| 1 | 1 | | II |
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| 2 | 2 | | 119THCONGRESS |
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| 3 | 3 | | 1 |
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| 4 | 4 | | STSESSION S. 1405 |
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| 5 | 5 | | To impose requirements on digital exchanges, and for other purposes. |
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| 6 | 6 | | IN THE SENATE OF THE UNITED STATES |
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| 7 | 7 | | APRIL10, 2025 |
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| 8 | 8 | | Mr. T |
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| 9 | 9 | | ILLIS(for himself and Mr. HICKENLOOPER) introduced the following |
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| 10 | 10 | | bill; which was read twice and referred to the Committee on Banking, |
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| 11 | 11 | | Housing, and Urban Affairs |
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| 12 | 12 | | A BILL |
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| 13 | 13 | | To impose requirements on digital exchanges, and for other |
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| 14 | 14 | | purposes. |
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| 15 | 15 | | Be it enacted by the Senate and House of Representa-1 |
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| 16 | 16 | | tives of the United States of America in Congress assembled, 2 |
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| 17 | 17 | | SECTION 1. SHORT TITLE. 3 |
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| 18 | 18 | | This Act may be cited as the ‘‘Proving Reserves Of 4 |
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| 19 | 19 | | Others’ Funds Act’’ or the ‘‘PROOF Act’’. 5 |
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| 20 | 20 | | SEC. 2. DEFINITIONS. 6 |
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| 21 | 21 | | In this Act: 7 |
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| 22 | 22 | | (1) C |
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| 23 | 23 | | OVERED ASSET.— 8 |
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| 24 | 24 | | (A) I |
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| 25 | 25 | | N GENERAL.—The term ‘‘covered 9 |
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| 26 | 26 | | asset’’ means, with respect to a customer of a 10 |
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| 28 | 28 | | ssavage on LAPJG3WLY3PROD with BILLS 2 |
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| 29 | 29 | | •S 1405 IS |
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| 30 | 30 | | digital exchange, money, an asset, or property 1 |
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| 31 | 31 | | of the customer. 2 |
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| 32 | 32 | | (B) E |
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| 33 | 33 | | XCEPTIONS.— 3 |
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| 34 | 34 | | (i) P |
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| 35 | 35 | | ROPRIETARY FUNDS .—The term 4 |
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| 36 | 36 | | ‘‘covered asset’’ does not include propri-5 |
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| 37 | 37 | | etary funds of a digital exchange. 6 |
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| 38 | 38 | | (ii) M |
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| 39 | 39 | | ARGIN ACCOUNTS.—If a cus-7 |
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| 40 | 40 | | tomer of a digital exchange has opened a 8 |
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| 41 | 41 | | margin account for the purposes of bor-9 |
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| 42 | 42 | | rowing cash or digital assets, or other re-10 |
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| 43 | 43 | | lated activity, the assets in that margin ac-11 |
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| 44 | 44 | | count are not covered assets. 12 |
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| 45 | 45 | | (2) D |
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| 46 | 46 | | IGITAL ASSET.—The term ‘‘digital asset’’ 13 |
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| 47 | 47 | | means any digital representation of value that is re-14 |
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| 48 | 48 | | corded on a cryptographically secured digital ledger. 15 |
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| 49 | 49 | | (3) D |
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| 50 | 50 | | IGITAL COMMODITY.—The term ‘‘digital 16 |
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| 51 | 51 | | commodity’’ means any form of fungible and intan-17 |
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| 52 | 52 | | gible personal property that— 18 |
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| 53 | 53 | | (A) can be— 19 |
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| 54 | 54 | | (i) exclusively possessed; and 20 |
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| 55 | 55 | | (ii) transferred from a person to an-21 |
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| 56 | 56 | | other person without necessary reliance on 22 |
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| 57 | 57 | | an intermediary; and 23 |
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| 58 | 58 | | (B) is not an investment contract. 24 |
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| 59 | 59 | | (4) D |
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| 60 | 60 | | IGITAL CUSTODIAN.— 25 |
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| 62 | 62 | | ssavage on LAPJG3WLY3PROD with BILLS 3 |
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| 63 | 63 | | •S 1405 IS |
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| 64 | 64 | | (A) IN GENERAL.—The term ‘‘digital cus-1 |
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| 65 | 65 | | todian’’ means an entity that holds, maintains, 2 |
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| 66 | 66 | | or safeguards digital commodities, digital as-3 |
