What This Bill Does
This bill changes how investment companies handle certain withdrawals of money from accounts when someone may be getting taken advantage of financially. Investment companies and transfer agents (businesses that manage securities accounts) can now delay paying out money from these accounts for longer than usual if they believe an older person or person with a disability is being financially exploited.
Who It Affects
Investment companies and transfer agents that manage direct accounts with customers. People age 65 and older who hold investment accounts. Adults age 18 and older with mental or physical conditions that prevent them from protecting their own interests. Contact people designated by account holders.
Key Provisions
- Investment companies and transfer agents that choose to follow this law must ask customers to provide the name and contact information of at least one adult who can be reached about their account, and must keep this information on file (Sec. 2(h)(2)).
- Investment companies and transfer agents can delay paying out money from a redeemed security for up to 15 business days if they reasonably believe the account holder is an older person or person with a disability and financial exploitation is happening or has been attempted (Sec. 2(i)(1) and (2)(A)).
- The 15 business day delay can be extended by an additional 10 business days if the company or transfer agent reasonably believes exploitation has occurred, is occurring, or has been attempted, and they must notify the designated contact person within 2 days about the extension and why it is happening (Sec. 2(i)(2)(B)).
- The company or transfer agent must conduct an internal review of the facts and circumstances and must hold the delayed money in a regular deposit account during this time (Sec. 2(i)(2)(B)).
- Investment companies must notify customers in their prospectus or statement of additional information that redemption of certain securities may be postponed under this law (Sec. 2(i)(6)).
What Changes
Investment companies and transfer agents now have the option to pause redemption requests for up to 25 business days (15 days plus up to 10 additional days) when they believe financial exploitation is occurring. Previously, normal law required them to pay out redemptions within seven days. These companies must also establish internal procedures to identify and report financial exploitation and must keep detailed records of all postponements and internal reviews.
Important Definitions
"Specified adult" means a person age 65 or older or a person age 18 or older who the investment company or transfer agent reasonably believes has a mental or physical condition that prevents them from protecting their own interests. (Sec. 2(i)(3))
IIB
118TH CONGRESS
1ST SESSION
H. R. 500
IN THE SENATE OF THE UNITED STATES
JANUARY 31, 2023
Received; read twice and referred to the Committee on Banking, Housing, and
Urban Affairs
AN ACT
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
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SECTION 1. SHORT TITLE.
1
This Act may be cited as the ‘‘Financial Exploitation
2
Prevention Act of 2023’’.
3
SEC. 2. REDEMPTION OF CERTAIN SECURITIES POST-
4
PONED.
5
(a) IN GENERAL.—Section 22 of the Investment
6
Company Act of 1940 (15 U.S.C. 80a–22) is amended by
7
adding at the end the following:
8
‘‘(h) REQUIREMENTS WITH RESPECT TO NON-INSTI-
9
TUTIONAL DIRECT AT-FUND ACCOUNTS.—
10
‘‘(1) ELECTION.—
11
‘‘(A) IN GENERAL.—A registered open-end
12
investment company and a transfer agent de-
13
scribed under paragraph (2) may elect to com-
14
ply with the requirements under paragraph (2)
15
and subsection (i) by notifying the Commission
16
of such election.
17
‘‘(B) EFFECT OF ELECTION.—Paragraph
18
(2) and subsection (i) shall only apply to a reg-
19
istered open-end investment company and a
20
transfer agent that have made the election
21
under subparagraph (A).
22
‘‘(2) REQUIREMENTS.—In the case of a cus-
23
tomer who is a holder of a non-institutional account
24
held directly with a registered open-end investment
25
company and serviced by a transfer agent (a ‘direct-
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HR 500 RFS
at-fund account’), the company and transfer agent
1
shall—
2
‘‘(A) request from such customer the name
3
and contact information of at least one indi-
4
vidual who—
5
‘‘(i) is at the time of such request an
6
adult; and
7
‘‘(ii) may be contacted with respect to
8
such account;
9
‘‘(B) document and retain the information
10
received pursuant to subparagraph (A); and
11
‘‘(C) disclose to such customer in writing
12
(including through electronic delivery) that such
13
company or transfer agent may contact an indi-
14
vidual specified pursuant to subparagraph (A)
15
with respect to the account of such customer
16
to—
17
‘‘(i) address possible financial exploi-
18
tation of such customer;
19
‘‘(ii) confirm the contact information
20
or health status of the customer; or
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‘‘(iii) identify any legal guardian, ex-
22
ecutor, trustee, or holder of a power of at-
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torney of the customer.
