Putting Investors First Act of 2023

II 118TH CONGRESS 1ST SESSION S. 1799 To amend the Securities Exchange Act of 1934 to require the registration of proxy advisory firms, and for other purposes. IN THE SENATE OF THE UNITED STATES JUNE 1, 2023 Mr. HAGERTY introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To amend the Securities Exchange Act of 1934 to require the registration of proxy advisory firms, 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 ‘‘Putting Investors First 4 Act of 2023’’. 5 SEC. 2. DEFINITIONS. 6 (a) IN GENERAL.—In this Act: 7 (1) COMMISSION.—The term ‘‘Commission’’ 8 means the Securities and Exchange Commission. 9 VerDate Sep 11 2014 01:01 Jun 17, 2023 Jkt 039200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S1799.IS S1799 kjohnson on DSK79L0C42PROD with BILLS 2 •S 1799 IS (2) PROXY ADVISORY FIRM.—The term ‘‘proxy 1 advisory firm’’ has the meaning given the term in 2 paragraph (81) of section 3(a) of the Securities Ex- 3 change Act of 1934 (15 U.S.C. 78c(a)), as added by 4 this Act. 5 (3) STATE.—The term ‘‘State’’ has the mean- 6 ing given the term in section 3(a) of the Securities 7 Exchange Act of 1934 (15 U.S.C. 78c(a)). 8 (b) SECURITIES EXCHANGE ACT OF 1934 DEFINI- 9 TIONS.—Section 3(a) of the Securities Exchange Act of 10 1934 (15 U.S.C. 78c(a)) is amended by adding at the end 11 the following: 12 ‘‘(81) PROXY ADVISORY FIRM.—The term 13 ‘proxy advisory firm’— 14 ‘‘(A) means any person who is primarily 15 engaged in the business of providing proxy vot- 16 ing advice, research, analysis, ratings, or rec- 17 ommendations to clients, which conduct con- 18 stitutes a solicitation within the meaning of sec- 19 tion 14; and 20 ‘‘(B) does not include any person that is 21 exempt under law or regulation from the re- 22 quirements otherwise applicable to persons en- 23 gaged in such a solicitation. 24 VerDate Sep 11 2014 01:01 Jun 17, 2023 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S1799.IS S1799 kjohnson on DSK79L0C42PROD with BILLS 3 •S 1799 IS ‘‘(82) PERSON ASSOCIATED WITH A PROXY AD- 1 VISORY FIRM.—The term ‘person associated’ with a 2 proxy advisory firm— 3 ‘‘(A) means— 4 ‘‘(i) any partner, officer, or director of 5 a proxy advisory firm (or any person occu- 6 pying a similar status or performing simi- 7 lar functions); 8 ‘‘(ii) any person directly or indirectly 9 controlling, controlled by, or under com- 10 mon control with a proxy advisory firm; 11 ‘‘(iii) any employee of a proxy advi- 12 sory firm; or 13 ‘‘(iv) any person the Commission de- 14 termines by rule is controlled by a proxy 15 advisory firm; and 16 ‘‘(B) does not include any person that per- 17 forms clerical or ministerial functions with re- 18 spect to a proxy advisory firm.’’. 19 SEC. 3. REGISTRATION OF PROXY ADVISORY FIRMS. 20 (a) AMENDMENT.—The Securities Exchange Act of 21 1934 (15 U.S.C. 78a et seq.) is amended by inserting after 22 section 15G the following new section: 23 VerDate Sep 11 2014 01:01 Jun 17, 2023 Jkt 039200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S1799.IS S1799 kjohnson on DSK79L0C42PROD with BILLS 4 •S 1799 IS ‘‘SEC. 15H. REGISTRATION OF PROXY ADVISORY FIRMS. 1 ‘‘(a) CONDUCT PROHIBITED.—It shall be unlawful 2 for a proxy advisory firm to make use of the mails or any 3 means or instrumentality of interstate commerce to pro- 4 vide proxy voting advice, research, analysis, ratings or rec- 5 ommendations to any client, unless such proxy advisory 6 firm is registered under this section. 7 ‘‘(b) REGISTRATION PROCEDURES.— 8 ‘‘(1) APPLICATION FOR REGISTRATION.— 9 ‘‘(A) IN GENERAL.—A proxy advisory firm 10 shall file with the Commission an application 11 for registration, in such form as the Commis- 12 sion shall require, by rule or regulation, and 13 containing the information described in sub- 14 paragraph (B). 15 ‘‘(B) REQUIRED INFORMATION.—An appli- 16 cation for registration under this section shall 17 contain information regarding— 18 ‘‘(i) a certification that the applicant 19 is able to consistently provide proxy advice 20 based on accurate information; 21 ‘‘(ii) the procedures and methodolo- 22 gies that the applicant uses in developing 23 proxy voting recommendations; 24 ‘‘(iii) the organizational structure of 25 the applicant; 26 VerDate Sep 11 2014 01:01 Jun 17, 2023 Jkt 039200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S1799.IS S1799 kjohnson on DSK79L0C42PROD with BILLS 5 •S 1799 IS ‘‘(iv) whether or not the applicant has 1 in effect a code of ethics, and if not, the 2 reasons therefor; 3 ‘‘(v) any potential or actual conflict of 4 interest relating to the provision of proxy 5 advisory services, including those arising 6 out of or resulting from the ownership 7 structure of the applicant or the provision 8 of other services by the applicant or any 9 person associated with the applicant; 10 ‘‘(vi) the policies and procedures in 11 place to publicly disclose and manage con- 12 flicts of interest under subsection (f); 13 ‘‘(vii) information related to the pro- 14 fessional and academic qualifications of 15 staff tasked with providing proxy advisory 16 services; and 17 ‘‘(viii) any other information and doc- 18 uments concerning the applicant and any 19 person associated with such applicant as 20 the Commission, by rule, may prescribe as 21 necessary or appropriate in the public in- 22 terest or for the protection of investors. 