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| 67 | 67 | | sets, and other assets on behalf of a customer. 4 |
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| 68 | 68 | | (B) E |
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| 69 | 69 | | XCEPTION.—Any entity facilitating 5 |
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| 70 | 70 | | clearing or settling services of a covered asset 6 |
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| 71 | 71 | | on behalf of a customer shall not be considered 7 |
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| 72 | 72 | | to be a digital custodian of that covered asset 8 |
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| 73 | 73 | | for the duration of the clearing or settling proc-9 |
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| 74 | 74 | | ess. 10 |
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| 75 | 75 | | (5) D |
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| 76 | 76 | | IGITAL EXCHANGE.—The term ‘‘digital ex-11 |
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| 77 | 77 | | change’’ means a trading facility that lists for trad-12 |
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| 78 | 78 | | ing not less than 1 digital commodity or digital 13 |
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| 79 | 79 | | asset. 14 |
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| 80 | 80 | | (6) D |
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| 81 | 81 | | IGITAL WALLET.—The term ‘‘digital wal-15 |
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| 82 | 82 | | let’’ means any device, physical medium, program, or 16 |
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| 83 | 83 | | service that stores a digital asset or digital com-17 |
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| 84 | 84 | | modity. 18 |
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| 85 | 85 | | (7) I |
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| 86 | 86 | | NVESTMENT CONTRACT .— 19 |
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| 87 | 87 | | (A) I |
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| 88 | 88 | | N GENERAL.—The term ‘‘investment 20 |
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| 89 | 89 | | contract’’ means a contract— 21 |
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| 90 | 90 | | (i) that provides for an investment of 22 |
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| 91 | 91 | | money in an enterprise with a sponsor; and 23 |
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| 92 | 92 | | (ii) the objective of the performance of 24 |
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| 93 | 93 | | which is primarily profit (rather than con-25 |
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| 95 | 95 | | ssavage on LAPJG3WLY3PROD with BILLS 4 |
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| 96 | 96 | | •S 1405 IS |
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| 97 | 97 | | sumption), which is derived primarily from 1 |
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| 98 | 98 | | the managerial or entrepreneurial efforts 2 |
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| 99 | 99 | | of the sponsor described in clause (i). 3 |
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| 100 | 100 | | (B) U |
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| 101 | 101 | | SE OF CERTAIN TERMS .—For the 4 |
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| 102 | 102 | | purposes of subparagraph (A)— 5 |
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| 103 | 103 | | (i) the term ‘‘money’’ means— 6 |
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| 104 | 104 | | (I) any medium of exchange rec-7 |
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| 105 | 105 | | ognized as legal tender anywhere in 8 |
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| 106 | 106 | | the world; or 9 |
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| 107 | 107 | | (II) any convertible virtual cur-10 |
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| 108 | 108 | | rency, as defined by the Financial 11 |
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| 109 | 109 | | Crimes Enforcement Network of the 12 |
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| 110 | 110 | | Department of the Treasury; and 13 |
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| 111 | 111 | | (ii) the term ‘‘sponsor’’ means a man-14 |
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| 112 | 112 | | ager or entrepreneur that has solicited in-15 |
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| 113 | 113 | | vestment in a contract described in that 16 |
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| 114 | 114 | | subparagraph. 17 |
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| 115 | 115 | | (C) E |
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| 116 | 116 | | FFECT OF MEMBERSHIP IN CERTAIN 18 |
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| 117 | 117 | | ORGANIZATIONS.—A member of a formal or in-19 |
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| 118 | 118 | | formal decentralized autonomous organization 20 |
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| 119 | 119 | | is not, solely by reason of that membership, or 21 |
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| 120 | 120 | | through participation in such an organization, 22 |
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| 121 | 121 | | the holder of an investment contract. 23 |
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| 122 | 122 | | (D) E |
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| 123 | 123 | | XCLUSIONS.—A contract that would 24 |
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| 124 | 124 | | otherwise be an investment contract under this 25 |
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| 126 | 126 | | ssavage on LAPJG3WLY3PROD with BILLS 5 |
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| 127 | 127 | | •S 1405 IS |
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| 128 | 128 | | paragraph is not an investment contract if the 1 |
