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Regulation and Compliance > Federal Regulation > SEC

House Bill Would Require SEC Investor Testing Before Issuing Rules

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The House Rules Committee was poised to vote Monday on putting a bill up for a House vote that would require the Securities and Exchange Commission to conduct investor testing when developing rules on disclosures.

H.R. 1815, the SEC Disclosure Effectiveness Testing Act, would require that when developing rules and regulations about disclosures to retail investors, the SEC would have to conduct investor testing, including a survey and interviews of retail investors.

The House Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets debated the bill during its March hearing on the SEC’s advice-standards package, including Regulation Best Interest.

HR 1815 was introduced by Rep. Sean Casten, D-Ill., during the March hearing and would require the SEC to conduct usability testing on the agency’s new disclosure forms before finalizing Reg BI, a plan that the subcommittee’s chairwoman, Rep. Carolyn Maloney, D-N.Y., said was “an excellent idea.”

The commission did conduct investor testing on the new Customer Relationship Summary form, or Form CRS, which was required as part of the advice-standards package that includes Reg BI. Those rules were finalized in June.

However, the bill includes a host of amendments to be debated on the House floor. One would exempt Form CRS from the bill’s investor testing requirements.

Other amendments to be debated on the House floor clarifies that “retail investor”  does not mean “institutional investor,” as well as adds climate change disclosures to the proposed rules and regulations that would be subjected to investor testing in the underlying bill.

Another amendment applies the bill’s investor testing to any disclosures relating to “environmental, social, or governance” (ESG) factors. Yet another would require the SEC to include a specific consideration of the unique challenges senior investors face as part of their overall investor testing.

The House bill amends the Securities Exchange Act of 1934 and would require the agency to engage in investor testing prior to issuing any rule or regulation that designates documents or information to be disclosed under the securities laws, if such documents or information are:

  • primarily used by retail investors, as determined by the commission; and
  • intended to be used by retail investors to make informed investment decisions or to understand the investments held by the retail investor.

The investor testing should include qualitative testing in the form of one-on-one cognitive interviews of retail investors about documents or information, or samples of such documents or information, to be provided.

The agency would also be required to conduct a nationwide survey of retail investors to complement the interviews.

Such questions would probe the usefulness, proposed format and delivery preferences of such documents or information, or samples of them.

— Check out States’ Lawsuit Against SEC Reg BI Dismissed by Lower Court on ThinkAdvisor.


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