CONGRESSWOMAN ELISE STEFANIK
On Monday, July 11, 2016, the House will consider H.R. 5322, the U.S. Territories Investor Protection Act of 2016, under suspension of the rules. H.R. 5322 was introduced on May 25, 2016 by Rep. Nydia Velazquez (D-NY), and was referred to the Committee on Financial Services. The Committee on Financial Services ordered H.R. 5322 reported on June 16, 2016 by a vote of 59-0.
H.R. 5322 amends Section 6(a)(1) of the Investment Company Act of 1940 (“Act”) to terminate an exemption for investment companies located in Puerto Rico, the Virgin Islands, and any other possession of the United States. Under current law, such companies are exempt from registration under the Act provided that their shares are sold solely to the residents of the territory or possession in which they are located.
The bill provides a three-year safe harbor for investment companies that currently enjoy this exemption to become compliant with the Act. Additionally, the bill authorizes the Securities and Exchange Commission (SEC) to further delay the effective date (or end of the exemption) for a maximum of three years following the initial three year safe harbor.
In the U.S. mainland, mutual funds are subject to the Investment Company Act of 1940. That 1940 law, however, does not apply to funds located in U.S. possessions that are sold only to residents of those possessions. When Congress enacted the Investment Company Act of 1940, it was prohibitively expensive and logistically difficult for SEC personnel to travel and inspect investment companies located in certain U.S. territories, including Alaska, Hawaii, the Philippines, the Panama Canal Zone, Puerto Rico and the U.S. Virgin Islands. Consequently, those investment companies were exempt from registration with, and oversight by, the SEC, but the investment company had to follow the laws of the jurisdiction in which the investment company operated.
As U.S. territories and possessions became states or independent nations no longer under U.S. control, amendments were made to Section 6(a)(1) of the Investment Company Act to subject mutual funds to federal regulations. Since 1940 both Hawaii and Alaska, which are farther away from the mainland than Puerto Rico, have been granted statehood and the protections in the 1940 Act. Additionally, air travel between the U.S. and Puerto Rico is common and many of these financial instruments are today traded electronically. H.R. 5322 terminates the territorial exemption from registration under the Act and requires that investment companies in Puerto Rico, the Virgin Islands, and any other possession of the United States operate subject to the same rules as their mainland counterparts.
 Mutual funds cater to individual investors who want professionally managed investments
A Congressional Budget Office (CBO) estimate is currently not available at this time.
For questions or further information please contact John Huston with the House Republican Policy Committee by email or at 6-5539.