SEC Disclosure Effectiveness Testing Act

IIB 116TH CONGRESS 1ST SESSION H. R. 1815 IN THE SENATE OF THE UNITED STATES OCTOBER 21, 2019 Received; read twice and referred to the Committee on Banking, Housing, and Urban Affairs AN ACT To require the Securities and Exchange Commission, when developing rules and regulations about disclosures to re- tail investors, to conduct investor testing, including a survey and interviews of retail investors, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 VerDate Sep 11 2014 21:47 Oct 21, 2019 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H1815.RFS H1815 kjohnson on DSK79L0C42 with BILLS 2 HR 1815 RFS SECTION 1. SHORT TITLE. 1 This Act may be cited as the ‘‘SEC Disclosure Effec- 2 tiveness Testing Act’’. 3 SEC. 2. DISCLOSURE TESTING. 4 (a) IN GENERAL.—Section 23(a) of the Securities 5 Exchange Act of 1934 (15 U.S.C. 78w(a)) is amended by 6 adding at the end the following: 7 ‘‘(4) INVESTOR TESTING.— 8 ‘‘(A) IN GENERAL.—The Commission shall 9 engage in investor testing prior to issuing any 10 rule or regulation which designates documents 11 or information to be disclosed under the securi- 12 ties laws, if such documents or information are 13 required to be delivered to, and are intended or 14 substantially likely to be materially relied upon 15 by, a retail investor when— 16 ‘‘(i) selecting a broker-dealer or in- 17 vestment adviser, evaluating their services 18 and fees, or materially altering a brokerage 19 or advisory relationship; 20 ‘‘(ii) assessing a securities rec- 21 ommendation or investment advice pro- 22 vided by a broker-dealer or investment ad- 23 viser; 24 ‘‘(iii) making a decision to purchase 25 or sell a security; or 26 VerDate Sep 11 2014 21:47 Oct 21, 2019 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H1815.RFS H1815 kjohnson on DSK79L0C42 with BILLS 3 HR 1815 RFS ‘‘(iv) such other circumstances as the 1 Commission may, with input from the In- 2 vestor Advocate, determine appropriate for 3 the protection of retail investors. 4 ‘‘(B) EXEMPTION FOR CERTAIN DISCLO- 5 SURES.—This section shall not apply to— 6 ‘‘(i) disclosures made pursuant to 7 Regulations S–K and S–X (including In- 8 dustry Guides), Regulation 14A, Form N– 9 PX, Form 10–K, Form 10–Q, Form 8–K, 10 Form SD, Form N–PORT, Form PF, 11 Regulation SBSR, disclosures mandated by 12 or jointly with the Board of Governors of 13 the Federal Reserve System or the Finan- 14 cial Stability Oversight Council, or succes- 15 sors thereto; or 16 ‘‘(ii) any other documents or informa- 17 tion that the Commission, with input from 18 the Investor Advocate, determines are out- 19 side the intended scope and purposes of 20 this Act. 21 ‘‘(C) COMMISSION AUTHORITY TO CON- 22 DUCT ADDITIONAL TESTING.—This section shall 23 not be construed to limit the Commission’s abil- 24 ity to conduct any investor testing on any other 25 VerDate Sep 11 2014 21:47 Oct 21, 2019 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H1815.RFS H1815 kjohnson on DSK79L0C42 with BILLS 4 HR 1815 RFS documents or information not subject to this 1 section 23(a), provided that any such investor 2 testing shall not be subject to the requirements 3 of this section 23(a). 4 ‘‘(D) CONTENTS.—Investor testing con- 5 ducted pursuant to subparagraph (A) shall in- 6 clude the following: 7 ‘‘(i) Qualitative testing in the form of 8 one-on-one cognitive interviews of retail in- 9 vestors about documents or information, or 10 samples of such documents or information, 11 to be provided. 12 ‘‘(ii) Such other forms of testing that 13 the Commission, with input from the In- 14 vestor Advocate, deems appropriate for 15 evaluating the effectiveness of retail disclo- 16 sures. 