23 ‘‘(2) REVIEW OF APPLICATION.— 24 VerDate Sep 11 2014 01:01 Jun 17, 2023 Jkt 039200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S1799.IS S1799 kjohnson on DSK79L0C42PROD with BILLS 6 •S 1799 IS ‘‘(A) INITIAL DETERMINATION.—Not later 1 than 90 days after the date on which the appli- 2 cation for registration is filed with the Commis- 3 sion under paragraph (1) (or within such longer 4 period as to which the applicant consents) the 5 Commission shall— 6 ‘‘(i) by order, grant registration; or 7 ‘‘(ii) institute proceedings to deter- 8 mine whether registration should be de- 9 nied. 10 ‘‘(B) CONDUCT OF PROCEEDINGS.— 11 ‘‘(i) CONTENT.—Proceedings referred 12 to in subparagraph (A)(ii) shall— 13 ‘‘(I) include notice of the grounds 14 for denial under consideration and an 15 opportunity for hearing; and 16 ‘‘(II) be concluded not later than 17 120 days after the date on which the 18 application for registration is filed 19 with the Commission under paragraph 20 (1). 21 ‘‘(ii) DETERMINATION.—At the con- 22 clusion of such proceedings, the Commis- 23 sion, by order, shall grant or deny such ap- 24 plication for registration. 25 VerDate Sep 11 2014 01:01 Jun 17, 2023 Jkt 039200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S1799.IS S1799 kjohnson on DSK79L0C42PROD with BILLS 7 •S 1799 IS ‘‘(iii) EXTENSION AUTHORIZED.—The 1 Commission may extend the time for con- 2 clusion of such proceedings for not longer 3 than 90 days, if the Commission finds 4 good cause for such extension and pub- 5 lishes its reasons for so finding, or for such 6 longer period as to which the applicant 7 consents. 8 ‘‘(C) GROUNDS FOR DECISION.—The Com- 9 mission shall grant registration under this sub- 10 section— 11 ‘‘(i) if the Commission finds that the 12 requirements of this section are satisfied; 13 and 14 ‘‘(ii) unless the Commission finds (in 15 which case the Commission shall deny such 16 registration) that— 17 ‘‘(I) the applicant has failed to 18 certify to the Commission’s satisfac- 19 tion that it is able to consistently pro- 20 vide proxy advice based on accurate 21 information and to materially comply 22 with the procedures and methodolo- 23 gies disclosed under paragraph (1)(B) 24 and with subsections (f) and (g); or 25 VerDate Sep 11 2014 01:01 Jun 17, 2023 Jkt 039200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S1799.IS S1799 kjohnson on DSK79L0C42PROD with BILLS 8 •S 1799 IS ‘‘(II) if the applicant were so reg- 1 istered, its registration would be sub- 2 ject to suspension or revocation under 3 subsection (d). 4 ‘‘(3) PUBLIC AVAILABILITY OF INFORMATION.— 5 Subject to section 24, the Commission shall make 6 the information and documents submitted to the 7 Commission by a proxy advisory firm in its com- 8 pleted application for registration, or in any amend- 9 ment submitted under paragraph (1) or (2) of sub- 10 section (c), publicly available on the Commission’s 11 website, or through another comparable, readily ac- 12 cessible means. 13 ‘‘(c) UPDATE OF REGISTRATION.— 14 ‘‘(1) UPDATE.—Each registered proxy advisory 15 firm shall promptly amend and update its applica- 16 tion for registration under this section if any infor- 17 mation or document provided therein becomes mate- 18 rially inaccurate, except that a registered proxy advi- 19 sory firm is not required to amend the information 20 required to be filed under subsection (b)(1)(B)(i) by 21 filing information under this paragraph, but shall 22 amend such information in the annual submission of 23 the organization under paragraph (2) of this sub- 24 section. 25 VerDate Sep 11 2014 01:01 Jun 17, 2023 Jkt 039200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S1799.IS S1799 kjohnson on DSK79L0C42PROD with BILLS 9 •S 1799 IS ‘‘(2) CERTIFICATION.—Not later than 90 cal- 1 endar days after the end of each calendar year, each 2 registered proxy advisory firm shall file with the 3 Commission an amendment to its registration, in 4 such form as the Commission, by rule, may prescribe 5 as necessary or appropriate in the public interest or 6 for the protection of investors— 7 ‘‘(A) certifying that the information and 8 documents in the application for registration of 9 such registered proxy advisory firm continue to 10 be accurate in all material respects; and 11 ‘‘(B) listing any material change that oc- 12 curred to such information or documents during 13 the previous calendar year. 14 ‘‘(d) CENSURE, DENIAL, OR SUSPENSION OF REG- 15 ISTRATION; NOTICE AND HEARING.