Financial Exploitation Prevention Act of 2023

II 118TH CONGRESS 1ST SESSION S. 1481 To amend the Investment Company Act of 1940 to postpone the date of payment or satisfaction upon redemption of certain securities in the case of the financial exploitation of specified adults, and for other pur- poses. IN THE SENATE OF THE UNITED STATES MAY 9, 2023 Mr. HAGERTY (for himself and Mr. TESTER) introduced the following bill; which was read twice and referred to the Committee on Banking, Hous- ing, and Urban Affairs A BILL To amend the Investment Company Act of 1940 to postpone the date of payment or satisfaction upon redemption of certain securities in the case of the financial exploi- tation of specified adults, 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 ‘‘Financial Exploitation 4 Prevention Act of 2023’’. 5 VerDate Sep 11 2014 23:00 May 15, 2023 Jkt 039200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S1481.IS S1481 kjohnson on DSK79L0C42PROD with BILLS 2 •S 1481 IS SEC. 2. REDEMPTION OF CERTAIN SECURITIES POST- 1 PONED. 2 (a) IN GENERAL.—Section 22 of the Investment 3 Company Act of 1940 (15 U.S.C. 80a–22) is amended by 4 adding at the end the following: 5 ‘‘(h) REQUIREMENTS WITH RESPECT TO NON-INSTI- 6 TUTIONAL DIRECT AT-FUND ACCOUNTS.— 7 ‘‘(1) ELECTION.— 8 ‘‘(A) IN GENERAL.—A registered open-end 9 investment company and a transfer agent de- 10 scribed in paragraph (2) may elect to comply 11 with the requirements under paragraph (2) and 12 subsection (i) by notifying the Commission of 13 that election. 14 ‘‘(B) EFFECT OF ELECTION.—Paragraph 15 (2) and subsection (i) shall only apply to a reg- 16 istered open-end investment company and a 17 transfer agent that have made an election 18 under subparagraph (A). 19 ‘‘(2) REQUIREMENTS.—In the case of a cus- 20 tomer who is a holder of a non-institutional account 21 held directly with a registered open-end investment 22 company and serviced by a transfer agent (com- 23 monly known as a ‘direct-at-fund account’), the com- 24 pany and transfer agent shall— 25 VerDate Sep 11 2014 23:00 May 15, 2023 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S1481.IS S1481 kjohnson on DSK79L0C42PROD with BILLS 3 •S 1481 IS ‘‘(A) request from that customer the name 1 and contact information of at least 1 individual 2 who— 3 ‘‘(i) is, at the time of that request, an 4 adult; and 5 ‘‘(ii) may be contacted with respect to 6 that account; 7 ‘‘(B) document and retain the information 8 received under subparagraph (A); and 9 ‘‘(C) disclose to that customer in writing 10 (including through electronic delivery) that such 11 company or transfer agent may contact an indi- 12 vidual specified under subparagraph (A) with 13 respect to the account of that customer to— 14 ‘‘(i) address possible financial exploi- 15 tation of that customer; 16 ‘‘(ii) confirm the contact information 17 or health status of that customer; or 18 ‘‘(iii) identify any legal guardian, ex- 19 ecutor, trustee, or holder of a power of at- 20 torney with respect to the customer. 21 ‘‘(i) REDEMPTION OF CERTAIN SECURITIES POST- 22 PONED.— 23 ‘‘(1) IN GENERAL.—Notwithstanding subsection 24 (e), a registered open-end investment company or a 25 VerDate Sep 11 2014 23:00 May 15, 2023 Jkt 039200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S1481.IS S1481 kjohnson on DSK79L0C42PROD with BILLS 4 •S 1481 IS transfer agent acting on behalf of such a company 1 may postpone the date of payment or satisfaction 2 upon redemption of any redeemable security in ac- 3 cordance with its terms for more than seven days 4 after the tender of such security to such company or 5 its agent designated for that purpose for redemption 6 if such company or agent reasonably believes that— 7 ‘‘(A) that redemption is requested by a se- 8 curity holder who is a specified adult; and 9 ‘‘(B) financial exploitation has occurred, is 10 occurring, or has been attempted with respect 11 to that redemption. 12 ‘‘(2) DURATION.— 13 ‘‘(A) IN GENERAL.