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US Securities and Exchange Commission

House Passes Bills to Expand VC Fund Exemption, Broaden SEC Small Business Advocate Mandate

Bill Flook  Editor, Accounting and Compliance Alert

Bill Flook  Editor, Accounting and Compliance Alert

The House of Representatives on July 26, 2022, passed bills to ease certain registration requirements on venture funds, broaden the mandate of the SEC’s Office of the Advocate for Small Business Capital Formation (OASB) to include rural small businesses, and give the SEC more flexibility in annual examinations of nationally recognized statistical rating organizations (NRSROs).

The measures passed by voice vote:

  • H.R. 5128, the Expanding Access to Capital for Rural Job Creators Act, sponsored by Rep. Cindy Axne, an Iowa Democrat. The bill would amend the Securities Exchange Act of 1934 to add “rural-area small businesses” to the categories where the OASB must identify problems with securing access to capital. That list already includes minority- and women-owned small businesses and those affected by hurricanes or other natural disasters. The bill also directs the OASB to summarize the most serious issues encountered by rural small businesses in its annual report.
  • H.R. 4227, the Developing and Empowering our Aspiring Leaders (DEAL) Act of 2022, sponsored by Rep. Trey Hollingsworth, an Indiana Republican. The bill would allow venture capital (VC) funds to make secondary investments without triggering registration requirements under the Investment Advisers Act of 1940.Today, venture firms are exempt from the more extensive regulatory requirements that come with registration as investment advisers, as long as they qualify for the venture capital adviser exemption set out in Rule 203(l)-1 under the Advisers Act. To meet the requirements of that exemption, a minimum 80 percent of a firm’s assets must be qualifying investments, equity securities directly acquired in privately-held companies, along with some caveats.
  • H.R. 4586, the Risk-based Credit Examination Act, sponsored by Rep. Ann Wagner, a Missouri Republican. Today, the SEC’s Office of Credit Ratings (OCR) is required to conduct annual exams of NRSROs covering eight different review areas. Wagner’s bill would add the words “as appropriate” to that requirement.

Also last week, the House Financial Services Committee advanced bills that include H.R. 4865, the Registration for Index-Linked Annuities Act. The bill, sponsored by Rep. Alma Adams, a North Carolina Democrat, would direct the SEC to create a new registration form specifically for registered index-linked annuities (RILAs), replacing current filing requirements that critics say are cumbersome and inappropriate.


This article originally appeared in the August 1, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.

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