The House of Representatives passed a bill that directs the SEC to provide a safe harbor with respect to the publication of research reports on certain investment funds. Such a safe harbor would distinguish such reports from being considered "prospectuses." The "Fair Access to Investment Research Act of 2016" (H.R. 5019) allows the SEC a limited amount of time in which to implement the safe harbor. Further, the bill specifies that certain of FINRA's rules do not apply to such communications. The bill was sponsored by Representative J. French Hill (R-AR). and passed 411-6.
Commentary
To allow firms to publish research reports on open-end companies seems to make good sense even if the firms are participating in the distribution of the same companies' shares. Both Congress and the SEC should be looking for ways to ease the restrictions of regulations governing the production of investment research, since research provides real public benefits even in instances involving conflicts of interest.
That said, this bill is an example of Congress becoming too prescriptive in its instructions to the SEC and other financial regulators. Even with respect to legislation that moves the law in a positive direction – which this bill could do – Congress would be better served if it managed the SEC more loosely, except where the SEC clearly is defying the intent of Congress. In the long run, it would be better to require the SEC to provide the means for broker-dealers to publish research on investment companies (subject to various restrictions, perhaps, such as the establishment of information walls between research analysts and sales teams), and it would be better for Congress to afford a more generous time period to the SEC in which to act.
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