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| 129 | 129 | | obligee of that contract— 2 |
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| 130 | 130 | | (i) as of the date on which the con-3 |
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| 131 | 131 | | tract became effective, primarily expected 4 |
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| 132 | 132 | | profit from performance of the contract; 5 |
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| 133 | 133 | | and 6 |
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| 134 | 134 | | (ii)(I) at a date after the date de-7 |
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| 135 | 135 | | scribed in clause (i)— 8 |
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| 136 | 136 | | (aa) primarily expects to con-9 |
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| 137 | 137 | | sume goods or services associated with 10 |
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| 138 | 138 | | the contract; or 11 |
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| 139 | 139 | | (bb) no longer expects profit pri-12 |
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| 140 | 140 | | marily from the managerial or entre-13 |
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| 141 | 141 | | preneurial efforts of the sponsor de-14 |
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| 142 | 142 | | scribed in subparagraph (A)(i) with 15 |
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| 143 | 143 | | respect to the contract. 16 |
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| 144 | 144 | | (8) O |
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| 145 | 145 | | FFICE.—The term ‘‘Office’’ means the Of-17 |
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| 146 | 146 | | fice of Domestic Finance of the Department of the 18 |
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| 147 | 147 | | Treasury. 19 |
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| 148 | 148 | | (9) U |
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| 149 | 149 | | NDER SECRETARY .—The term ‘‘Under 20 |
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| 150 | 150 | | Secretary’’ means the Under Secretary of the Treas-21 |
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| 151 | 151 | | ury for Domestic Finance. 22 |
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| 154 | 154 | | •S 1405 IS |
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| 155 | 155 | | SEC. 3. REQUIREMENTS FOR DIGITAL EXCHANGES RE-1 |
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| 156 | 156 | | GARDING TREATMENT OF CUSTOMER AS-2 |
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| 157 | 157 | | SETS. 3 |
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| 158 | 158 | | (a) R |
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| 159 | 159 | | EQUIREDSTANDARDS AND PROCEDURES.— 4 |
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| 160 | 160 | | Each digital exchange shall establish baseline accounting 5 |
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| 161 | 161 | | standards and procedures that are designed to protect and 6 |
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| 162 | 162 | | ensure the safety of covered assets of customers of the 7 |
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| 163 | 163 | | exchange. 8 |
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| 164 | 164 | | (b) H |
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| 165 | 165 | | OLDING OFCUSTOMERASSETS.— 9 |
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| 166 | 166 | | (1) I |
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| 167 | 167 | | N GENERAL.—Each digital exchange shall 10 |
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| 168 | 168 | | hold the covered assets of each customer of the ex-11 |
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| 169 | 169 | | change in a manner that minimizes— 12 |
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| 170 | 170 | | (A) the risk of loss by the customer of any 13 |
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| 171 | 171 | | such covered asset; and 14 |
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| 172 | 172 | | (B) any delay in the customer accessing 15 |
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| 173 | 173 | | any such covered asset. 16 |
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| 174 | 174 | | (2) S |
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| 175 | 175 | | EGREGATION OF FUNDS .— 17 |
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| 176 | 176 | | (A) I |
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| 177 | 177 | | N GENERAL.—Each digital exchange 18 |
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| 178 | 178 | | shall treat and deal with all covered assets of a 19 |
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| 179 | 179 | | customer of the exchange that are received by 20 |
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| 180 | 180 | | the exchange as belonging to the customer. 21 |
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| 181 | 181 | | (B) C |
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| 182 | 182 | | O-MINGLING PROHIBITED .—Except 22 |
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| 183 | 183 | | as provided in subparagraph (C), with respect 23 |
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| 184 | 184 | | to any covered asset of a customer of a digital 24 |
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| 185 | 185 | | exchange, the exchange may not— 25 |
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| 187 | 187 | | ssavage on LAPJG3WLY3PROD with BILLS 7 |
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| 188 | 188 | | •S 1405 IS |
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| 189 | 189 | | (i) co-mingle that covered asset with 1 |
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| 190 | 190 | | assets that are not covered assets; or 2 |
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| 191 | 191 | | (ii) use that covered asset to margin, 3 |
