Legislation that would require the Securities and Exchange Commission to conduct investor testing of disclosures will come up for a vote later this week on the House floor, where it is likely to advance with mostly Democratic backing.
The bill, the SEC Disclosure Effectiveness Testing Act (H.R. 1815), was approved in March by the House Financial Services Committee on a party line vote.
The measure, written by Rep. Sean Casten (D-Ill.), would require the SEC to incorporate qualitative testing for new disclosures for retail investors. The agency also would have to make the findings available for public comment and test existing retail disclosures.
The legislation was inspired by doubts among Democrats and investor advocates about new disclosures included in the investment advice reform regulatory package the SEC approved in June. Those disclosures, known as Form CRS, are designed to help investors understand the differences between retail investment advisers and brokers.
When Mr. Casten's bill was debated by the House committee, Republicans opposed it, saying that it would slow the SEC's consideration of advice reform, the centerpiece of which is Regulation Best Interest for brokers.
It's not clear whether Mr. Casten has attracted any Republican backing for his bill since it passed in committee. His spokeswoman was not immediately available for comment.
Given the Democratic majority in the House, the bill is likely to be approved by the chamber this week. There is no companion bill in the Republican-majority Senate.
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In an Oct. 11 letter to House members in support of the bill, the Consumer Federation of America said most disclosures "do a poor job of conveying critically important information in a way that typical retail investors can understand," leaving them in the dark about investment costs and risks as well as financial advisers' conflicts of interest.
"That's a problem that's solvable. Why wouldn't you want to solve it?" said Barbara Roper, director of investor protection at CFA. "That shouldn't be a partisan issue. But it came up within the context of Reg BI, and that made it partisan."
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Ms. Roper, a member of the SEC Investor Advisory Committee, said the panel, which represents the voice of ordinary investors to the SEC, has backed enhancing disclosure testing.
"This issue, within the context of the IAC, isn't controversial at all," she said.
If the disclosure-testing bill were to become law, the SEC would have to work with the Office of the Investor Advocate to design a plan to test existing disclosures, such as Form ADV and the mutual fund summary prospectus.