The House on Tuesday passed a bill to codify now-expired guidance from the Securities and Exchange Commission allowing U.S. broker-dealers to receive separate payments for research without being subjected to regulation as investment advisers.
The bill, H. R. 2622, was passed via voice vote after an SEC no-action letter expired July 3.
In 2018, the European Union's Markets in Financial Instruments Directive II, or MiFID II, took effect, which required brokers to mandate managers pay for research rather than provide it as part of execution services.
U.S. rules allow for bundling of research and execution costs. In 2017, a few months before MiFID II took effect, the SEC issued a no-action letter that allowed managers to unbundle research and execution costs and not violate their fiduciary duty. The letter's relief was extended in 2019.
H. R. 2622, which was introduced in April and passed out of the House Financial Services Committee in May, directs the SEC to extend the no-action relief for six months and study the potential impact of the relief's expiration on investors.
SEC commissioners and industry groups voiced concern over the letter's expiration and said it will make it more difficult for U.S. broker-dealers to provide research.
After the bill's passage, Kenneth E. Bentsen Jr., president and CEO of the Securities Industry and Financial Markets Association, said in a statement there is "no reason to harm U.S. market participants, investors and companies with a European requirement that both the European Commission and U.K. are planning to significantly roll back. The bipartisan support for directing the SEC to extend the no-action relief is the correct path forward."
The bill will now head to the Senate.