—Except as provided in 14 subparagraphs (B) and (C), a registered open- 15 end investment company or a transfer agent 16 acting on behalf of such company may postpone 17 the date of payment or satisfaction upon re- 18 demption of a redeemable security under para- 19 graph (1) for a period of not more than 15 20 business days. 21 ‘‘(B) EXTENSION UPON DETERMINATION 22 OF EXPLOITATION.—The period described in 23 subparagraph (A) may be extended by an addi- 24 tional 10 business days if the registered open- 25 VerDate Sep 11 2014 23:00 May 15, 2023 Jkt 039200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S1481.IS S1481 kjohnson on DSK79L0C42PROD with BILLS 5 •S 1481 IS end investment company or a transfer agent 1 acting on behalf of such a company— 2 ‘‘(i) reasonably believes that— 3 ‘‘(I) the redemption is requested 4 by a security holder who is a specified 5 adult; and 6 ‘‘(II) financial exploitation has 7 occurred, is occurring, or has been at- 8 tempted with respect to such redemp- 9 tion; 10 ‘‘(ii) subject to subparagraph (D), not 11 later than 2 days after making a deter- 12 mination under clause (i), notifies the indi- 13 viduals specified by that security holder 14 under subsection (h)(2)(A) in writing (in- 15 cluding through electronic delivery) of the 16 extension of the period described in sub- 17 paragraph (A) under this subparagraph 18 and the reason for that extension; 19 ‘‘(iii) initiates an internal review of 20 the facts and circumstances relating to the 21 determination under clause (i); 22 ‘‘(iv) holds amounts relating to the 23 delayed payment or satisfaction upon re- 24 VerDate Sep 11 2014 23:00 May 15, 2023 Jkt 039200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S1481.IS S1481 kjohnson on DSK79L0C42PROD with BILLS 6 •S 1481 IS demption of the redeemable security in a 1 demand deposit account; and 2 ‘‘(v) documents and retains records 3 related to carrying out clause (iv) and in- 4 cludes those records in the first required 5 account statement of the security holder 6 provided after the date on which the deter- 7 mination is made under clause (i). 8 ‘‘(C) EXTENSION BY GOVERNMENT.—A 9 State regulator, administrative agency of com- 10 petent jurisdiction, or court of competent juris- 11 diction may extend the period described in sub- 12 paragraph (A). 13 ‘‘(D) NOTIFICATION.— 14 ‘‘(i) EXCEPTION.—Subparagraph 15 (B)(ii) shall not apply if a registered open- 16 end investment company or transfer agent 17 acting on behalf of such a company reason- 18 ably believes that an individual required to 19 be notified under that subparagraph is, 20 has been, or will subject the security holder 21 who identified that individual under sub- 22 section (h)(2)(A) to financial exploitation. 23 ‘‘(ii) REASONABLE EFFORTS.—An 24 open-end investment company or transfer 25 VerDate Sep 11 2014 23:00 May 15, 2023 Jkt 039200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S1481.IS S1481 kjohnson on DSK79L0C42PROD with BILLS 7 •S 1481 IS agent acting on behalf of such a company 1 shall be considered in compliance with sub- 2 paragraph (B)(ii) if that company or 3 transfer agent makes a reasonable effort to 4 contact the individuals specified by a secu- 5 rity holder under subsection (h)(2)(A). 6 ‘‘(E) INTERNAL PROCEDURES.—An open- 7 end investment company or transfer agent act- 8 ing on behalf of such a company shall establish 9 procedures to carry out the requirements under 10 this subsection, including procedures— 11 ‘‘(i) relating to the identification and 12 reporting of matters relating to the finan- 13 cial exploitation of specified adults; 14 ‘‘(ii) to determine whether to release 15 or reinvest delayed redemption proceeds, 16 taking into account the facts and cir- 17 cumstances of each case, should the inter- 18 nal review under subparagraph (B)(iii) 19 support the reasonable belief described in 20 subparagraph (B)(i); 21 ‘‘(iii) identifying each employee of the 22 company or transfer agent with authority 23 to establish, extend, or terminate a period 24 VerDate Sep 11 2014 23:00 May 15, 2023 Jkt 039200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S1481.IS S1481 kjohnson