Electronic Investor Disclosure Legislation Advances in Congress

Senator Thom Tillis, R-North Carolina, and Senator John Hickenlooper, D-Colorado, introduced the Improving Disclosure for Investors Act on Thursday. The bill would require the Securities and Exchange Commission to require the adoption of electronic disclosures to investors, with an opt-out regime, to reduce the number of mailed paper investment disclosures.

The bill joins its companion bill of the same name that is being considered in the House of Representatives. The House version has the same text and was initially proposed in March. It is expected to be put to a vote at some point next week. No vote has yet been scheduled in the Senate.

If passed, the SEC would be required to propose rules within 180 days and to finalize them within one year. Those rules must require securities issuers to send to investors an initial disclosure on paper and then two consecutive annual opt-out notices by paper. If an investor does not affirmatively opt out of electronic delivery, then investor disclosures under the securities laws and SEC regulations can be sent to them electronically, even though they did not affirmatively elect it. An investor may also opt in to electronic delivery at an earlier time.

The bill also states that if the SEC fails to implement regulations within one year of the bill’s passage, issuers may adopt the opt-out model described in the legislation, provided they send the two annual opt-out notices to investors.

The legislation is expected to reduce mail fraud, mis-delivered disclosures and waste.

Financial services organizations including Fidelity Investments, the Investment Company Institute, Charles Schwab Corp. and the Securities Industry and Financial Markets Association have endorsed the legislation.