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| 192 | 192 | | secure, or guarantee any trade or account 4 |
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| 193 | 193 | | of any person other than the customer for 5 |
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| 194 | 194 | | which that item is held. 6 |
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| 195 | 195 | | (C) E |
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| 196 | 196 | | XCEPTIONS.— 7 |
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| 197 | 197 | | (i) I |
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| 198 | 198 | | N GENERAL.—A digital exchange 8 |
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| 199 | 199 | | may, for convenience, co-mingle and de-9 |
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| 200 | 200 | | posit a covered asset of a customer of the 10 |
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| 201 | 201 | | exchange in the same account as funds of 11 |
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| 202 | 202 | | the exchange with any bank, trust com-12 |
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| 203 | 203 | | pany, or qualified digital custodian. 13 |
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| 204 | 204 | | (ii) W |
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| 205 | 205 | | ITHDRAWAL.—A digital ex-14 |
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| 206 | 206 | | change may withdraw from a bank, trust, 15 |
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| 207 | 207 | | or digital wallet account such share of a 16 |
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| 208 | 208 | | covered asset of a customer of the ex-17 |
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| 209 | 209 | | change as may be necessary in the ordi-18 |
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| 210 | 210 | | nary course of business to margin, guar-19 |
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| 211 | 211 | | antee, secure, transfer, adjust, or settle a 20 |
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| 212 | 212 | | transaction regarding a digital asset or 21 |
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| 213 | 213 | | digital commodity with another digital ex-22 |
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| 214 | 214 | | change, including for the payment of a 23 |
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| 215 | 215 | | commission, a brokerage fee, interest, 24 |
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| 216 | 216 | | taxes, storage costs, or any other charge 25 |
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| 218 | 218 | | ssavage on LAPJG3WLY3PROD with BILLS 8 |
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| 219 | 219 | | •S 1405 IS |
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| 220 | 220 | | that lawfully accrues in connection with a 1 |
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| 221 | 221 | | digital commodity transaction. 2 |
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| 222 | 222 | | (iii) S |
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| 223 | 223 | | UBSTITUTION.—A customer may 3 |
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| 224 | 224 | | explicitly consent to a digital exchange sub-4 |
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| 225 | 225 | | stituting covered assets of the customer 5 |
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| 226 | 226 | | with certain other assets. 6 |
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| 227 | 227 | | (c) E |
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| 228 | 228 | | NFORCEMENT.— 7 |
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| 229 | 229 | | (1) I |
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| 230 | 230 | | N GENERAL.—If, in the process of review-8 |
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| 231 | 231 | | ing a report submitted to the Under Secretary under 9 |
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| 232 | 232 | | section 4(b) with respect to a digital exchange, the 10 |
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| 233 | 233 | | Under Secretary discovers that the digital exchange 11 |
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| 234 | 234 | | has violated a provision of this section, the Under 12 |
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| 235 | 235 | | Secretary, through the Office, shall impose a civil 13 |
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| 236 | 236 | | penalty on the digital exchange in the manner de-14 |
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| 237 | 237 | | scribed in clauses (i), (ii), and (iii) of section 15 |
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| 238 | 238 | | 4(c)(1)(A) (subject to paragraph (2) of this sub-16 |
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| 239 | 239 | | section). 17 |
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| 240 | 240 | | (2) R |
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| 241 | 241 | | ULE OF CONSTRUCTION .—For the pur-18 |
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| 242 | 242 | | poses of a civil penalty imposed under paragraph 19 |
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| 243 | 243 | | (1)— 20 |
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| 244 | 244 | | (A) an entity that is subject to the require-21 |
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| 245 | 245 | | ments of section 4(a), as described in section 22 |
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| 246 | 246 | | 4(c)(1)(A), shall be deemed to be an entity that 23 |
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| 247 | 247 | | is subject to the requirements of this section; 24 |
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| 248 | 248 | | and 25 |
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| 251 | 251 | | •S 1405 IS |
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| 252 | 252 | | (B) the failure of an entity to satisfy the 1 |
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| 253 | 253 | | requirements of section 4(a), as described in 2 |