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‘‘(i) REDEMPTION OF CERTAIN SECURITIES POST-
1
PONED.—
2
‘‘(1) IN GENERAL.—Notwithstanding subsection
3
(e), a registered open-end investment company or a
4
transfer agent acting on behalf of such company
5
may postpone the date of payment or satisfaction
6
upon redemption of any redeemable security in ac-
7
cordance with its terms for more than seven days
8
after the tender of such security to such company or
9
its agent designated for that purpose for redemption
10
if such company or agent reasonably believes that—
11
‘‘(A) the redemption is requested by a se-
12
curity holder who is a specified adult; and
13
‘‘(B) financial exploitation has occurred, is
14
occurring, or has been attempted with respect
15
to such redemption.
16
‘‘(2) DURATION.—
17
‘‘(A) IN GENERAL.—Except as provided in
18
subparagraphs (B) and (C), a registered open-
19
end investment company or a transfer agent
20
acting on behalf of such company may postpone
21
the date of payment or satisfaction upon re-
22
demption of a redeemable security under para-
23
graph (1) for a period of not more than 15
24
business days.
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‘‘(B) EXTENSION
UPON
DETERMINATION
1
OF
EXPLOITATION.—The period described in
2
subparagraph (A) may be extended by an addi-
3
tional 10 business days if the registered open-
4
end investment company or a transfer agent
5
acting on behalf of such company—
6
‘‘(i) reasonably believes that—
7
‘‘(I) the redemption is requested
8
by a security holder who is a specified
9
adult; and
10
‘‘(II) financial exploitation has
11
occurred, is occurring, or has been at-
12
tempted with respect to such redemp-
13
tion;
14
‘‘(ii) subject to subparagraph (D), not
15
later than 2 days after making a deter-
16
mination under clause (i), notifies the indi-
17
viduals specified by such security holder
18
under subsection (h)(2)(A) in writing (in-
19
cluding through electronic delivery) of the
20
extension of the period described in sub-
21
paragraph (A) under this subparagraph
22
and the reason for such extension;
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‘‘(iii) initiates an internal review of
1
the facts and circumstances relating to the
2
determination under clause (i);
3
‘‘(iv) holds amounts related to the de-
4
layed payment or satisfaction upon re-
5
demption of the redeemable security in a
6
demand deposit account; and
7
‘‘(v) documents and retains records
8
related to carrying out clause (iv) and in-
9
cludes such records in the first required
10
account statement of the security holder
11
provided after the date on which the deter-
12
mination is made under clause (i).
13
‘‘(C) EXTENSION
BY
GOVERNMENT.—A
14
State regulator, administrative agency of com-
15
petent jurisdiction, or court of competent juris-
16
diction may extend the period described in sub-
17
paragraph (A).
18
‘‘(D) NOTIFICATION.—
19
‘‘(i)
EXCEPTION.—Subparagraph
20
(B)(ii) shall not apply if a registered open-
21
end investment company or transfer agent
22
acting on behalf of such company reason-
23
ably believes that an individual required to
24
be notified under such subparagraph is,
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has been, or will subject the security holder
1
who identified such individual under sub-
2
section (h)(2)(A) to financial exploitation.
3
‘‘(ii)
REASONABLE
EFFORTS.—An
4
open-end investment company or transfer
5
agent acting on behalf of such company
6
shall be considered in compliance with sub-
7
paragraph (B)(ii) if such company or
8
transfer agent makes a reasonable effort to
9
contact the individuals specified by a secu-
10
rity holder under subsection (h)(2)(A).
