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Tuesday, September 29, 2015

Is the '40 Act About to Extend Further South?

News summary by MFWire's editors

3.548 million more people may soon find their mutual funds regulated the same way as in the 50 United States.

Nydia Velazquez
United States House of Representatives
Congresswoman, Representative for New York's 7th Congressional District
Last Friday Representative Nydia Velazquez (D-New York) planned to introduce the Puerto Rico Investor Protection Act of 2015. Mutual funds sold only to the residents of of U.S. territories (and not in the 50 states) are basically exempt from many of the requirements and protections of the Investment Company Act of 1940, and Velazquez plans to change that. If she has her way, mutual funds sold to Puerto Rico would have to follow the same rules that apply to mutual funds sold on the mainland.

The New York Times and the Wall Street Journal both covered Velazquez's proposal.

The proposal comes amidst a Puerto Rican government-debt crisis.

"Large investment companies are taking a fee for acting as an advisor to Puerto Rican public entities, then repackaging bonds they issued into mutual funds, which they then in turn sell to unsuspecting Puerto Rican consumers," Velazquez states. "This practice constitutes a flagrant conflict of interest and it must stop."

Velazquez says that, when the '40 Act passed 75 years ago, funds for Puerto Ricans (and others in non-state U.S. possessions) were exempt because the difficult and cost of travel would make such investments hard to regulate from Washington. That reasoning, Velazquez says, no longer applies today, thanks to both the digital revolution and the pervasiveness of air travel. 

Edited by: Neil Anderson, Managing Editor

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