,i #aahth ,,congress #ast ,session ,h4 ,r4 #dehi ,,in ,,the ,,house ,,of ,,representatives ,july #ab1 #bjbc,mr4 ,steil introduced the following bill2 which was referred to the ,committee on ,financial ,services ,a ,,bill ,to amend the ,securities ,exchange ,act of #aicd to provide for the registration of proxy advisory firms1 and for other purposes4 #a4 ,registration of proxy advisory firms 7a7 ,amendment ,the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #gh;a et seq47 is amended by inserting after section #ae;,g the following new section3 #ae;,h4 ,registration of proxy advisory firms 7a7 ,conduct prohibited ,it shall be unlawful for a proxy advisory firm to make use of the mails or any means or instrumentality of interstate commerce to provide proxy voting advice1 research1 analysis1 ratings or recommendations to any client1 unless such proxy advisory firm is registered under this section4 7b7 ,registration procedures 7#a7 ,application for registration 7,a7 ,in general ,a proxy advisory firm shall file with the ,commission an application for registration1 in such form as the ,commission shall require1 by rule1 and containing the information described in subparagraph 7,b74 7,b7 ,required information ,an application for registration under this section shall contain-- 7i7 a certification that the applicant is able to consistently provide proxy advice based on accurate information2 7ii7 with respect to clients of the applicant that vote shares held on behalf of shareholders1 a certification that the applicant-- 7,i7 will provide proxy voting advice only in the best economic interest of those shareholders2 and 7,,ii7 has the requisite expertise to ensure that voting recommendations are in the best economic interest of those shareholders2 7iii7 information on the procedures and methodologies that the applicant uses to ensure that proxy voting recommendations are in the best economic interest of the ultimate shareholders2 7iv7 information on the organizational structure of the applicant2 7v7 an explanation of whether or not the applicant has in effect a code of ethics1 and if not1 the reasons therefor2 7vi7 a description of any potential or actual conflict of interest relating to the provision of proxy advisory services1 including those arising out of or resulting from the ownership structure of the applicant or the provision of other services by the applicant or any person associated with the applicant2 7vii7 the policies and procedures in place to publicly disclose and manage conflicts of interest under subsection 7f72 7viii7 information related to the professional and academic qualifications of staff tasked with providing proxy advisory services2 and 7ix7 any other information and documents concerning the applicant and any person associated with such applicant as the ,commission1 by rule1 may prescribe as necessary or appropriate in the public interest or for the protection of investors4 7#b7 ,review of application 7,a7 ,initial determination ,not later than #ij days after the date on which the application for registration is filed with the ,commission under paragraph 7#a7 7or within such longer period as to which the applicant consents7 the ,commission shall-- 7i7 by order1 grant registration2 or 7ii7 institute proceedings to determine whether registration should be denied4 7,b7 ,conduct of proceedings 7i7 ,content ,proceedings referred to in subparagraph 7,a77ii7 shall-- 7,i7 include notice of the grounds for denial under consideration and an opportunity for hearing2 and 7,,ii7 be concluded not later than #abj days after the date on which the application for registration is filed with the ,commission under paragraph 7#a74 7ii7 ,determination ,at the conclusion of such proceedings1 the ,commission1 by order1 shall grant or deny such application for registration4 7iii7 ,extension authorized ,the ,commission may extend the time for conclusion of such proceedings for not longer than #ij days1 if the ,commission finds good cause for such extension and publishes its reasons for so finding1 or for such longer period as to which the applicant consents4 7,c7 ,grounds for decision ,the ,commission shall grant registration under this subsection-- 7i7 if the ,commission finds that the requirements of this section are satisfied2 and 7ii7 unless the ,commission finds 7in which case the ,commission shall deny such registration7 that-- 7,i7 the applicant has failed to certify to the ,commission's satisfaction that it is able to consistently provide proxy advice based on accurate information and to materially comply with the procedures and methodologies disclosed under paragraph 7#a77;,b7 and with subsections 7f7 and 7g72 or 7,,ii7 if the applicant were so registered1 its registration would be subject to suspension or revocation under subsection 7d74 7#c7 ,public availability of information ,subject to section #bd1 the ,commission shall make the information and documents submitted to the ,commission by a proxy advisory firm in its completed application for registration1 or in any amendment submitted under paragraph 7#a7 or 7#b7 of subsection 7c71 publicly available on the ,commission's website1 or through another comparable1 readily accessible means4 7c7 ,update of registration 7#a7 ,update ,each registered proxy advisory firm shall promptly amend and update its application for registration under this section if any information or document provided therein becomes materially inaccurate1 except that a registered proxy advisory firm is not required to amend the information required to be filed under subsection 7b77#a77;,b77i7 by filing information under this paragraph1 but shall amend such information in the annual submission of the organization under paragraph 7#b7 of this subsection4 7#b7 ,certification ,not later than #ij calendar days