PRC Broker-Dealers and Investment Advisers Moratorium Act
- Sponsor
- Rep. Lawler, Michael [R-NY-17]
- Committees
- Financial Services Committee (primary)
- Last action
- May 26, 2026
Bottom line
The bill imposes a five-year moratorium on SEC registration for financial firms with specified ownership or operational ties to the People's Republic of China, aiming to address national security and data integrity concerns.
What it actually does
This bill prohibits broker-dealers and investment advisers with specific connections to the People's Republic of China (PRC) from registering with the Securities and Exchange Commission (SEC) for a period of five years. These connections include being organized under PRC laws, being controlled by a PRC entity or a PRC national residing in the PRC, or relying on PRC-organized associated persons or affiliates for critical operational services like platform infrastructure or software development.
Proponents argue
Proponents would argue that this bill is a crucial step to safeguard U.S. financial markets and investor data from potential influence or access by the People's Republic of China. They would emphasize the importance of national security, data privacy, and preventing PRC entities from leveraging U.S. financial infrastructure for strategic advantage, highlighting the temporary nature of the prohibition as a flexible approach.
Opponents contend
Opponents might contend that the bill could disrupt legitimate financial services, limit investor choice, and potentially lead to retaliatory measures from China, harming U.S. firms operating there. They may also argue it is overly broad, impacting entities with minimal or indirect PRC connections, or that existing regulations are sufficient to mitigate the identified risks.
The bill is very short and straightforward, allowing for quick comprehension by an informed reader.
Section 2(a)
Prohibition on Broker or Dealer Registration Related to Chinese Ownership
This section amends the Securities Exchange Act of 1934 to prevent broker-dealers from registering with the SEC if they are organized under PRC law, controlled by a PRC entity or a PRC national residing in the PRC (defined as over 15% voting securities), or if a PRC-organized associated person provides them with platform, network, or software development/support services. This aims to restrict market access for firms deemed to have significant PRC ties.
Supporters argue
Supporters argue this provision directly addresses national security risks by preventing PRC-linked broker-dealers from operating in U.S. markets, thereby protecting sensitive financial data and infrastructure from potential exploitation or influence.
Critics contend
Critics might argue this provision could limit competition in the broker-dealer sector, potentially increasing costs for investors, and could be seen as a protectionist measure rather than a purely security-driven one, potentially impacting legitimate businesses.
Tradeoffs
This provision balances national security concerns and data protection against potential impacts on market competition, investor choice, and international financial relations.
Section 2(b)
Prohibition on Investment Adviser Registration Related to Chinese Ownership
This section amends the Investment Advisers Act of 1940 to prevent investment advisers from registering with the SEC if they are organized under PRC law, controlled by a PRC entity or a PRC national residing in the PRC (defined as over 15% voting securities), or if a PRC-organized affiliate provides them with software development/support, product development, or customer service. This mirrors the restrictions placed on broker-dealers.
Section 2(a)(2) and 2(b)(2)
Five-Year Sunset Clause for Prohibitions
Both the broker-dealer and investment adviser registration prohibitions are designed to be temporary, automatically terminating five years after the date of enactment of this Act. This means the restrictions will expire unless Congress takes further action to extend or make them permanent, allowing for a future review of their necessity and impact.
Defines "control" as beneficially owning, either directly or through one or more companies, more than 15 percent of the voting securities of an entity. This specific threshold is critical for determining which firms are subject to the registration prohibitions.
Section 2(a)(1) and 2(b)(1)
Why it matters:While defining terms is standard legislative practice, the specific percentage chosen for 'control' is a policy decision with broad implications that might not immediately stand out to a casual reader.
Case for: Proponents would argue that a 15% threshold is sufficient to identify significant influence or control by PRC entities or nationals, ensuring the intent of the prohibition is met without being overly restrictive on minority investments.
Case against: Opponents might contend that 15% is an arbitrary or low threshold, potentially capturing entities with limited actual control or influence, leading to unintended consequences for legitimate businesses. They might argue for a higher threshold (e.g., 25% or 50%) to focus on more definitive control.
Estimated impact: This definition directly determines the scope of entities subject to the registration prohibition, potentially impacting numerous firms and their ability to operate in U.S. markets.
Prohibits registration if a PRC-organized associated person (for broker-dealers) or affiliate (for investment advisers) provides specific services, including platform infrastructure, network services, software development or support, product development, maintenance, or customer service. These are critical operational functions.
Section 2(a)(2)(D) and 2(b)(2)(D)
Why it matters:It is standard legislative practice to enumerate specific criteria, but these services represent critical operational dependencies that, if provided by PRC-organized entities, are deemed to pose a risk.
Case for: Proponents would argue that these services are fundamental to the operation and security of financial platforms, and reliance on PRC-organized entities for them poses significant national security and data integrity risks, regardless of direct ownership.
Case against: Critics might argue that this provision is overly broad, potentially impacting firms that outsource non-sensitive IT or customer support functions to PRC-based providers, even if those providers are not directly involved in sensitive data handling or strategic decision-making. It could force costly restructuring for firms.
Estimated impact: Could force many firms to sever or restructure existing service contracts with PRC-based providers, leading to operational costs and potential disruptions across the financial industry.