing with the Commission the nature of
comments that it received, including those from the
industry or consumer groups, concerning the potential
costs or benefits of the proposed rule or proposed rule
change, and shall provide a response to those comments
in its public filing with the Commission, including an
explanation of any amendments to the proposed rule or
proposed rule change that were made in response to
those comments and a description of significant
alternatives to the proposed rule change that were
suggested in those comments and the reasons that the
national investment adviser association did not any
propose them.
``(C) Publication.--The Commission shall, as soon
as practicable upon the filing of any proposed rule
change, publish notice thereof together with the terms
of substance of the proposed rule change or a
description of the subjects and issues involved. The
Commission shall give interested persons an opportunity
to submit written data, views, and arguments concerning
such proposed rule change.
``(2) Determination.--Not later than 35 days after the date
of publication of notice of the filing of a proposed rule
change in accordance with paragraph (1), or within such longer
period as the Commission may designate if it finds a longer
period to be appropriate and publishes its reasons for so
finding or as to which the national investment adviser
association consents, the Commission shall--
``(A) by order, approve the proposed rule change;
or
``(B) institute proceedings to determine whether
the proposed rule change should be disapproved.
``(3) Proceedings for disapproval.--The proceedings to
determine whether the proposed rule change should be
disapproved shall include notice of the grounds for disapproval
under consideration and opportunity for hearing and shall be
concluded within 180 days of the date of publication of notice
of the filing of the proposed rule change. At the conclusion of
the proceedings, the Commission, by order, shall approve or
disapprove the proposed rule change. The Commission may extend
the time for conclusion of the proceedings for up to 60 days if
it finds good cause for the extension and publishes its reasons
for so finding or for such longer period to which the national
investment adviser association consents.
``(4) Basis for approval.--The Commission shall approve a
proposed rule change of a national investment adviser
association if it finds that the proposed rule change is
consistent with the requirements of this title, the rules
thereunder, and the rules and regulations applicable to the
national investment adviser association. The Commission shall
disapprove a proposed rule change of a national investment
adviser association if it does not make this finding. The
Commission shall not approve any proposed rule change before
the 30th day after the date of publication of notice of its
filing, unless the Commission finds good cause for so doing and
publishes its reasons for so finding.
``(5) Stay pending approval.--No proposed rule of any
national investment adviser association, and no proposed rule
change of such an association, including any rule or proposed
rule change concerning any assessment, fee, or other charge
imposed by the association, shall take effect unless approved
by the Commission after public notice and opportunity for
comment.
``(6) Effective date.--Notwithstanding paragraph (5), no
proposed rule of any national investment adviser association
shall take effect within 1 year after the date of enactment of
this section, unless the Commission determines that an earlier
effective date is appropriate to facilitate the effective
operation of the association's examination or enforcement
programs, the organization and management of the association,
or the Commission's oversight of the association.
``(7) Summary effectiveness.--
``(A) In general.--Notwithstanding any other
provision of this subsection, a proposed rule change
may be put into effect summarily if it appears to the
Commission that such action is necessary for the
protection of investors or the safeguarding of
securities or funds. Any proposed rule change so put
into effect shall be filed promptly thereafter in
accordance with the provisions of paragraph (1).
``(B) Amendments.--Any proposed rule change of a
national investment adviser association which has taken
effect under subparagraph (A) may be enforced by the
national investment adviser association to the extent
it is not inconsistent with the provisions of this
title, the rules and regulations thereunder, and
applicable Federal law. The Commission, by rule, may
abrogate, add to, and delete from (in this subsection
collectively referred to as `amend') the rules of an
association as the Commission considers necessary or
appropriate to ensure the fair administration of the
national investment adviser association, to conform its
rules to requirements of this title and the rules and
regulations applicable to such national investment
adviser association, or otherwise in furtherance of the
purposes of this title, in the manner provided for
herein.