17 ‘‘(iii) Analysis and publication in the 18 Federal Register of the results of the test- 19 ing. 20 ‘‘(iv) An opportunity for the public to 21 comment on such results published in the 22 Federal Register. 23 VerDate Sep 11 2014 21:47 Oct 21, 2019 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H1815.RFS H1815 kjohnson on DSK79L0C42 with BILLS 5 HR 1815 RFS ‘‘(v) A consideration of unique chal- 1 lenges faced by retail investors age 65 or 2 older. 3 ‘‘(E) SUBSTANTIVE CHANGES.—If the 4 Commission, in the period between engaging in 5 investor testing and publishing a final rule, 6 makes substantive changes to such rule that the 7 Commission determines would have a signifi- 8 cant impact on retail investors, and such 9 changes were not already investor tested, the 10 Commission shall again engage in investor test- 11 ing related to such changes. 12 ‘‘(F) PUBLIC AVAILABILITY OF RETAIL 13 TESTING RESULTS.—The Commission shall 14 make the data and results of any investor test- 15 ing performed pursuant to this paragraph avail- 16 able to the public. 17 ‘‘(G) RULES OF CONSTRUCTION.— 18 ‘‘(i) The determination that some or 19 all of a document or information is deemed 20 to be subject to this paragraph shall not 21 forestall the determination that such docu- 22 ment or information may also be used or 23 relied upon by the public, market partici- 24 VerDate Sep 11 2014 21:47 Oct 21, 2019 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H1815.RFS H1815 kjohnson on DSK79L0C42 with BILLS 6 HR 1815 RFS pants other than retail investors, or gov- 1 ernment agencies. 2 ‘‘(ii) The Commission may, in con- 3 sultation with the Investor Advocate, deter- 4 mine which, if any, components of such 5 document or information are substantially 6 likely to be relied on by retail investors for 7 the purposes outlined in paragraph (4)(A) 8 above and focus testing under this para- 9 graph on those components of the disclo- 10 sure. 11 ‘‘(iii) Notwithstanding clause (ii) 12 above, where any information subject to 13 testing under this paragraph may be used 14 or relied upon by the public, market par- 15 ticipants other than retail investors, or 16 government agencies, the results of testing 17 made pursuant to this paragraph shall not 18 provide grounds for reducing or elimi- 19 nating (including any undermining of reli- 20 ability of and accountability for) the infor- 21 mation that existing or proposed regulation 22 requires or would require be made avail- 23 able to the public, market participants 24 other than retail investors, and government 25 VerDate Sep 11 2014 21:47 Oct 21, 2019 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H1815.RFS H1815 kjohnson on DSK79L0C42 with BILLS 7 HR 1815 RFS agencies, whether or not such information 1 is delivered to retail investors. 2 ‘‘(H) RETAIL INVESTOR DEFINED.—For 3 the purposes of this paragraph, the term ‘retail 4 investor’ means any investor that is not an in- 5 stitutional investor.’’. 6 (b) PARTICIPATION OF INVESTOR ADVOCATE.—Sec- 7 tion 4(g) of the Securities Exchange Act of 1934 (15 8 U.S.C. 78d(g)) is amended— 9 (1) in paragraph (4)— 10 (A) in subparagraph (D)(ii), by striking 11 ‘‘and’’ at the end; 12 (B) by redesignating subparagraph (E) as 13 subparagraph (F); and 14 (C) by inserting after subparagraph (D) 15 the following: 16 ‘‘(E) engage in investor testing— 17 ‘‘(i) to carry out the functions of the 18 Office; and 19 ‘‘(ii) pursuant to section 23(a)(4), as 20 appropriate; and’’; 21 (2) by adding at the end the following: 22 ‘‘(9) PUBLICATION OF DATA AND RESULTS OF 23 INVESTOR TESTING.—With respect to any investor 24 testing carried out by the Investor Advocate pursu- 25 VerDate Sep 11 2014 21:47 Oct 21, 2019 Jkt 099200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H1815.RFS H1815 kjohnson on DSK79L0C42 with BILLS 8 HR 1815 RFS ant to paragraph (4)(E), the Investor Advocate may 1 make the data and results of such investor testing 2 available to the public, without further review or ed- 3 iting by the Commission. 