House subcommittee discusses key regulatory fixes for investments, mutual funds

The House Subcommittee on Capital Markets, Securities, and Investment held a hearing last week to discuss several bills that seek to reduce mutual fund regulations and, in turn, help small businesses.

“During the previous Administration, bureaucrats in Washington continuously constructed arbitrary walls that cut off innovative small business job creators from essential financing,” Subcommittee Chairman Bill Huizenga (R-MI) said. “If our nation is going to have an economy that provides opportunities for every American, then we must promote and encourage the success and growth of our small businesses and startups.”

One of the measures discussed at the hearing was the Consumer Financial Choice and Capital Markets Protection Act of 2017, introduced by Rep. Keith Rothfus (R-PA). This legislation would allow the net asset value on prime and municipal money market funds (MMFs) to be stable, reversing the Securities and Exchange Commission’s rule that required prime and muni money market funds to have a floating NAV.

“During the 12 months prior to the [MMF reform] October 2016 implementation date, prime fund purchases of corporate commercial paper declined significantly, while a number of institutional prime funds have also closed during the same time period. This has created further pressure upon corporate treasurers and businesses that have historically relied upon the liquidity provided prime institutional money market funds,” Tom Quaadman, executive vice president of Center for Capital Market Competitiveness in the U.S. Chamber of Commerce, said. “This has caused a shift to bank funding which leads to smaller businesses getting crowded out of bank lending.”

Also, testimony focused on the Expanding Investment Opportunities Act, sponsored by Rep. Trey Hollingsworth (R-IN), which seeks to simplify the registration process for closed-end mutual funds.

“Notwithstanding the benefits these funds provide to investors and the capital markets, the last several years have seen a steady decline in the number of closed-end funds and new closed-end fund offerings,” Paul Schott Stevens, president and CEO of the Investment Company Institute, said. “By simplifying the closed-end fund offering process and liberalizing existing restrictions on communications with investors before and during an offering, the legislation would reduce unnecessary regulatory burdens that raise costs for investors.”

Further, the Small Business Credit Availability Act, introduced by Rep. Steve Stivers (R-OH), was debated at the hearing. This legislation seeks to reform the business development company (BDC) regulatory regime. Specifically, it would amend the Investment Company Act of 1940 to enable BDCs to deploy capital to small businesses by reducing their asset coverage ratio and direct the SEC to revise its rules to allow BDCs to use streamlined securities.

“BDCs offer a critical source of capital to small and middle market U.S. companies. The proposed ’Small Business Credit Availability Act’ would position BDCs to play an even more substantial role in supporting these job-creating businesses,” Michael Gerber, executive vice president of corporate affairs for FS Investments, said.