``(8) Notification and opportunity to comment.--The
Commission shall notify the national investment adviser
association and publish notice of any proposed rulemaking in
the Federal Register. The notice shall include the text of the
proposed amendment to the rules of the association and a
statement of the Commission's reasons, including any pertinent
facts, for commencing the proposed rulemaking. The Commission
shall give interested persons an opportunity for a hearing.
``(9) Statement of basis for determination.--A rule adopted
under this subsection shall incorporate the text of the
amendment to the rules of the association and a statement of
the Commission's basis for and purpose in amending such rules.
This statement shall include an identification of any facts on
which the Commission considers its determination to amend the
rules of the association to be based, including the reasons for
the Commission's conclusions as to any of such facts which were
disputed in the rulemaking.
``(10) APA rulemaking procedures.--
``(A) Except where a hearing is provided in
paragraphs (1) through (9), rulemaking under this
subsection shall be in accordance with the procedures
specified in section 553 of title 5, United States
Code, for notice-and-comment rulemaking.
``(B) Nothing in this subsection shall be construed
to impair or limit the Commission's power to make, or
to modify or alter the procedures the Commission may
follow in making rules and regulations pursuant to any
other authority under this title.
``(C) Any amendment to the rules of a national
investment adviser association made by the Commission
under this subsection shall be considered for all
purposes of this title to be part of the rules of the
association and shall not be considered to be a rule of
the Commission.
``(c) Discipline of Members.--
``(1) In general.--In any proceeding by a national
investment adviser association to determine whether a member or
person associated with a member should be disciplined (other
than a summary proceeding pursuant to paragraph (3)), the
national investment adviser association shall bring specific
charges, notify the member or person associated with a member
of, and give the member or person an opportunity to defend
against, such charges, and keep a record. A determination by
the national investment adviser association to impose a
disciplinary sanction shall be supported by a statement setting
forth--
``(A) any act or practice in which the member or
person associated with a member has been found to have
engaged, or which the member or person associated with
a member has been found to have omitted;
``(B) the specific provision of this title, the
rules or regulations thereunder, or the rules of the
association which any such act or practice, or omission
to act, violates; and
``(C) the sanction imposed and the reason for it.
``(2) Procedures and determination.--In any proceeding by a
national investment adviser association to determine whether a
person shall be denied membership, barred from becoming
associated with a member, or prohibited or limited with respect
to access to services offered by the national investment
adviser association, the national investment adviser
association shall notify the person of, and give such person an
opportunity to be heard on, the specific grounds for denial,
bar, prohibition, or limitation under consideration, and keep a
record. A determination by the national investment adviser
association to deny membership, bar a person from becoming
associated with a member, or prohibit or limit a person with
respect to access to services offered by the national
investment adviser association shall be supported by a
statement setting forth the specific grounds on which the
denial, bar, prohibition, or limitation is based.
``(3) Summary suspension and subsequent procedures.--A
national investment adviser association may summarily--
``(A) suspend a member or person associated with a
member who has been and is expelled or suspended from
any self-regulatory organization or barred or suspended
from being associated with a member of any self-
regulatory organization;
``(B) suspend a member who is in such financial or
operating difficulty that the national investment
adviser association determines and so notifies the
Commission that the member cannot be permitted to
continue to do business as a member and serve the
interest of investors, creditors, other members, or the
national investment adviser association; or
``(C) limit or prohibit any person with respect to
access to services offered by the national investment
adviser association if subparagraph (A) or (B) is
applicable to such person or, in the case of a person
who is not a member, if the national investment adviser
association determines that such person does not meet
the qualification requirements or other prerequisites
for such access and such person cannot be permitted to
continue to have such access and serve the interest of
investors, creditors, members, or the national
investment adviser association. Any person aggrieved by
any such summary action shall be promptly afforded an
opportunity for a hearing by the national investment
adviser association in accordance with the provisions
of paragraph (1) or (2). The Commission, by order, may
stay any such summary action on its own motion or upon
application by any person aggrieved thereby, if the
Commission determines summarily or after notice and
opportunity for hearing (which hearing may consist
solely of the submission of affidavits or presentation
of oral arguments) that such stay is consistent with
the public interest and the protection of investors.