after the end of each calendar year1 each registered proxy advisory firm shall file with the ,commission an amendment to its registration1 in such form as the ,commission1 by rule1 may prescribe as necessary or appropriate in the public interest or for the protection of investors-- 7,a7 certifying that the information and documents in the application for registration of such registered proxy advisory firm continue to be accurate in all material respects2 and 7,b7 listing any material change that occurred to such information or documents during the previous calendar year4 7d7 ,censure1 denial1 or suspension of registration2 notice and hearing ,the ,commission1 by order1 shall censure1 place limitations on the activities1 functions1 or operations of1 suspend for a period not exceeding #ab months1 or revoke the registration of any registered proxy advisory firm if the ,commission finds1 on the record after notice and opportunity for hearing1 that such censure1 placing of limitations1 suspension1 or revocation is necessary for the protection of investors and in the public interest and that such registered proxy advisory firm1 or any person associated with such an organization1 whether prior to or subsequent to becoming so associated-- 7#a7 has committed or omitted any act1 or is subject to an order or finding1 enumerated in subparagraph 7,a71 7,d71 7,e71 7,h71 or 7,g7 of section #ae7;b77#d71 has been convicted of any offense specified in section #ae7;b77#d77;,b71 or is enjoined from any action1 conduct1 or practice specified in subparagraph 7,c7 of section #ae7;b77#d71 during the #aj-year period preceding the date of commencement of the proceedings under this subsection1 or at any time thereafter2 7#b7 has been convicted during the #aj-year period preceding the date on which an application for registration is filed with the ,commission under this section1 or at any time thereafter1 of-- 7,a7 any crime that is punishable by imprisonment for #a or more years1 and that is not described in section #ae7;b77#d77;,b72 or 7,b7 a substantially equivalent crime by a foreign court of competent jurisdiction2 7#c7 is subject to any order of the ,commission barring or suspending the right of the person to be associated with a registered proxy advisory firm2 7#d7 fails to furnish the certifications required under subsections 7b77#b77;,c77ii77,i7 and 7c77#b72 7#e7 has engaged in one or more prohibited acts enumerated in paragraph 7#a72 7#f7 fails to maintain adequate financial and managerial resources to consistently offer advisory services to clients that vote shares held on behalf of shareholders consistent with the best economic interest of those shareholders1 including by failing to comply with subsection 7f7 or 7g72 7#g7 fails to maintain adequate expertise to ensure that proxy advisory services for clients that vote shares held on behalf of shareholders are tied to the best economic interest of those shareholders2 or 7#h7 engages in a prohibited act enumerated in subsection 7j74 7e7 ,termination of registration 7#a7 ,voluntary withdrawal ,a registered proxy advisory firm may1 upon such terms and conditions as the ,commission may establish as necessary in the public interest or for the protection of investors1 which terms and conditions shall include at a minimum that the registered proxy advisory firm will no longer conduct such activities as to bring it within the definition of proxy advisory firm in section #c7;a77#ha71 withdraw from registration by filing a written notice of withdrawal to the ,commission4 7#b7 ,commission authority ,in addition to any other authority of the ,commission under this title1 if the ,commission finds that a registered proxy advisory firm is no longer in existence or has ceased to do business as a proxy advisory firm1 the ,commission1 by order1 shall cancel the registration under this section of such registered proxy advisory firm4 7f7 ,management of conflicts of interest 7#a7 ,organization policies and procedures ,each registered proxy advisory firm shall establish1 maintain1 and enforce written policies and procedures reasonably designed1 taking into consideration the nature of the business of such registered proxy advisory firm and associated persons1 to publicly disclose and manage any conflicts of interest that arise or would reasonably be expected to arise from such business4 7#b7 ,commission authority ,the ,commission shall1 within one year of enactment1 issue final rules to prohibit1 or require the management and public disclosure of1 any conflicts of interest relating to the offering of proxy advisory services by a registered proxy advisory firm1 including1 without limitation1 conflicts of interest relating to-- 7,a7 the manner in which a registered proxy advisory firm is compensated by the client1 any affiliate of the client1 or any other person for providing proxy advisory services2 7,b7 business relationships1 ownership interests1 or any other financial or personal interests between a registered proxy advisory firm1 or any person associated with such registered proxy advisory firm1 and any client1 or any affiliate of such client2 7,c7 the formulation of proxy voting policies2 7,d7 the execution1 or assistance with the execution1 of proxy votes if such votes are based upon recommendations made by the proxy advisory firm in which a person other than the issuer is a proponent2 and 7,e7 any other potential conflict of interest1 as the ,commission deems necessary or appropriate in the public interest or for the protection of investors4 7#c7 ,disclosure on factors influencing recommendations ,each registered proxy advisory firm shall annually disclose to the ,commission and make publicly available the economic and other factors that a reasonable investor would expect to influence the recommendations of such