on DSK79L0C42PROD with BILLS 8 •S 1481 IS described in paragraph (1) or subpara- 1 graph (A); 2 ‘‘(iv) in the case of a transfer agent, 3 that are reasonably designed to ensure that 4 the employees of the transfer agent comply 5 with this subsection; and 6 ‘‘(v) in the case of an open-end invest- 7 ment company, establishing periodic re- 8 porting requirements under which a trans- 9 fer agent acting on behalf of the company 10 shall notify the company of— 11 ‘‘(I) each extension under sub- 12 paragraph (B) authorized by the 13 transfer agent; 14 ‘‘(II) each finding by the transfer 15 agent under subparagraph (B)(i); 16 ‘‘(III) each notification under 17 subparagraph (B)(ii) carried out by 18 the transfer agent; and 19 ‘‘(IV) the results of each internal 20 review initiated by the transfer agent 21 under subparagraph (B)(iii). 22 ‘‘(F) INFORMATION INCLUDED IN CERTAIN 23 STATEMENTS.—An open-end investment com- 24 pany shall include in each prospectus or state- 25 VerDate Sep 11 2014 23:00 May 15, 2023 Jkt 039200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S1481.IS S1481 kjohnson on DSK79L0C42PROD with BILLS 9 •S 1481 IS ment of additional information a notification 1 that the company or a transfer agent acting on 2 behalf of the company may postpone redemp- 3 tion of certain securities under this subsection. 4 ‘‘(G) RECORD RETENTION.—An open-end 5 investment company or transfer agent acting on 6 behalf of such a company shall— 7 ‘‘(i) document and retain records of— 8 ‘‘(I) each postponement of re- 9 demption under subparagraphs (A), 10 (B), and (C); 11 ‘‘(II) each finding under subpara- 12 graph (B)(i); 13 ‘‘(III) the name and position of 14 each employee described in subpara- 15 graph (E)(iii); 16 ‘‘(IV) each notification carried 17 out under subparagraph (B)(ii); and 18 ‘‘(V) the results of each internal 19 review initiated under subparagraph 20 (B)(iii); and 21 ‘‘(ii) make the records described in 22 clause (i) available to the Commission at 23 the request of the Commission. 24 VerDate Sep 11 2014 23:00 May 15, 2023 Jkt 039200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S1481.IS S1481 kjohnson on DSK79L0C42PROD with BILLS 10 •S 1481 IS ‘‘(3) SPECIFIED ADULT DEFINED.—In this sub- 1 section, the term ‘specified adult’ means an indi- 2 vidual who— 3 ‘‘(A) is not younger than 65 years of age; 4 or 5 ‘‘(B) is not younger than 18 years of age 6 and who a registered open-end investment com- 7 pany or a transfer agent acting on behalf of 8 such a company reasonably believes has a men- 9 tal or physical impairment that renders the in- 10 dividual unable to protect the interests of the 11 individual.’’. 12 (b) RECOMMENDATIONS.— 13 (1) IN GENERAL.—Not later than 1 year after 14 the date of enactment of this Act, the Securities and 15 Exchange Commission, in consultation with the enti- 16 ties specified in paragraph (2), shall submit to Con- 17 gress a report that includes recommendations re- 18 garding the regulatory and legislative changes nec- 19 essary to address the financial exploitation of secu- 20 rity holders who are specified adults (as defined in 21 subsection (i)(3) of section 22 of the Investment 22 Company Act of 1940 (15 U.S.C. 80a–22), as added 23 by this section). 24 VerDate Sep 11 2014 23:00 May 15, 2023 Jkt 039200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S1481.IS S1481 kjohnson on DSK79L0C42PROD with BILLS 11 •S 1481 IS (2) CONSULTATION.—The entities specified in 1 this paragraph are as follows: 2 (A) The Commodity Futures Trading 3 Commission. 4 (B) The Director of the Bureau of Con- 5 sumer Financial Protection. 6 (C) The Financial Industry Regulatory Au- 7 thority. 8 (D) The North American Securities Ad- 9 ministrators Association. 10 (E) The Board of Governors of the Fed- 11 eral Reserve System. 12 (F) The Comptroller of the Currency. 13 (G) The Federal Deposit Insurance Cor- 14 poration. 15 Æ VerDate Sep 11 2014 23:00 May 15, 2023 Jkt 039200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6301 E:\BILLS\S1481.IS S1481 kjohnson on DSK79L0C42PROD with BILLS