``(d) Final Disciplinary Sanction.--
``(1) Notice.--If any national investment adviser
association imposes any final disciplinary sanction on any
member, denies membership to any applicant, or prohibits or
limits any person in respect to access to services offered by
the national investment adviser association, or if any national
investment adviser association imposes any final disciplinary
sanction on any person associated with a member, or bars any
person from becoming associated with a member, the national
investment adviser association shall promptly file notice
thereof with the Commission and publish the notice. The notice
shall be in such form and contain such information as the
Commission, by rule, may prescribe as necessary or appropriate
in furtherance of the purposes of this title.
``(2) Review.--Any action with respect to which a national
investment adviser association is required by paragraph (1) to
file notice shall be subject to review by the Commission, on
its own motion, or upon application by any person aggrieved
thereby filed within 30 days after the date such notice was
both filed with the Commission and received by such aggrieved
person, or within such longer period as the Commission may
determine. Application to the Commission for review, or the
institution of review by the Commission on its own motion,
shall not operate as a stay of the action unless the Commission
otherwise orders, summarily or after notice and opportunity for
hearing on the question of a stay (which hearing may consist
solely of the submission of affidavits or presentation of oral
arguments). The Commission may establish for appropriate cases
an expedited procedure for consideration and determination of
the question of a stay.
``(e) Review of Final Sanction.--
``(1) In general.--In any proceeding to review a final
disciplinary sanction imposed by a national investment adviser
association on a member or a person associated with a member,
after notice and opportunity for hearing (which hearing may
consist solely of consideration of the record before the
national investment adviser association and opportunity for the
presentation of supporting reasons to affirm, modify, or set
aside the sanction)--
``(A) if the Commission finds that such member or
person associated with a member has engaged in such
acts or practices, or has omitted such acts, as the
national investment adviser association has found him
or her to have engaged in or omitted that such acts or
practices, or omissions to act, are in violation of
such provisions of this title, the rules or regulations
thereunder, or the rules of the association, as have
been specified in the determination of the national
investment adviser association, and that such
provisions are, and were applied in a manner,
consistent with the purposes of this title, the
Commission, by order, shall so declare and, as
appropriate, affirm the sanction imposed by the
national investment adviser association, modify the
sanction in accordance with paragraph (2), or remand to
the national investment adviser association for further
proceedings; or
``(B) if the Commission does not make any such
finding it shall, by order, set aside the sanction
imposed by the national investment adviser association
and, if consistent with the purposes of this title,
remand to the national investment adviser association
for further proceedings.
``(2) Reduction or revocation of sanction.--If the
Commission, having due regard for the public interest, the
protection of investors, and the policies and purposes of this
title, finds after a proceeding in accordance with paragraph
(1) that a sanction imposed by a national investment adviser
association on a member or person associated with a member
imposes any burden on competition not necessary or appropriate
in furtherance of the purposes of this title or is excessive or
oppressive, the Commission may cancel, reduce, or require the
revocation of such sanction.
``(f) Review of Denial of Membership.--In any proceeding to review
the denial of membership in a national investment adviser association
to any applicant, the barring of any person from becoming associated
with a member, or the prohibition or limitation by a national
investment adviser association of any person with respect to access to
services offered by the national investment adviser association--
``(1) if the Commission, after notice and opportunity for
hearing (which hearing may consist solely of consideration of
the record before the national investment adviser association
and opportunity for the presentation of supporting reasons to
dismiss the proceeding or set aside the action of the national
investment adviser association) finds that the specific grounds
on which the denial, bar, prohibition or limitation is based
exist in fact, that the denial, bar, prohibition, or limitation
is in accordance with the rules of the association, and that
the rules are and were applied in a manner consistent with the
purposes of this title, the Commission, by order, shall dismiss
the proceeding; or
``(2) if the Commission does not make any such finding or
it finds that the denial, bar, prohibition or limitation
imposes any burden on competition not necessary or appropriate
in furtherance of the purposes of this title, the Commission,
by order, shall set aside the action of the national investment
adviser association and require it to admit the applicant to
membership or participation, permit the person to become
associated with a member, or grant the person access to
services offered by the national investment adviser
association.
