HFSC Approves Bill to Allow Broker-Dealers to Sell Research Without Being Deemed IAs

The House Financial Services Committee voted to approve H.R. 2622, a bill that would amend the Advisers Act to codify expiring SEC no-action relief that (i) excludes broker-dealers who are compensated for research services from the definition of "investment adviser" and (ii) allows broker-dealers to continue accepting payments for research reports in order to comply with international regulations, including MiFID and MiFID II.

Congressman Pete Sessions (Rep., TX) who introduced the bill previously stated that "the no-action letter's expiration would likely put firms out of business, subject them to a costly/mostly inapplicable regulatory framework, and require them to find another (yet to be determined) workaround."

Comments

SIFMA President and CEO Kenneth E. Bentsen applauded the House Financial Services Committee action on the proposed legislation. Mr. Bentsen said that should the relief expire, broker-dealers receiving MiFID-required unbundled payments for research services would be subject to regulations that are "fundamentally incompatible" with how services are typically provided to investment managers by broker-dealers.

The Council of Institutional Investors, the CFA Institute and the Healthy Markets Association (the "Associations"), in a joint comment letter, argued against the proposed legislation, stating that separating trading and buying research enhances price discovery and more efficiently allocates resources for trading and research. The Associations added that the no-action relief discriminates against U.S. investors by allowing broker-dealers that accept payments as a result of MiFID II to evade registration under the Advisers Act. The Associations also called attention to the fact that the proposed bill originated from a no-action letter that has been previously extended and not tested through a traditional rulemaking that requires an economic analysis.