proxy advisory firm1 including the ownership composition of such proxy advisory firm and any meetings with1 or feedback received from1 outside entities4 7g7 ,reliability of proxy advisory firm services 7#a7 ,in general ,each registered proxy advisory firm shall-- 7,a7 have staff and other resources sufficient to produce proxy voting recommendations that are based on accurate and current information and designed for clients that vote shares held on behalf of shareholders to advance the best economic interest of those shareholders2 7,b7 implement procedures that permit issuers that are the subject of proxy voting recommendations-- 7i7 access in a reasonable time to data and information used to make recommendations2 and 7ii7 a reasonable opportunity to provide meaningful comment and corrections to such data and information1 including the opportunity to present 7in person or telephonically7 details to the person responsible for developing such data and information prior to the publication of proxy voting recommendations to clients2 7,c7 employ an ombudsman to receive complaints about the accuracy of information used in making recommendations from the companies that are the subject of the proxy advisory firm's voting recommendations and seek to resolve those complaints in a timely fashion and prior to the publication of proxy voting recommendations to clients2 and 7,d7 if the ombudsman is unable to resolve a complaint to a company's satisfaction prior to the publication of proxy voting recommendations to clients1 include in the final report of the firm to clients-- 7i7 a statement detailing the company's complaints1 if requested in writing by the company2 and 7ii7 a statement explaining why the proxy voting recommendation is in the best economic interest of shareholders4 7#b7 ,definitions ,in this subsection3 7,a7 ,data and information used to make recommendations ,the term data and information used to make voting recommendations-- 7i7 means the financial1 operational1 or descriptive data and information on an issuer used by proxy advisory firms and any contextual or substantive analysis impacting the recommendation2 and 7ii7 does not include the entirety of the proxy advisory firm's final report to its clients4 7,b7 ,reasonable time ,the term reasonable time-- 7i7 means not less than #a week before the publication of proxy voting recommendations for clients2 and 7ii7 shall not otherwise interfere with a proxy advisory firm's ability to provide its clients with timely access to accurate proxy voting research1 analysis1 or recommendations4 7h7 ,private right of action with respect to illegal recommendations ,any proxy advisory firm that endorses a proposal that is not supported by the issuer but is approved and subsequently found by a court of competent jurisdiction to violate ,state or ,federal law shall be liable to the applicable issuer for the costs associated with the approval of such proposal1 including implementation costs and any penalties incurred by the issuer4 7i7 ,designation of compliance officer ,each registered proxy advisory firm shall designate an individual who reports directly to senior management as responsible for administering the policies and procedures that are required to be established pursuant to subsections 7f7 and 7g71 and for ensuring compliance with the securities laws and the rules and regulations thereunder1 including those promulgated by the ,commission pursuant to this section4 7j7 ,prohibited conduct 7#a7 ,prohibited acts and practices ,not later than one year after the date of enactment of this section1 the ,commission shall issue final rules to prohibit any act or practice relating to the offering of proxy advisory services by a registered proxy advisory firm that the ,commission determines to be unfair1 coercive1 or abusive1 including any act or practice relating to-- 7,a7 advisory or consulting services 7offered directly or indirectly1 including through an affiliate7 related to corporate governance issues2 or 7,b7 modifying a voting recommendation or otherwise departing from its adopted systematic procedures and methodologies in the provision of proxy advisory services1 based on whether an issuer1 or affiliate thereof1 subscribes or will subscribe to other services or product of the registered proxy advisory firm or any person associated with such organization4 7#b7 ,rule of construction ,nothing in paragraph 7#a71 or in any rules or regulations adopted thereunder1 may be construed to modify1 impair1 or supersede the operation of any of the antitrust laws 7as defined in the first section of the ,clayton ,act1 except that such term includes section #e of the ,federal ,trade ,commission ,act1 to the extent that such section #e applies to unfair methods of competition74 7k7 ,statements of financial condition ,each registered proxy advisory firm shall1 on a confidential basis1 file with the ,commission1 at intervals determined by the ,commission1 such financial statements1 certified 7if required by the rules or regulations of the ,commission7 by an independent public auditor1 and information concerning its financial condition1 as the ,commission1 by rule1 may prescribe as necessary or appropriate in the public interest or for the protection of investors4 7l7 ,annual report 7#a7 ,in general ,each registered proxy advisory firm shall1 not later than #ij calendar days after the end of each fiscal year1 file with the ,commission and make publicly available an annual report in such form as the ,commission1 by rule1 may prescribe as necessary or appropriate in the public interest or for the protection of investors4 7#b7 ,contents ,each annual report required under paragraph 7#a7 shall include1 at a minimum1 disclosure by the registered proxy advisory firm of the following3 7,a7 ,a list of shareholder