4 ‘‘(10) PERSONNEL.—If the Investor Advocate 5 decides, within its sole discretion, to conduct testing 6 under this section, the Investor Advocate may do so 7 and the Commission shall provide the Office of the 8 Investor Advocate with sufficient personnel and 9 funding necessary to carry out such testing. Such 10 testing may qualify as the testing covered by this 11 section, provided that all requirements of the section 12 are met.’’. 13 (c) PRIOR RULES.— 14 (1) IN GENERAL.—For any final rule or regula- 15 tion issued by the Securities and Exchange Commis- 16 sion (in this subsection referred to as the ‘‘Commis- 17 sion’’) before the date of the enactment of this Act 18 that would be subject to investor testing under sec- 19 tion 23(a)(4) of the Securities Exchange Act of 20 1934, had such rule been issued on or after the date 21 of enactment of this Act, the Commission shall per- 22 form investor testing with respect to such rule or 23 regulation that includes the contents described in 24 such section 23(a)(4). 25 VerDate Sep 11 2014 21:47 Oct 21, 2019 Jkt 099200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H1815.RFS H1815 kjohnson on DSK79L0C42 with BILLS 9 HR 1815 RFS (2) SCHEDULE.—The Commission shall, not 1 later than 6 months after the date of the enactment 2 of this Act, with input from the Investor Advocate, 3 establish a schedule for completing any investor test- 4 ing required under paragraph (1) that prioritizes 5 testing of any final rules and regulations that des- 6 ignate documents or information central to retail in- 7 vestor decision making, and in particular prioritize 8 the testing of documents or information required to 9 be delivered to retail investors in the form of sum- 10 mary documents or summary sections of documents 11 including for the purpose of determining whether 12 and how such summary documents can achieve the 13 goals of informed investor decision-making in the 14 circumstances set forth in section 23(a)(4) of the 15 Securities Exchange Act of 1934 while maintaining 16 full accessibility by retail investors, the public, other 17 market participants, and government regulators to 18 the full range of documents and information that 19 they may utilize or rely on, whether or not such doc- 20 uments or information are required to be delivered 21 to retail investors. 22 (3) REPORT.—The Commission shall, with 23 input from the Investor Advocate, issue a report to 24 Congress each year containing the following: 25 VerDate Sep 11 2014 21:47 Oct 21, 2019 Jkt 099200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H1815.RFS H1815 kjohnson on DSK79L0C42 with BILLS 10 HR 1815 RFS (A) The status of any investor testing re- 1 quired under paragraph (1) initiated within the 2 last year or otherwise ongoing. 3 (B) The results of any investor testing 4 completed under paragraph (1) within the last 5 year. 6 (C) Any priorities the Commission has, 7 based on results of investor testing required by 8 paragraph (1), for— 9 (i) revising any proposed or final rule 10 or regulation based on the results of test- 11 ing; 12 (ii) initiating any rulemaking or ac- 13 tions arising from the results of the test- 14 ing; and 15 (iii) the Investor Advocate’s views on 16 the above priorities and any such other 17 matters arising from the testing or results 18 of testing. 19 Passed the House of Representatives October 17, 2019. Attest: CHERYL L. JOHNSON, Clerk. VerDate Sep 11 2014 21:47 Oct 21, 2019 Jkt 099200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H1815.RFS H1815 kjohnson on DSK79L0C42 with BILLS