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| 254 | 254 | | section 4(c)(1)(A), shall be deemed to be a fail-3 |
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| 255 | 255 | | ure to satisfy the requirements of this section. 4 |
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| 256 | 256 | | SEC. 4. ATTESTATION REQUIREMENTS. 5 |
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| 257 | 257 | | (a) A |
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| 258 | 258 | | TTESTATION.— 6 |
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| 259 | 259 | | (1) I |
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| 260 | 260 | | N GENERAL.—Not later than 30 days after 7 |
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| 261 | 261 | | the effective date of this section, and monthly there-8 |
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| 262 | 262 | | after, each digital exchange and each digital custo-9 |
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| 263 | 263 | | dian shall obtain from an independent auditing firm 10 |
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| 264 | 264 | | an attestation that the applicable entity has proof of 11 |
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| 265 | 265 | | reserves, which shall be accompanied by appropriate 12 |
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| 266 | 266 | | evidence demonstrating proof of those reserves, as 13 |
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| 267 | 267 | | described further in subsection (b). 14 |
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| 268 | 268 | | (2) I |
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| 269 | 269 | | NABILITY TO OBTAIN SERVICES OF AUDIT -15 |
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| 270 | 270 | | ING FIRM.— 16 |
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| 271 | 271 | | (A) I |
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| 272 | 272 | | N GENERAL.—A digital exchange or 17 |
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| 273 | 273 | | digital custodian may contract with, or other-18 |
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| 274 | 274 | | wise obtain the services of, a disinterested third 19 |
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| 275 | 275 | | party to carry out the responsibilities of an 20 |
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| 276 | 276 | | independent auditing firm under paragraph (1) 21 |
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| 277 | 277 | | only if the digital exchange or digital custodian 22 |
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| 278 | 278 | | is unable to contract with, or otherwise obtain 23 |
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| 279 | 279 | | the services of, an independent auditing firm to 24 |
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| 280 | 280 | | carry out those responsibilities. 25 |
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| 283 | 283 | | •S 1405 IS |
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| 284 | 284 | | (B) APPLICABILITY.—If a digital exchange 1 |
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| 285 | 285 | | or digital custodian contracts with, or otherwise 2 |
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| 286 | 286 | | obtains the services of, a disinterested third 3 |
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| 287 | 287 | | party as described in subparagraph (A), that 4 |
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| 288 | 288 | | third party shall be subject to the requirements 5 |
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| 289 | 289 | | of this section to the same extent as an inde-6 |
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| 290 | 290 | | pendent auditing firm carrying out the respon-7 |
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| 291 | 291 | | sibilities described in paragraph (1). 8 |
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| 292 | 292 | | (3) I |
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| 293 | 293 | | NDUSTRY STANDARD .— 9 |
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| 294 | 294 | | (A) S |
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| 295 | 295 | | OLICITATION OF STANDARD .—Not 10 |
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| 296 | 296 | | later than 90 days after the date of enactment 11 |
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| 297 | 297 | | of this Act, the Public Company Accounting 12 |
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| 298 | 298 | | Oversight Board and the American Institute of 13 |
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| 299 | 299 | | Certified Public Accountants shall jointly issue 14 |
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| 300 | 300 | | a request for public comment soliciting pro-15 |
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| 301 | 301 | | posals from the digital asset industry regarding 16 |
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| 302 | 302 | | a standard for the attestations required under 17 |
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| 303 | 303 | | this section. 18 |
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| 304 | 304 | | (B) E |
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| 305 | 305 | | STABLISHMENT OF ADVISORY COM -19 |
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| 306 | 306 | | MITTEE.—After the expiration of the 90-day pe-20 |
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| 307 | 307 | | riod described in subparagraph (A), the Public 21 |
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| 308 | 308 | | Company Accounting Oversight Board and the 22 |
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| 309 | 309 | | American Institute of Certified Public Account-23 |
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| 310 | 310 | | ants shall establish an advisory committee that 24 |
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| 313 | 313 | | •S 1405 IS |
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| 314 | 314 | | shall be comprised of the entities that submit 1 |
