House Approves Bill Requiring SEC to Test Retail Investor Disclosures
The U.S. House of Representatives has passed the SEC Disclosure Effectiveness Testing Act (H.R. 1815), a bill that would require the Securities and Exchange Commission to engage in usability testing of its new and existing disclosures intended for retail investors in the form of qualitative interviews and surveys.
The U.S. House of Representatives has passed the SEC Disclosure Effectiveness Testing Act (H.R. 1815), a bill that would require the Securities and Exchange Commission to engage in usability testing of its new and existing disclosures intended for retail investors in the form of qualitative interviews and surveys. The bill passed along party lines in a 229 to 186 vote.
In June, the SEC adopted Regulation BI which establishes a “best interest” standard of conduct for broker-dealers and associated persons when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities.
As part of the rules package, the SEC would require investment advisors and broker-dealers to provide a relationship summary to clients and customers on Form CRS, to inform them about the relationships and services their firms offer, the standard of conduct, the fees and costs associated with those services, and conflicts of interest the firms may have.
Rep. Bill Huizenga (R-MI) called the bill “a deliberate effort to delay SEC rulemaking on Reg BI and Form CRS.”
SEC Disclosure Effectiveness Testing Act would require the SEC to conduct usability testing when developing disclosures that are used and relied upon by retail investors.
Specifically, the bill would require the SEC to conduct testing of new and existing disclosures that are used by retail investors, and include interview and survey testing of retail investors on the usefulness of the documents and information. The analysis of results would be published in the Federal Register for comment.
H.R. 1815 is supported by AARP, the Financial Planning Coalition, brokers and investment advisers at the Certified Financial Planning Board of Standards (CFP Board), and the Consumer Federation of America.
Financial Planning Coalition Board said, “The Coalition believes that H.R. 1815 will provide the statutory framework necessary for the SEC to ensure to Congress and Main Street investors that disclosures required under SEC rules have been thoroughly and adequately tested by the SEC and are reasonably effective in achieving their intended purpose.”
There is currently no companion bill in the Senate.