proposals the staff of the registered proxy advisory firm reviewed in the prior fiscal year4 7,b7 ,a list of the recommendations made in the prior fiscal year4 7,c7 ,the economic analysis conducted to determine that final recommendations provided in the prior fiscal year 7other than recommendations relating to an issuer-sponsored proposal or recommendations consistent with that of a board of directors composed of a majority of independent directors7 delivered to clients that vote shares held on behalf of shareholders were in the best economic interest of those shareholders4 7,d7 ,the staff who reviewed and made recommendations on such proposals in the prior fiscal year4 7,e7 ,the qualifications of such staff to ensure that each of the recommendations for clients that vote shares held on behalf of shareholders were tied to the best economic interest of those shareholders4 7,f7 ,the recommendations made in the prior fiscal year where the proponent of such recommendation was a client of or received services from the proxy advisory firm4 7,g7 ,a certification by the chief executive officer1 chief financial officer1 and the primary executive responsible for overseeing the compilation and dissemination of proxy voting advice that the final recommendations 7other than recommendations relating to an issuer-sponsored proposal or recommendations consistent with that of a board of directors composed of a majority of independent directors7 delivered to clients that vote shares held on behalf of shareholders in the last fiscal year-- 7i7 were based on internal controls and procedures that are designed to ensure accurate information and that such internal controls and procedures are effective2 7ii7 do not violate applicable ,state or ,federal law2 and 7iii7 were based on the best economic interest of those shareholders4 7,h7 ,the economic and other factors that a reasonable investor would expect to influence the recommendations of such proxy advisory firm1 including the ownership composition of such proxy advisory firm4 7m7 ,transparent policies ,each registered proxy advisory firm shall file with the ,commission and make publicly available its methodology for the formulation of proxy voting policies and voting recommendations to clients that vote shares held on behalf of shareholders and how that methodology ensures that the firm's voting recommendations are in the best economic interest of those shareholders4 7n7 ,rules of construction ,registration under and compliance with this section does not constitute a waiver of1 or otherwise diminish1 any right1 privilege1 or defense that a registered proxy advisory firm may otherwise have under any provision of ,state or ,federal law1 including any rule1 regulation1 or order thereunder4 7o7 ,regulations 7#a7 ,new provisions ,such rules and regulations as are required by this section or are otherwise necessary to carry out this section1 including the application form required under subsection 7a7-- 7,a7 shall be issued by the ,commission1 not later than #ahj days after the date of enactment of this section2 and 7,b7 shall become effective not later than #a year after the date of enactment of this section4 7#b7 ,review of existing regulations ,not later than #bgj days after the date of enactment of this section1 the ,commission shall-- 7,a7 review its existing rules and regulations which affect the operations of proxy advisory firms2 and 7,b7 amend or revise such rules and regulations in accordance with the purposes of this section1 and issue such guidance as the ,commission may prescribe as necessary or appropriate in the public interest or for the protection of investors4 7p7 ,applicability ,this section1 other than subsection 7n71 which shall apply on the date of enactment of this section1 shall apply on the earlier of-- 7#a7 the date on which regulations are issued in final form under subsection 7o77#a72 or 7#b7 #bgj days after the date of enactment of this section4 7q7 ,best economic interest defined ,in this section1 the term best economic interest means decisions that seek to maximize investment returns over a time horizon consistent with the investment objectives and risk management profile of the fund in which the shareholders are invested4 4 7b7 ,conforming amendment ,section #ag7;a77#a7 of the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #ghq7a77#a77 is amended by inserting proxy advisory firm1 after nationally recognized statistical rating organization14 7c7 ,proxy advisory firm definitions ,section #c7;a7 of the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #gh;c7a77 is amended by adding at the end the following3 7#hb7 ,proxy advisory firm ,the term proxy advisory firm-- 7,a7 means any person who is primarily engaged in the business of providing proxy voting advice1 research1 analysis1 ratings1 or recommendations to clients1 which conduct constitutes a solicitation within the meaning of section #ad2 and 7,b7 does not include any person that is exempt under law or regulation from the requirements otherwise applicable to persons engaged in such a solicitation4 7#hc7 ,person associated with a proxy advisory firm ,with respect to a proxy advisory firm-- 7,a7 a person is associated with the proxy advisory firm if the person is-- 7i7 a partner1 officer1 or director of the proxy advisory firm 7or any person occupying a similar status or performing similar functions72 7ii7 a person directly or indirectly controlling1 controlled by1 or under common control with the proxy advisory firm2 7iii7 an employee of the proxy advisory firm2 or 7iv7 a person the ,commission determines by rule is controlled by the proxy advisory firm2 and 7,b7 a person is not associated with the proxy advisory firm if the person only performs clerical or ministerial functions with respect to a proxy advisory firm4 4