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| 315 | 315 | | proposals under that subparagraph. 2 |
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| 316 | 316 | | (C) C |
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| 317 | 317 | | REATION OF STANDARD .—The advi-3 |
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| 318 | 318 | | sory committee established under subparagraph 4 |
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| 319 | 319 | | (B) shall— 5 |
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| 320 | 320 | | (i) create a proposed standard for the 6 |
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| 321 | 321 | | purposes described in subparagraph (A); 7 |
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| 322 | 322 | | and 8 |
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| 323 | 323 | | (ii) submit to the Public Company Ac-9 |
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| 324 | 324 | | counting Oversight Board and the Amer-10 |
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| 325 | 325 | | ican Institute of Certified Public Account-11 |
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| 326 | 326 | | ants the proposed standard described in 12 |
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| 327 | 327 | | clause (i) for approval of the proposed 13 |
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| 328 | 328 | | standard by those entities. 14 |
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| 329 | 329 | | (D) A |
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| 330 | 330 | | PPROVAL OF STANDARD .— 15 |
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| 331 | 331 | | (i) I |
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| 332 | 332 | | N GENERAL.—Not later than 18 16 |
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| 333 | 333 | | months after the date of enactment of this 17 |
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| 334 | 334 | | Act, the Public Company Accounting Over-18 |
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| 335 | 335 | | sight Board and the American Institute of 19 |
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| 336 | 336 | | Certified Public Accountants shall jointly 20 |
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| 337 | 337 | | approve a proposed standard submitted to 21 |
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| 338 | 338 | | those entities under subparagraph (C). 22 |
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| 339 | 339 | | (ii) E |
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| 340 | 340 | | XTENSION OF DEADLINE .—If, as 23 |
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| 341 | 341 | | of the date that is 18 months after the 24 |
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| 342 | 342 | | date of enactment of this Act, the Public 25 |
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| 345 | 345 | | •S 1405 IS |
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| 346 | 346 | | Company Accounting Oversight Board and 1 |
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| 347 | 347 | | the American Institute of Certified Public 2 |
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| 348 | 348 | | Accountants have not issued a joint ap-3 |
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| 349 | 349 | | proval described in clause (i), the 18- 4 |
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| 350 | 350 | | month deadline described in that clause 5 |
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| 351 | 351 | | with respect to that approval shall be ex-6 |
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| 352 | 352 | | tended by consecutive 180-day periods 7 |
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| 353 | 353 | | until the date on which those entities issue 8 |
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| 354 | 354 | | such an approval. 9 |
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| 355 | 355 | | (b) R |
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| 356 | 356 | | EPORTS.— 10 |
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| 357 | 357 | | (1) I |
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| 358 | 358 | | N GENERAL.—An auditing firm that pre-11 |
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| 359 | 359 | | pares an attestation under subsection (a) with re-12 |
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| 360 | 360 | | spect to an entity shall, after making the attestation, 13 |
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| 361 | 361 | | submit to the Under Secretary a report that ad-14 |
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| 362 | 362 | | dresses the following with respect to the entity: 15 |
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| 363 | 363 | | (A) Cryptographic proof of possession or 16 |
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| 364 | 364 | | control over keys that are capable of effec-17 |
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| 365 | 365 | | tuating the transfer, change of control, or 18 |
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| 366 | 366 | | movement of a chain of assets that are owned 19 |
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| 367 | 367 | | by a person other than that entity, such as a 20 |
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| 368 | 368 | | customer of the entity. 21 |
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| 369 | 369 | | (B) Verification of cryptographic proof of 22 |
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| 370 | 370 | | reserves of the entity. 23 |
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| 371 | 371 | | (C)(i) Verification of cryptographic proof 24 |
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| 372 | 372 | | of the liabilities of the entity. 25 |
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| 375 | 375 | | •S 1405 IS |
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| 376 | 376 | | (ii) For the purposes of clause (i), cryp-1 |
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| 377 | 377 | | tographic proof means a cryptographically 2 |
