UPDATED BILL LANGUAGE - H.R. 6021 (as of September 2018)

***We plan to amend the bill's language based on Technical Assistance that was provided by the SEC and FINRA. In the meantime, we continue to work on potential compromises with the Democrats on the House Financial Services Committee. Stay tuned!

AMENDMENT IN THE NATURE OF A SUBSTITUTE
TO H.R. 6021
OFFERED BY M_. ____________________

Strike all after the enacting clause and insert the
following:

1 SECTION 1. SHORT TITLE.
2 This Act may be cited as the ‘‘Small Business Audit
3 Correction Act of 2018’’.

4 SEC. 2. EXEMPTION.
5 (a) AMENDMENTS TO TITLE I OF THE SARBANES6
OXLEY ACT OF 2002.—Section 110 of the Sarbanes-Oxley
7 Act of 2002 (15 U.S.C. 7220) is amended—

8 (1) in paragraph (3), by inserting ‘‘, except that
9 the term does not include a non-custody broker or
10 dealer that is privately held and in good standing’’
11 after ‘‘registered public accounting firm’’;

12 (2) in paragraph (4), by inserting ‘‘, except that
13 the term does not include a non-custody broker or
14 dealer that is privately held and in good standing’’
15 after ‘‘registered public accounting firm’’;

16 (3) by redesignating paragraphs (5) and (6) as
17 paragraphs (8) and (9), respectively; and

1 (4) by inserting after paragraph (4) the fol-
lowing:

3 ‘‘(5) IN GOOD STANDING.—The term ‘in good
4 standing’ means, with respect to a broker or dealer
5 (as those terms are defined in section 3(a) of the Se-
curities Exchange Act of 1934 (15 U.S.C. 78c(a))),
7 that, as of the last day of the most recently com-
pleted fiscal year of the broker or dealer, as applica-
ble, the broker or dealer—

10 ‘‘(A) was registered with the Commission;

11 ‘‘(B) was a member of a registered securi-
ties association (as defined under section 15A
13 of the Securities Exchange Act of 1934);

14 ‘‘(C) was compliant with the minimum dol-
lar net capital requirements under section
16 240.15c3–1 of title 17, Code of Federal Regula-
tions, or any successor regulation;

18 ‘‘(D) had not, during the 10-year period
19 preceding that date, been convicted of a felony
20 under Federal or State law;

21 ‘‘(E) does not employ an associated person
22 who, during the 10-year period preceding
23 that date, was convicted of a felony
24 under Federal or State laws for fraudulent con-
duct; and

1 ‘‘(F) was not, as provided by section
2 3(a)(39) of the Securities Exchange Act of
3 1934 (15 U.S.C. 78c(a))—

4 ‘‘(i) expelled or suspended from mem-
bership or participation in any self-regu-
latory organization (as provided in section
7 3(a)(26) of the Securities Exchange Act of
8 1934 (15 U.S.C. 78c(a)(26))) or a reg-
istered futures association (as provided in
10 section 17 of the Commodity Exchange Act
11 (7 U.S.C. 21);

12 ‘‘(ii) subject to an order of the Com-
mission, or other appropriate regulatory
14 agency, denying, suspending, or revoking
15 its registrations as or association with any
16 regulated entity; or

17 ‘‘(iii) subject to an order of the Com-
modity Futures Trading Commission, or
19 other appropriate regulatory agency, deny-
ing, suspending, or revoking its registra-
tion under the Commodity Exchange Act
22 (7 U.S.C. 1 et seq.) or its authority to en-
gage in any transactions.

24 ‘‘(6) NON-CUSTODY BROKER OR DEALER.—The
25 term ‘non-custody broker or dealer’ means a broker

1 or dealer (as those terms are defined in section 3(a)
2 of the Securities Exchange Act of 1934 (15 U.S.C.
3 78c(a))), as applicable, that—

4 ‘‘(A) as of the last day of the most recently
5 completed fiscal year of the broker or dealer
6 had not less than 1 and not more than 150 as-
sociated persons (as that term is defined in sec-
tion 3(a) of the Securities Exchange Act of
9 1934 (15 U.S.C. 78c(a))) registered with a self-
regulatory organization (as provided in section
11 3(a)(26) of the Securities Exchange Act (15
12 U.S.C. 78c(a)(26)) of which the broker or deal-
er is a member; and

14 ‘‘(B) throughout the most recently com-
pleted fiscal year of the broker or dealer—

16 ‘‘(i) did not, as a matter of ordinary
17 business practice in connection with the ac-
tivities of the broker or dealer, receive cus19
tomer checks, drafts, or other evidence of
20 indebtedness made payable to the broker
21 or dealer;

22 ‘‘(ii) promptly forwarded customer se-
curities and customer checks, drafts, or
24 other evidence of indebtedness payable to a
25 third party, including a clearing broker or

1 dealer, in compliance with section
2 240.15c3-3 of title 17, Code of Federal
3 Regulations, or any successor regulation;

4 ‘‘(iii) did not otherwise hold customer
5 securities or cash;

6 ‘‘(iv) if required under section 3(a)(2)
7 of the Securities Investor Protection Act of
8 1970 (15 U.S.C. 78ccc(a)(2)), was a mem-
ber of the Securities Investor Protection
10 Corporation; and

11 ‘‘(v) either—

12 ‘‘(I) claimed exemption from sec-
tion 240.15c3–3 of title 17, Code of
14 Federal Regulations, or any successor
15 regulation; or

16 ‘‘(II) claimed no exemption from
17 such section 240.15c3–3, or any suc-
cessor regulation, or was not other-
wise subject to such, because the
20 broker or dealer did not maintain cus-
tody over any customer securities or
22 cash.

23 ‘‘(7) PRIVATELY HELD.—The term ‘privately
24 held’ means, with respect to a broker or dealer (as
25 those terms are defined in section 3(a) of the Securi-

1 ties Exchange Act of 1934 (15 U.S.C. 78c(a))), that
2 the broker or dealer, as applicable, is not an
3 issuer.’’.

4 (b) AMENDMENTS TO REGULATIONS.—Not later
5 than 180 days after the date of enactment of this Act,
6 the Securities and Exchange Commission shall make any
7 necessary amendments to regulations of the Commission
8 that are in effect as of the date of enactment of this Act
9 in order to—

10 (1) carry out this Act and the amendments
11 made by this Act; and

12 (2) to exclude the auditors of non-custody bro-
kers and dealers that are privately held and in good
14 standing (as such terms are defined under section
15 110 of the Sarbanes-Oxley Act of 2002) from the
16 audit requirements and registration requirements of
17 the Public Company Accounting Oversight Board.

18 (c) EFFECTIVE DATE.—This Act, and the amend-
ments made by this Act, shall take effect on the date that
20 is 180 days after the date of enactment of this Act.

Amend the title so as to read: ‘‘A bill to amend the
Sarbanes-Oxley Act of 2002 to exclude the audits of privately
held, non-custody brokers and dealers that are in
good standing from certain requirements under title I of
that Act, and for other purposes.’’.
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