—The Commission, by 16 order, shall censure, place limitations on the activities, 17 functions, or operations of, suspend for a period not ex- 18 ceeding 12 months, or revoke the registration of any reg- 19 istered proxy advisory firm if the Commission finds, on 20 the record after notice and opportunity for hearing, that 21 such censure, placing of limitations, suspension, or revoca- 22 tion is necessary for the protection of investors and in the 23 public interest and that such registered proxy advisory 24 firm, or any person associated with such an organization, 25 VerDate Sep 11 2014 01:01 Jun 17, 2023 Jkt 039200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S1799.IS S1799 kjohnson on DSK79L0C42PROD with BILLS 10 •S 1799 IS whether prior to or subsequent to becoming so associ- 1 ated— 2 ‘‘(1) has committed or omitted any act, or is 3 subject to an order or finding, enumerated in sub- 4 paragraph (A), (D), (E), (H), or (G) of section 5 15(b)(4), has been convicted of any offense specified 6 in section 15(b)(4)(B), or is enjoined from any ac- 7 tion, conduct, or practice specified in subparagraph 8 (C) of section 15(b)(4), during the 10-year period 9 preceding the date of commencement of the pro- 10 ceedings under this subsection, or at any time there- 11 after; 12 ‘‘(2) has been convicted during the 10-year pe- 13 riod preceding the date on which an application for 14 registration is filed with the Commission under this 15 section, or at any time thereafter, of— 16 ‘‘(A) any crime that is punishable by im- 17 prisonment for 1 or more years, and that is not 18 described in section 15(b)(4)(B); or 19 ‘‘(B) a substantially equivalent crime by a 20 foreign court of competent jurisdiction; 21 ‘‘(3) is subject to any order of the Commission 22 barring or suspending the right of the person to be 23 associated with a registered proxy advisory firm; 24 VerDate Sep 11 2014 01:01 Jun 17, 2023 Jkt 039200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S1799.IS S1799 kjohnson on DSK79L0C42PROD with BILLS 11 •S 1799 IS ‘‘(4) fails to furnish the certifications required 1 under subsections (b)(2)(C)(ii)(I) and (c)(2); 2 ‘‘(5) has engaged in one or more prohibited acts 3 enumerated in paragraph (1); 4 ‘‘(6) fails to maintain adequate financial and 5 managerial resources to consistently offer advisory 6 services with integrity, including by failing to comply 7 with subsection (f) or (g); or 8 ‘‘(7) engages in a prohibited act enumerated in 9 subsection (j). 10 ‘‘(e) TERMINATION OF REGISTRATION.— 11 ‘‘(1) VOLUNTARY WITHDRAWAL.—A registered 12 proxy advisory firm may, upon such terms and con- 13 ditions as the Commission may establish as nec- 14 essary in the public interest or for the protection of 15 investors, which terms and conditions shall include 16 at a minimum that the registered proxy advisory 17 firm will no longer conduct such activities as to 18 bring it within the definition of proxy advisory firm 19 in section 3(a)(81), withdraw from registration by 20 filing a written notice of withdrawal to the Commis- 21 sion. 22 ‘‘(2) COMMISSION AUTHORITY.—In addition to 23 any other authority of the Commission under this 24 title, if the Commission finds that a registered proxy 25 VerDate Sep 11 2014 01:01 Jun 17, 2023 Jkt 039200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S1799.IS S1799 kjohnson on DSK79L0C42PROD with BILLS 12 •S 1799 IS advisory firm is no longer in existence or has ceased 1 to do business as a proxy advisory firm, the Com- 2 mission, by order, shall cancel the registration under 3 this section of such registered proxy advisory firm. 4 ‘‘(f) MANAGEMENT OF CONFLICTS OF INTEREST.— 5 ‘‘(1) ORGANIZATION POLICIES AND PROCE- 6 DURES.—Each registered proxy advisory firm shall 7 establish, maintain, and enforce written policies and 8 procedures reasonably designed, taking into consid- 9 eration the nature of the business of such registered 10 proxy advisory firm and associated persons, to pub- 11 licly disclose and manage any conflicts of interest 12 that arise or would reasonably be expected to arise 13 from such business. 14 ‘‘(2) COMMISSION AUTHORITY.—The Commis- 15 sion shall, within one year of enactment, issue final 16 rules to prohibit, or require the management and 17 public disclosure of, any conflicts of interest relating 18 to the offering of proxy advisory services by a reg- 19 istered proxy advisory firm, including, without limi- 20 tation, conflicts of interest relating to— 21 ‘‘(A) the manner in which a registered 22 proxy advisory firm is compensated by the cli- 23 ent, any affiliate of the client, or any other per- 24 son for providing proxy advisory services; 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