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| 378 | 378 | | verifiable attestation using a Merkle tree struc-3 |
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| 379 | 379 | | ture, a zero-knowledge proof, or another similar 4 |
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| 380 | 380 | | mechanism that can prove— 5 |
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| 381 | 381 | | (I) the existence of the applicable li-6 |
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| 382 | 382 | | abilities; and 7 |
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| 383 | 383 | | (II) that the applicable liabilities are 8 |
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| 384 | 384 | | the legal responsibility of the entity that is 9 |
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| 385 | 385 | | the subject of the report. 10 |
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| 386 | 386 | | (2) P |
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| 387 | 387 | | UBLIC AVAILABILITY.—The Under Sec-11 |
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| 388 | 388 | | retary, through the Office, shall make each report 12 |
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| 389 | 389 | | received under paragraph (1) available to the public, 13 |
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| 390 | 390 | | which shall include, in addition to the material de-14 |
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| 391 | 391 | | scribed in subparagraphs (A), (B), and (C) of that 15 |
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| 392 | 392 | | paragraph— 16 |
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| 393 | 393 | | (A) the name of the entity for which the 17 |
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| 394 | 394 | | attestation that is the subject of the report was 18 |
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| 395 | 395 | | performed; and 19 |
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| 396 | 396 | | (B) the name of the auditing firm that 20 |
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| 397 | 397 | | made the attestation described in subparagraph 21 |
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| 398 | 398 | | (A) of this paragraph. 22 |
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| 399 | 399 | | (c) E |
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| 400 | 400 | | NFORCEMENT.— 23 |
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| 401 | 401 | | (1) C |
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| 402 | 402 | | IVIL PENALTIES.— 24 |
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| 405 | 405 | | •S 1405 IS |
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| 406 | 406 | | (A) IN GENERAL.—With respect to an en-1 |
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| 407 | 407 | | tity that is subject to the requirements under 2 |
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| 408 | 408 | | subsection (a) and fails to satisfy those require-3 |
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| 409 | 409 | | ments, the Under Secretary, through the Office, 4 |
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| 410 | 410 | | shall, subject to subparagraph (B), impose a 5 |
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| 411 | 411 | | civil penalty on the entity as follows: 6 |
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| 412 | 412 | | (i) If that failure is the only such fail-7 |
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| 413 | 413 | | ure by the entity during the most recent 8 |
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| 414 | 414 | | 24-month period, the amount of the pen-9 |
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| 415 | 415 | | alty shall be the greater of the following: 10 |
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| 416 | 416 | | (I) 25 cents per user or customer 11 |
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| 417 | 417 | | of the entity (as applicable), as of the 12 |
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| 418 | 418 | | date on which the penalty is imposed. 13 |
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| 419 | 419 | | (II) 2.5 basis points of the total 14 |
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| 420 | 420 | | assets under management by the enti-15 |
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| 421 | 421 | | ty, as of the date on which the penalty 16 |
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| 422 | 422 | | is imposed. 17 |
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| 423 | 423 | | (ii) If the entity has 1 additional such 18 |
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| 424 | 424 | | failure during the most recent 24-month 19 |
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| 425 | 425 | | period, the amount of the penalty shall be 20 |
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| 426 | 426 | | the greater of the following: 21 |
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| 427 | 427 | | (I) 55 cents per user or customer 22 |
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| 428 | 428 | | of the entity (as applicable), as of the 23 |
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| 429 | 429 | | date on which the penalty is imposed. 24 |
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| 432 | 432 | | •S 1405 IS |
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| 433 | 433 | | (II) 5.5 basis points of the total 1 |
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| 434 | 434 | | assets under management by the enti-2 |
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| 435 | 435 | | ty, as of the date on which the penalty 3 |
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| 436 | 436 | | is imposed. 4 |
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| 437 | 437 | | (iii) If the entity has more than 1 ad-5 |
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| 438 | 438 | | ditional such failure during the most re-6 |
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| 439 | 439 | | cent 24-month period, the amount of the 7 |
