Small Business Audit Correction Act of 2019

II 116TH CONGRESS 1ST SESSION S. 2724 To amend the Sarbanes-Oxley Act of 2002 to exclude the audits of privately held, non-custody brokers and dealers that are in good standing from certain requirements under title I of that Act, and for other purposes. IN THE SENATE OF THE UNITED STATES OCTOBER 29, 2019 Mr. COTTON (for himself, Ms. SINEMA, Mr. TILLIS, and Mr. JONES) intro- duced the following bill; which was read twice and referred to the Com- mittee on Banking, Housing, and Urban Affairs A BILL To amend the Sarbanes-Oxley Act of 2002 to exclude the audits of privately held, non-custody brokers and dealers that are in good standing from certain requirements under title I of that Act, 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 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Small Business Audit 4 Correction Act of 2019’’. 5 VerDate Sep 11 2014 03:26 Oct 31, 2019 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S2724.IS S2724 kjohnson on DSK79L0C42 with BILLS 2 •S 2724 IS SEC. 2. EXEMPTION. 1 (a) AMENDMENTS TO THE SARBANES-OXLEY ACT OF 2 2002.—Section 110 of the Sarbanes-Oxley Act of 2002 3 (15 U.S.C. 7220) is amended— 4 (1) in paragraph (3), by inserting ‘‘, except that 5 the term does not include a non-custody broker or 6 dealer that is privately held and in good standing’’ 7 after ‘‘registered public accounting firm’’; 8 (2) in paragraph (4), by inserting ‘‘, except that 9 the term does not include a non-custody broker or 10 dealer that is privately held and in good standing’’ 11 after ‘‘registered public accounting firm’’; 12 (3) by redesignating paragraphs (5) and (6) as 13 paragraphs (8) and (9), respectively; and 14 (4) by inserting after paragraph (4) the fol- 15 lowing: 16 ‘‘(5) IN GOOD STANDING.—The term ‘in good 17 standing’ means, with respect to a broker or dealer 18 (as those terms are defined in section 3(a) of the Se- 19 curities Exchange Act of 1934 (15 U.S.C. 78c(a))), 20 that, as of the last day of the most recently com- 21 pleted fiscal year of the broker or dealer, as applica- 22 ble, the broker or dealer— 23 ‘‘(A) is registered with the Commission; 24 ‘‘(B) is a member of an association that is 25 registered as a national securities association 26 VerDate Sep 11 2014 03:26 Oct 31, 2019 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S2724.IS S2724 kjohnson on DSK79L0C42 with BILLS 3 •S 2724 IS under section 15A of the Securities Exchange 1 Act of 1934 (15 U.S.C. 78o–3); 2 ‘‘(C) is compliant with the minimum dollar 3 net capital requirements under section 4 240.15c3–1 of title 17, Code of Federal Regula- 5 tions, or any successor regulation; 6 ‘‘(D) has not, during the 10-year period 7 preceding that date, been convicted of a felony 8 under Federal or State law; 9 ‘‘(E) does not have a person associated 10 with the broker or dealer, as defined in section 11 3(a) of the Securities Exchange Act of 1934 12 (15 U.S.C. 78c(a)), that, during the 10-year pe- 13 riod preceding that date, has been convicted of 14 a felony for fraudulent conduct under Federal 15 or State law; and 16 ‘‘(F) is not subject to statutory disquali- 17 fication by reason of being— 18 ‘‘(i) expelled or suspended from— 19 ‘‘(I) an association that is reg- 20 istered as described in subparagraph 21 (B); or 22 ‘‘(II) an association that is reg- 23 istered as a registered futures associa- 24 VerDate Sep 11 2014 03:26 Oct 31, 2019 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S2724.IS S2724 kjohnson on DSK79L0C42 with BILLS 4 •S 2724 IS tion under section 17 of the Com- 1 modity Exchange Act (7 U.S.C. 21); 2 ‘‘(ii) subject to an order of the Com- 3 mission, other appropriate regulatory agen- 4 cy, or foreign financial regulatory authority 5 denying, suspending, or revoking the reg- 6 istration of the broker or dealer as a regu- 7 lated entity; 8 ‘‘(iii) subject to an order of the Com- 9 modity Futures Trading Commission, or 10 other appropriate regulatory entity, deny- 11 ing, suspending, or revoking the registra- 12 tion of the broker or dealer under the 13 Commodity Exchange Act (7 U.S.C. 1 et 14 seq.) or the authority of the broker or deal- 15 er to engage in any transaction; or 16 ‘‘(iv) subject to a restraining order en- 17 tered by a court. 