``(g) Compliance.--
``(1) In general.--Every registered national investment
adviser association shall comply with the provisions of this
title, the rules and regulations thereunder, and its own rules,
and (subject to the provisions of paragraph (2) and the rules
thereunder) absent reasonable justification or excuse, enforce
compliance with such provisions by its members and persons
associated with a member. The Commission shall conduct regular
and routine inspections, at least annually, of the registered
national investment adviser association, to ensure that the
association complies with the provisions of this title and the
rules and regulations thereunder.
``(2) Relief of responsibility.--The Commission, by rule,
consistent with the public interest and the protection of
investors, and the other policies and purposes of this title,
may relieve any national investment adviser association of any
responsibility under this title to enforce compliance with any
provision of this title or the rules or regulations thereunder
by any member of the national investment adviser association or
any class of such members or persons associated with a member.
``(h) Enforcement Authority of the Commission.--
``(1) Suspension, censure and limitation on associations.--
If in its opinion such action is necessary or appropriate in
the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of this title, the
Commission may, by order, suspend for a period not exceeding 12
months or revoke the registration of a national investment
adviser association, or to censure or impose limitations upon
the activities, functions, and operations of the national
investment adviser association, if the Commission finds, on the
record after notice and opportunity for hearing, that the
national investment adviser association has violated or is
unable to comply with any provision of this title, the rules or
regulations thereunder, or its own rules, or without reasonable
justification or excuse has failed to enforce compliance with
any such provision by a member or a person associated with a
member.
``(2) Suspension and expulsion of members.--If in its
opinion such action is necessary or appropriate in the public
interest, for the protection of investors, or otherwise in
furtherance of the purposes of this title, the Commission may,
by order, suspend for a period not exceeding 12 months or expel
from a national investment adviser association any member, if
the member is subject to an order of the Commission pursuant to
section 203(e) or if the Commission finds, on the record after
notice and opportunity for hearing, that the member has
willfully violated, or has participated in any transaction with
or for any other person who the member had reason to believe
was violating with respect to such transaction, any provision
of the Securities Act of 1933, the Securities Exchange Act of
1934, the Investment Company Act of 1940, this title, the
Commodity Exchange Act, or the rules or regulations under any
of such statutes, or the rules of the Municipal Securities
Rulemaking Board.
``(3) Other bars.--If in its opinion, such action is
necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the
purposes of this title, the Commission may, by order, suspend
for a period not exceeding 12 months or bar any person from
being associated with a member of a national investment adviser
association, if the person is subject to an order of the
Commission under section 203(f) or if the Commission finds, on
the record after notice and opportunity for hearing, that the
person has willfully violated, or has participated in any
transaction with any other person who the person associated
with a member had reason to believe was violating with respect
to the transaction, any provision of the Securities Act of
1933, the Securities Exchange Act of 1934, the Investment
Company Act of 1940, this title, or the rules or regulations
under any of those statutes, or the rules of the Municipal
Securities Rulemaking Board.
``(4) Removal or censure of officers and directors.--If in
its opinion such action is necessary or appropriate in the
public interest, for the protection of investors, or otherwise
in furtherance of the purposes of this title, the Commission
may, by order, remove from office or censure any officer,
director or any person performing similar functions of a
national investment adviser association, if the Commission
finds, on the record after notice and opportunity for hearing,
that such person has willfully violated any provision of this
title, the rules or regulations thereunder, or the rules of the
national investment adviser association, willfully abused his
authority, or without reasonable justification or excuse has
failed to enforce compliance with any such provision by any
member or person associated with a member.''.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Financial Services.
Committee Hearings Held.
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