NEW SENATE VERSION: Small Business Audit Correction Act (10/29/19)

Title: 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.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the “Small Business Audit Correction Act of 2019”.

SEC. 2. EXEMPTION.

(a) Amendments to the Sarbanes-Oxley Act of 2002.—Section 110 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7220) is amended—

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

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

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

(4) by inserting after paragraph (4) the following:

“(5) IN GOOD STANDING.—The term ‘in good standing’ means, with respect to a broker or dealer (as those terms are defined in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a))), that, as of the last day of the most recently completed fiscal year of the broker or dealer, as applicable, the broker or dealer—

“(A) is registered with the Commission;

“(B) is a member of an association that is registered as a national securities association under section 15A of the Securities Exchange Act of 1934 (15 U.S.C. 78o–3);

“(C) is compliant with the minimum dollar net capital requirements under section 240.15c3–1 of title 17, Code of Federal Regulations, or any successor regulation;

“(D) has not, during the 10-year period preceding that date, been convicted of a felony under Federal or State law;

“(E) does not have a person associated with the broker or dealer, as defined in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)), that, during the 10-year period preceding that date, has been convicted of a felony for fraudulent conduct under Federal or State law; and

“(F) is not subject to statutory disqualification by reason of being—

“(i) expelled or suspended from—

“(I) an association that is registered as described in subparagraph (B); or

“(II) an association that is registered as a registered futures association under section 17 of the Commodity Exchange Act (7 U.S.C. 21);

“(ii) subject to an order of the Commission, other appropriate regulatory agency, or foreign financial regulatory authority denying, suspending, or revoking the registration of the broker or dealer as a regulated entity;

“(iii) subject to an order of the Commodity Futures Trading Commission, or other appropriate regulatory entity, denying, suspending, or revoking the registration of the broker or dealer under the Commodity Exchange Act (7 U.S.C. 1 et seq.) or the authority of the broker or dealer to engage in any transaction; or

“(iv) subject to a restraining order entered by a court.

“(6) NON-CUSTODY BROKER OR DEALER.—The term ‘non-custody broker or dealer’ means a broker or dealer (as those terms are defined in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a))), as applicable, that—

“(A) as of the last day of the most recently completed fiscal year of the broker or dealer—

“(i) has not less than 1 and not more than 150 persons registered with an association that is registered as a national securities association under section 15A of the Securities Exchange Act of 1934 (15 U.S.C. 78o–3);

“(ii) is not a high frequency trading broker or dealer, as that term is defined by the Commission with respect to a particular registered firm type; and

“(iii) is not affiliated with an investment advisor that—

“(I) is registered with the Commission or a State entity; and

“(II) acts as the custodian for customer assets;

“(B) with respect to the average of the 3 most recently completed fiscal years of the broker or dealer, has gross revenue that enables the broker or dealer to qualify as a small business concern for the purposes of a program administered by the Small Business Administration; and

“(C) throughout the most recently completed fiscal year of the broker or dealer—

“(i) does not, as a matter of ordinary business practice in connection with the activities of the broker or dealer, receive customer checks, drafts, or other evidence of indebtedness made payable to the broker or dealer;

“(ii) if required under section 3(a)(2) of the Securities Investor Protection Act of 1970 (15 U.S.C. 78ccc(a)(2)), is a member of the Securities Investor Protection Corporation; and

“(iii) either—

“(I) if the broker or dealer is subject to section 240.15c3–3 of title 17, Code of Federal Regulations, or any successor regulation, is in compliance with that section; or

“(II) is not subject to such section 240.15c3–3, or any successor regulation, because the broker or dealer does not maintain custody over any customer securities or cash.

“(7) PRIVATELY HELD.—The term ‘privately held’ means, with respect to a broker or dealer (as those terms are defined in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a))), that the broker or dealer, as applicable, is not an issuer.”.

(b) Amendments to Regulations.—

(1) DEFINITIONS.—In this subsection, the terms “in good standing”, “non-custody broker or dealer”, and “privately held” have the meanings given the terms in section 110 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7220), as amended by subsection (a).

(2) AMENDMENTS.—Not later than 180 days after the date of enactment of this Act, the Securities and Exchange Commission shall make any necessary amendments to regulations of the Commission that are in effect as of the date of enactment of this Act in order to—

(A) carry out this Act and the amendments made by this Act; and

(B) exclude the auditors of non-custody brokers or dealers that are privately held and in good standing from the audit requirements of the Public Company Accounting Oversight Board.

(c) Effective Date.—This Act, and the amendments made by this Act, shall take effect on the date that is 180 days after the date of enactment of this Act.