Clarity for Compensation Act
- Bill Number
- H.R. 7187
- Origin Chamber
- House
- Congress
- 119th Congress, Session 2
- Policy Area
- Finance and Financial Sector
- Status
- Introduced
- Latest Action
- 2026-06-30: Ordered to be Reported (Amended) by the Yeas and Nays: 51 - 0.
- Last Updated
- 2026-07-07T08:05:54Z
AI-Generated Summary
Purpose
The Clarity for Compensation Act (H.R. 7187) aims to clarify compensation arrangements in the securities industry by exempting certain personal services entities—set up by registered representatives (individuals authorized to sell securities on behalf of a broker)—from being classified as brokers under federal law. This prevents unnecessary regulatory burdens while maintaining oversight to protect investors.
Key Provisions
- Exemption Criteria: A personal services entity is not considered a broker if it only receives compensation (like commissions) on behalf of a registered representative from their broker, provided:
- The broker approves the payment amount, timing, and keeps records.
- The entity does not advertise itself as a broker or perform any broker/dealer activities beyond receiving payments.
- The broker supervises the representative adequately.
- There is a written agreement between the broker and entity outlining their relationship and compensation responsibilities.
- Ownership is limited to the registered representative, their immediate family (e.g., spouse, children, parents, siblings, grandparents, grandchildren, or step-relations), or entities fully owned by them or their family.
- The entity complies with any additional rules set by the Securities and Exchange Commission (SEC).
- Oversight Requirements: The entity must maintain and provide books and records (similar to those required of the broker) to the SEC or self-regulatory organizations (SROs, like FINRA, which oversee broker compliance) upon request, to verify ongoing eligibility for the exemption.
- Definitions:
- Personal services entity: An entity created by a registered representative to handle their compensation, administrative tasks, and related benefits.
- Registered representative: An associated person of a broker who is registered with an SRO.
- Broker or dealer activity: Actions requiring registration under the Securities Exchange Act, such as buying/selling securities for others.
- Effective Date: The exemption takes effect 180 days after the bill's enactment.
Significant Changes to Existing Law
This bill amends Section 3(a)(4) of the Securities Exchange Act of 1934 by adding a new subparagraph (G), creating a specific exception to the broad definition of a "broker." Previously, personal services entities receiving compensation might have been treated as unregistered brokers, subjecting them to full registration, licensing, and compliance requirements under the Act. The change narrows this definition for qualifying entities, reducing regulatory overlap without altering core broker responsibilities.
Potential Impacts
- On Government Agencies: The SEC and SROs will need to update rules, conduct examinations, and review records to enforce the exemption, potentially increasing short-term administrative workload but streamlining long-term oversight by focusing on high-risk activities.
- On Citizens/Industry Participants: Registered representatives can more easily use personal entities for compensation management (e.g., tax or administrative benefits), potentially lowering costs and improving efficiency in the financial services sector without compromising investor protections.
- On International Relations: Minimal direct impact, as the bill focuses on domestic U.S. securities regulation; it may indirectly affect multinational firms with U.S. operations by aligning compensation practices.
Main Stakeholders Affected
- Registered Representatives: Benefit from simplified compensation handling through personal entities.
- Brokers and Broker-Dealers: Must enhance supervision, record-keeping, and agreements but gain flexibility in compensating staff.
- Personal Services Entities: Newly exempt from broker status if conditions are met, avoiding registration costs.
- SEC and SROs (e.g., FINRA): Gain authority to prescribe rules and access records for compliance monitoring.
- Investors: Indirectly protected through maintained broker oversight, though they may see no immediate changes in services.
Notable Legal, Constitutional, or Political Implications
- Legal: Provides regulatory clarity, reducing ambiguity in broker definitions that could lead to enforcement disputes or lawsuits. It balances deregulation with safeguards (e.g., supervision and record access) to prevent misuse, aligning with the Act's goal of investor protection without overregulation.
- Constitutional: No apparent issues; the bill operates within Congress's commerce clause authority over securities markets and does not infringe on free speech, due process, or other rights.
- Political: Could appeal to financial industry advocates seeking reduced burdens, while critics might argue it risks weakening oversight. As a bipartisan bill (introduced by Reps. Nunn and Meeks), it reflects efforts to modernize outdated rules amid evolving compensation practices.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Cosponsors (12)
Rep. Meeks, Gregory W. [D-NY-5], Rep. Pettersen, Brittany [D-CO-7], Rep. Lawler, Michael [R-NY-17], Rep. Stutzman, Marlin A. [R-IN-3], Rep. Garbarino, Andrew R. [R-NY-2], Rep. McBride, Sarah [D-DE-At Large], Rep. Moore, Tim [R-NC-14], Rep. Timmons, William R. [R-SC-4], Rep. Kim, Young [R-CA-40], Rep. De La Cruz, Monica [R-TX-15], Rep. Kennedy, Timothy M. [D-NY-26], Rep. Moran, Nathaniel [R-TX-1]
Recent Actions
- 2026-06-30: Ordered to be Reported (Amended) by the Yeas and Nays: 51 - 0.
- 2026-06-30: Committee Consideration and Mark-up Session Held
- 2026-01-21: Referred to the House Committee on Financial Services.
- 2026-01-21: Introduced in House
- 2026-01-21: Introduced in House
Bill Versions
- Clarity for Compensation Act — issued 2026-01-21 — PDF (6 pages)