11
‘‘(E) INTERNAL PROCEDURES.—An open-
12
end investment company or transfer agent act-
13
ing on behalf of such company shall establish
14
procedures to carry out the requirements under
15
this subsection, including procedures—
16
‘‘(i) related to the identification and
17
reporting of matters related to the finan-
18
cial exploitation of specified adults;
19
‘‘(ii) to determine whether to release
20
or reinvest delayed redemption proceeds,
21
taking into account the facts and cir-
22
cumstances of each case, should the inter-
23
nal review under subparagraph (B)(iii)
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support the reasonable belief described in
1
subparagraph (B)(i);
2
‘‘(iii) identifying each employee of the
3
company or transfer agent with authority
4
to establish, extend, or terminate a period
5
described in paragraph (1) or subpara-
6
graph (A);
7
‘‘(iv) in the case of a transfer agent,
8
that are reasonably designed to ensure that
9
the employees of such transfer agent com-
10
ply with this subsection; and
11
‘‘(v) in the case of an open-end invest-
12
ment company, establishing periodic re-
13
porting requirements under which a trans-
14
fer agent acting on behalf of such company
15
shall notify such company of—
16
‘‘(I) each extension under sub-
17
paragraph (B) authorized by such
18
transfer agent;
19
‘‘(II) each finding by the transfer
20
agent under subparagraph (B)(i);
21
‘‘(III) each notification under
22
subparagraph (B)(ii) carried out by
23
such transfer agent; and
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‘‘(IV) the results of each internal
1
review initiated by the transfer agent
2
under subparagraph (B)(iii).
3
‘‘(F) INFORMATION INCLUDED IN CERTAIN
4
STATEMENTS.—An open-end investment com-
5
pany shall include in each prospectus or state-
6
ment of additional information a notification
7
that the company or transfer agent acting on
8
behalf of such company may postpone redemp-
9
tion of certain securities under this subsection.
10
‘‘(G) RECORD RETENTION.—An open-end
11
investment company or transfer agent acting on
12
behalf of such company shall—
13
‘‘(i) document and retain records of—
14
‘‘(I) each postponement of re-
15
demption under subparagraph (A),
16
(B), and (C);
17
‘‘(II) each finding under subpara-
18
graph (B)(i);
19
‘‘(III) the name and position of
20
each employee described in subpara-
21
graph (E)(iii);
22
‘‘(IV) each notification carried
23
out under subparagraph (B)(ii); and
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‘‘(V) the results of each internal
1
review initiated under subparagraph
2
(B)(iii); and
3
‘‘(ii) make such records available to
4
the Commission at the request of the Com-
5
mission.
6
‘‘(3) SPECIFIED ADULT DEFINED.—In this sub-
7
section, the term ‘specified adult’ means—
8
‘‘(A) an individual age 65 or older; or
9
‘‘(B) an individual age 18 or older who a
10
registered open-end investment company or a
11
transfer agent acting on behalf of such com-
12
pany reasonably believes has a mental or phys-
13
ical impairment that renders the individual un-
14
able to protect the individual’s own interests.’’.
15
(b) RECOMMENDATIONS.—
16
(1) IN GENERAL.—Not later than 1 year after
17
the date of the enactment of this section, the Securi-
18
ties and Exchange Commission, in consultation with
19
the entities specified in paragraph (2), shall submit
20
to Congress a report that includes recommendations
21
regarding the regulatory and legislative changes nec-
22
essary to address the financial exploitation of secu-
23
rity holders who are specified adults (as defined in
24
subsection (i)(3) of section 22 of the Investment
25
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Company Act of 1940 (15 U.S.C. 80a–22), as added
1
by this section).
2
(2) CONSULTATION.—The entities specified in
3
this paragraph are as follows:
4
(A) The Commodity Futures Trading
5
Commission.
6
(B) The Director of the Bureau of Con-
7
sumer Financial Protection.
8
(C) The Financial Industry Regulatory Au-
9
thority.
10
(D) The North American Securities Ad-
11
ministrators Association.
12
(E) The Board of Governors of the Fed-
13
eral Reserve System.
14
(F) The Comptroller of the Currency.
15
(G) The Federal Deposit Insurance Cor-
16
poration.
17
Passed the House of Representatives January 30,
2023.
Attest:
CHERYL L. JOHNSON,
Clerk.
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