May 24, 1996
TO: BOARD OF GOVERNORS No. 24-96
MEMBERS - ONE PER COMPLEX No. 41-96
RE: IMMEDIATE ACTION ITEM
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Write the U.S. Senate NOW to Eliminate Duplicative State Regulation of Mutual Funds:
Urge Senate Committee to Act Now
Yesterday, Senators DAmato, Dodd, and Gramm, joined by Senators Bryan and Moseley-
Braun, introduced S. 1815, the "Securities Investment Promotion Act of 1996," the Senate
version of H.R. 3005, the mutual fund deregulation bill reported by the House Commerce
Committee Wednesday, May 15, and now awaiting floor action following the Memorial Day
Recess. S. 1815 would, among other things, eliminate duplicative state regulation of mutual
funds. The Senate has scheduled a hearing on June 5, at which the ICI expects to testify. We
are therefore asking you to contact Senators on the Senate Banking Committee and in the
Republican and Democratic Leadership to urge them to support the provisions in S. 1815
that provide for the elimination of duplicative state regulation governing the mutual fund
industry and move
S. 1815 through the Senate as quickly as possible.
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Letters to Members of Congress should be in your own words. You might begin by
identifying your firm (e.g. number of funds, employees, shareholders, assets, etc). The
following arguments can be used to support elimination of duplicative state regulation of
mutual funds and quick action by the Senate Banking Committee:
Mutual funds are the most strictly regulated segment of the securities industry; they are
subject to all of the major federal securities statutes--not only the Investment Company Act
of 1940 that would be revised by the bill--but also the Securities Act of 1933, the Securities
Exchange Act of 1934, and the Investment Advisers Act of 1940. The Acts are enforced
uniformly, on a nationwide basis, by the SEC.
In addition to this extensive regime of federal regulation, mutual funds are subject to an
array of disparate requirements imposed by state governments. This "patchwork" of state
regulation unnecessarily duplicates federal regulation, produces conflicts and
inconsistencies, and frustrates uniform national regulatory policy.
Because mutual funds are sold nationally, they must comply with law of all 50 states. Thus,
any single state can dictate policy for mutual fund shareholders throughout the nation--and
a minority of "activist" states regularly do so.
Piecemeal state regulation is contrary to the interests of mutual fund shareholders:
* It undermines SEC initiatives to improve investor protection;
* It helps produce prospectuses that are lengthy, complex, and difficult to
comprehend; and
* It hinders innovation in fund products and services permitted by federal
law.
The current system diverts scarce state government resources from higher priorities, such
as investigating customer complaints and addressing fraud and abuse.
Under S. 1815 and its House counterpart, H.R. 3005, existing state enforcement powers and
the ability of states to receive notice filings, prosecute fraud, and collect fees from mutual
funds would be fully preserved. Mutual fund prospectuses, however, as well as
advertising and fund portfolio investments, would be exclusively regulated by the SEC
under federal law.
The House version of this legislation enjoys broad bipartisan support and passed both the
House Subcommittee on Telecommunications and Finance and the full House Commerce
Committee by unanimous votes.
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The attachment lists members of the Senate Banking Committee and members of the
Senate Leadership, with contact information. All letters should be sent as soon as possible.
Please write all Senators from this list who represent states in which your company has an
office and emphasize your presence in their state. Please copy your letters to 1) Senate
Banking Committee Chairman Alfonse M. DAmato (R-NY); 2) Ranking Minority Member
Paul S. Sarbanes (D-Md.); 3) Securities Subcommittee Chairman Phil Gramm
(R-TX); and 4) Securities Subcommittee Ranking Minority Member Christopher J. Dodd
(D-CT).
If none of the Senators listed come from your state, please write directly to the four Senators
listed in the preceding paragraph. When you write to Senators DAmato, Gramm, Dodd,
Bryan, and Moseley-Braun, please be sure to thank them for their introduction and support
for the bill.
Please send a blind copy of your letters to the attention of Tom Boyd (202/326-8319); fax
number (202/326-5899).
Thank you very much for your assistance.
Matthew P. Fink
President
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