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| 440 | 440 | | penalty shall be the greater of the fol-8 |
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| 441 | 441 | | lowing: 9 |
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| 442 | 442 | | (I) 90 cents per user or customer 10 |
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| 443 | 443 | | of the entity (as applicable), as of the 11 |
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| 444 | 444 | | date on which the penalty is imposed. 12 |
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| 445 | 445 | | (II) 9 basis points of the total as-13 |
|---|
| 446 | 446 | | sets under management by the entity, 14 |
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| 447 | 447 | | as of the date on which the penalty is 15 |
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| 448 | 448 | | imposed. 16 |
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| 449 | 449 | | (B) L |
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| 450 | 450 | | IMITATION.—The Under Secretary, 17 |
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| 451 | 451 | | through the Office, may not impose a penalty 18 |
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| 452 | 452 | | on an entity under subparagraph (A) if the im-19 |
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| 453 | 453 | | position of that penalty would cause the total 20 |
|---|
| 454 | 454 | | amount of penalties imposed on that entity 21 |
|---|
| 455 | 455 | | under that subparagraph for the year in which 22 |
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| 456 | 456 | | the penalty would be imposed to exceed the 23 |
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| 457 | 457 | | lesser of the following: 24 |
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| 460 | 460 | | •S 1405 IS |
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| 461 | 461 | | (i) $1 per user or customer of the en-1 |
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| 462 | 462 | | tity (as applicable), as of the date on which 2 |
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| 463 | 463 | | the penalty would be imposed. 3 |
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| 464 | 464 | | (ii) 10 basis points of the total assets 4 |
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| 465 | 465 | | under management by the entity, as of the 5 |
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| 466 | 466 | | date on which the penalty would be im-6 |
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| 467 | 467 | | posed. 7 |
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| 468 | 468 | | (2) P |
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| 469 | 469 | | UBLICATION.—The Under Secretary, 8 |
|---|
| 470 | 470 | | through the Office, shall make publicly available, 9 |
|---|
| 471 | 471 | | with respect to the most recent 24-month period, the 10 |
|---|
| 472 | 472 | | name of each entity that is subject to the require-11 |
|---|
| 473 | 473 | | ments under subsection (a) and has failed to satisfy 12 |
|---|
| 474 | 474 | | those requirements. 13 |
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| 475 | 475 | | (3) A |
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| 476 | 476 | | PPEALS.— 14 |
|---|
| 477 | 477 | | (A) I |
|---|
| 478 | 478 | | N GENERAL.—The Under Secretary 15 |
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| 479 | 479 | | shall establish a process through which an enti-16 |
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| 480 | 480 | | ty on which a penalty is imposed under para-17 |
|---|
| 481 | 481 | | graph (1) may appeal that penalty. 18 |
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| 482 | 482 | | (B) W |
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| 483 | 483 | | AIVER OF PENALTY .—The Under 19 |
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| 484 | 484 | | Secretary shall waive a penalty imposed under 20 |
|---|
| 485 | 485 | | paragraph (1) if the Under Secretary deter-21 |
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| 486 | 486 | | mines in an appeal brought under subpara-22 |
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| 487 | 487 | | graph (A) of this paragraph that the reason 23 |
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| 488 | 488 | | that the Under Secretary did not receive a re-24 |
|---|
| 489 | 489 | | port under subsection (b)(1) is because of an 25 |
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| 491 | 491 | | ssavage on LAPJG3WLY3PROD with BILLS 17 |
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| 492 | 492 | | •S 1405 IS |
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| 493 | 493 | | action or omission by an auditing firm and not 1 |
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| 494 | 494 | | the entity on which the Under Secretary im-2 |
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| 495 | 495 | | posed the penalty. 3 |
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| 496 | 496 | | (C) P |
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| 497 | 497 | | AUSE IN PAYMENT .—An entity on 4 |
|---|
| 498 | 498 | | which the Under Secretary imposes a penalty 5 |
|---|
| 499 | 499 | | under paragraph (1) shall not be required to 6 |
|---|
| 500 | 500 | | pay that penalty during the period in which an 7 |
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| 501 | 501 | | appeal brought by the entity under this para-8 |
|---|
| 502 | 502 | | graph is pending. 9 |
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| 503 | 503 | | (d) E |
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| 504 | 504 | | FFECTIVEDATE.—This section shall take effect 10 |
|---|
| 505 | 505 | | on the date on which the Public Company Accounting 11 |
|---|
| 506 | 506 | | Oversight Board and the American Institute of Certified 12 |
|---|
| 507 | 507 | | Public Accountants jointly approve, under subsection 13 |
|---|
| 508 | 508 | | (a)(3), an industry standard for the attestations required 14 |
|---|
| 509 | 509 | | under this section. 15 |
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| 510 | 510 | | Æ |
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