18 ‘‘(6) NON-CUSTODY BROKER OR DEALER.—The 19 term ‘non-custody broker or dealer’ means a broker 20 or dealer (as those terms are defined in section 3(a) 21 of the Securities Exchange Act of 1934 (15 U.S.C. 22 78c(a))), as applicable, that— 23 ‘‘(A) as of the last day of the most recently 24 completed fiscal year of the broker or dealer— 25 VerDate Sep 11 2014 03:26 Oct 31, 2019 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S2724.IS S2724 kjohnson on DSK79L0C42 with BILLS 5 •S 2724 IS ‘‘(i) has not less than one and not 1 more than 150 persons registered with an 2 association that is registered as a national 3 securities association under section 15A of 4 the Securities Exchange Act of 1934 (15 5 U.S.C. 78o–3); 6 ‘‘(ii) is not a high frequency trading 7 broker or dealer, as that term is defined by 8 the Commission with respect to a par- 9 ticular registered firm type; and 10 ‘‘(iii) is not affiliated with an invest- 11 ment advisor that— 12 ‘‘(I) is registered with the Com- 13 mission or a State entity; and 14 ‘‘(II) acts as the custodian for 15 customer assets; 16 ‘‘(B) with respect to the average of the 17 three most recently completed fiscal years of 18 the broker or dealer, has gross revenue that en- 19 ables the broker or dealer to qualify as a small 20 business concern for the purposes of a program 21 administered by the Small Business Adminis- 22 tration; and 23 ‘‘(C) throughout the most recently com- 24 pleted fiscal year of the broker or dealer— 25 VerDate Sep 11 2014 03:26 Oct 31, 2019 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S2724.IS S2724 kjohnson on DSK79L0C42 with BILLS 6 •S 2724 IS ‘‘(i) does not, as a matter of ordinary 1 business practice in connection with the ac- 2 tivities of the broker or dealer, receive cus- 3 tomer checks, drafts, or other evidence of 4 indebtedness made payable to the broker 5 or dealer; 6 ‘‘(ii) if required under section 3(a)(2) 7 of the Securities Investor Protection Act of 8 1970 (15 U.S.C. 78ccc(a)(2)), is a member 9 of the Securities Investor Protection Cor- 10 poration; and 11 ‘‘(iii) either— 12 ‘‘(I) if the broker or dealer is 13 subject to section 240.15c3–3 of title 14 17, Code of Federal Regulations, or 15 any successor regulation, is in compli- 16 ance with that section; or 17 ‘‘(II) is not subject to such sec- 18 tion 240.15c3–3, or any successor 19 regulation, because the broker or deal- 20 er does not maintain custody over any 21 customer securities or cash. 22 ‘‘(7) PRIVATELY HELD.—The term ‘privately 23 held’ means, with respect to a broker or dealer (as 24 those terms are defined in section 3(a) of the Securi- 25 VerDate Sep 11 2014 03:26 Oct 31, 2019 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S2724.IS S2724 kjohnson on DSK79L0C42 with BILLS 7 •S 2724 IS ties Exchange Act of 1934 (15 U.S.C. 78c(a))), that 1 the broker or dealer, as applicable, is not an 2 issuer.’’. 3 (b) AMENDMENTS TO REGULATIONS.— 4 (1) DEFINITIONS.—In this subsection, the 5 terms ‘‘in good standing’’, ‘‘non-custody broker or 6 dealer’’, and ‘‘privately held’’ have the meanings 7 given the terms in section 110 of the Sarbanes-Oxley 8 Act of 2002 (15 U.S.C. 7220), as amended by sub- 9 section (a). 10 (2) AMENDMENTS.—Not later than 180 days 11 after the date of enactment of this Act, the Securi- 12 ties and Exchange Commission shall make any nec- 13 essary amendments to regulations of the Commis- 14 sion that are in effect as of the date of enactment 15 of this Act in order to— 16 (A) carry out this Act and the amend- 17 ments made by this Act; and 18 (B) exclude the auditors of non-custody 19 brokers or dealers that are privately held and in 20 good standing from the audit requirements of 21 the Public Company Accounting Oversight 22 Board. 23 VerDate Sep 11 2014 03:26 Oct 31, 2019 Jkt 099200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S2724.IS S2724 kjohnson on DSK79L0C42 with BILLS 8 •S 2724 IS (c) EFFECTIVE DATE.—This Act, and the amend- 1 ments made by this Act, shall take effect on the date that 2 is 180 days after the date of enactment of this Act. 3 Æ VerDate Sep 11 2014 03:26 Oct 31, 2019 Jkt 099200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6301 E:\BILLS\S2724.IS S2724 kjohnson on DSK79L0C42 with BILLS