House Passes Expanding Access to Capital Act

The U.S. House of Representatives passed the Expanding Access to Capital Act on Friday, a package of bills that has implications for the investment space ranging from retirement plan management to expanding the definition of an accredited investor.

The bill passed along party lines in the House by a vote of 212 Republicans to 205 Democrats. The act, H.R. 2799, will now move to the Senate. It is not clear when that chamber will consider it.

The vote moves ahead an amendment approved by the House on Thursday that has been widely watched by the qualified retirement plan industry: the ability for 403(b) plans managed under the Employee Retirement Income Security Act to include collective investment trusts.

CITs, as they are known, are generally cheaper to offer in retirement plan menus than vehicles such as mutual funds in part because they are not securities and do not need to be registered with the Securities and Exchange Commission. CIT’s are available, and have become very popular in defined contribution plans including 401(k)s. That amendment was brought forward by Representatives Frank Lucas, R-Oklahoma, Josh Gottheimer, D-New Jersey, and Bill Foster, D-Illinois.

Another amendment directs the SEC to require the adoption of electronic disclosures to investors instead of paper disclosures. The amendment was proposed by Representative Bill Huizenga, R-Michigan.

Eric Pan, CEO of the Investment Company Institute, praised the bill as bringing “investment disclosures into the 21st century by allowing electronic delivery to become the default mechanism to deliver certain regulatory documents to investors.”

The bill includes other measure being closely watched by the investment community, including a provision that would add clients of registered advisers to the definition of accredited investors, giving them access to some unregistered securities, provided they do not invest more than 10% of their net worth or gross income into private securities.

Overall, the bill’s provisions are designed to reduce “various securities regulations applicable to certain companies, brokers, and advisors” and allow “more investors to invest in specified types of ventures,” according to the Congressional summary.

Other provisions include:

• Securities registration is not required for a sale of securities if the total amount of securities sold by the issuer in a 12-month period does not exceed $250,000;
• Certain issuers of securities regulated as emerging growth companies can continue operating under the regulations, including those related to reduced disclosures, for an additional period of time; and
• Raising the limit of total annual gross revenues under which issuers qualify as emerging growth companies to $1.5 billion.

The bill was sponsored by Patrick McHenry, R-North Carolina, and chairman of the House Financial Services Committee.

“Across the country, entrepreneurs with a new idea or seeking to grow their business are struggling to access affordable capital,” McHenry wrote in a statement. “The Expanding Access to Capital Act addresses this and more by alleviating the unique challenges faced by job creators and their investors who live outside major financial hubs. This legislation builds on the success of the bipartisan JOBS Act of 2012 and will benefit Americans from all walks of life—whether they’re saving for retirement or launching a startup.”