House approves bill requiring SEC to test investor disclosures

The House approved legislation on Thursday that would require the Securities and Exchange Commission to conduct testing of disclosures meant to protect Main Street investors. The vote on the bill — the SEC Disclosure Effectiveness Testing Act (H.R. 1815) — broke down along party lines, 229-186, passing with only Democratic support. 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. "This bill protects Americans by doing pretty basic market research to ensure that legally required disclosures can be understood by the average investor," Mr. Casten said during the debate on the House floor. Republicans charged Democrats were using the bill to try to undo the SEC's investment-advice reform rules approved earlier this year. One piece of the four-part package was Form CRS, a disclosure document designed to help investors distinguish between brokers and investment advisers. The centerpiece was Regulation Best Interest, the new advice standard for brokers. [Recommended video: Next generation clients want advisers to help them live better lives] The bill was inspired in part by Democrats' doubts about the efficacy of Form CRS. "This bill is a deliberate effort to delay SEC rulemaking on Reg BI and Form CRS," said Rep. Bill Huizenga, R-Mich. Democrats defeated an amendment offered by Rep. Ann Wagner, R-Mo., that would shield Form CRS by making the legislation apply to disclosures developed after Jan. 21, 2021. Rep. Maxine Waters, D-Calif. and chairwoman of the House Financial Services Committee, said reaching back to review disclosures already in place is important. "Evidence has shown many existing disclosures are not understood by these vulnerable [investors]," Ms. Waters said. The bill might have gone as far as it can in the current Congress. There is no companion legislation in the Republican-majority Senate.