SBIA Government Relations Update: Washington Year in Review

2019: Washington Year in Review 

The SBIA Government Relations team began the 116th Congress with an aggressive agenda and has thus far won several legislative and regulatory victories. While there are a number of outstanding issues we would have liked to see progress further or be resolved, we are pleased to report that Congress and key regulatory agencies have responded to and acted upon many of our recommendations.

Throughout the year we distributed email notifications of major rule-makings and legislation, as well as summaries of Congressional hearings of the issues that concern our industry. On all issues of importance to our members, SBIA holds industry-specific calls to: 1) inform members of policy activity that is relevant to their industry; 2) solicit input from membership about how a policy might impact their individual business model; and 3) collaborate to find solutions that SBIA’s Government Relations team can advocate to policymakers. If you would like to be added to this email list please sign up here.

In 2019, on behalf of our membership (PE firms, LPs, BDCs, SBICs, intermediaries, RBICs, funds in formation), SBIA testified before Congress and regulators seven times. Additionally, we submitted 10 comment letters responding to rule proposals and 13 additional letters to regulators and Congress on policy and program management issues.

Over the course of the year, SBIA Government Relations met with hundreds of policymakers and regulators to discuss BDCs, conventional private equity, and the SBIC program. We attended nearly 200 meetings with Members of Congress, Administration officials and staff, as well as 110 PAC/political events, engaging actively with both major parties. These targeted meetings provided opportunities for quality face-to-face interaction with the elected and appointed officials who shape the policies that affect SBIA members and helped bolster support for our issues. In addition to these formal meetings to discuss SBIA-wide issues, SBIA engaged many Members of Congress on individual member concerns related to SBIC licensing, regulatory matters, or issues related to their portfolio companies.

SBIA continues to focus on strengthening support for private equity, BDCs, and the SBIC program through education and awareness among Members of Congress, and working with lawmakers and regulators to enhance the regulatory structures of BDCs, conventional PE, and the SBIC program.


SBIA: In The News 

This is “Private Equity Campaign”/EY Private Equity Report 

SBIA and the American Investment Council are working on a series of short digital videos to show how private equity investments strengthen portfolio companies and support jobs across America.

SBIA President Brett Palmer appeared on numerous media outlets after the release of a study funded by the American Investment Council [See Report: EY and AIC Report: Economic Contribution of the US Private Sector in 2018 ] discussing the benefits and jobs private equity creates across the country.


SBIA: Congressional Hearings and Summits 

Private Equity Hearing  

On November 19, 2019, the House Financial Services Committee held a hearing to examine industry practices and legislative proposals related to the regulation of PE funds. While other legislative proposals were mentioned, the bulk of the hearing focused on Elizabeth Warren’s “Stop Wall Street Looting Act” and increased pension returns due to private equity investments. SBIA President Brett Palmer utilized his testimony to highlight successful PE investments in middle market and lower middle market companies and to caution against the Warren bill and other proposals that would kill the PE industry. Although the hearing was billed as a way for members of Congress to grill the private equity industry and – in Politico’s words – to “amplify Sen. Warren’s themes” about the industry, Members on both sides by and large recognized the importance of PE to the overall economy and cautioned against over-regulation.

Press-Related Links:

The Hill: Elizabeth Warren’s Hypocritical and Foolish Attack on Private Equity

Financial Times: Private equity comes under fire in Washington (subscription)

Axios: House hearing on private equity lands with a whimper

Pensions & Investments: Private equity practices aired at House hearing


Arkansas Representative French Hill Hosts Venture Summit 

SBIA President Brett Palmer was invited to give the keynote address at the Venture Ecosystem Summit, where he spoke about access to capital and closing the gap in “fly-over” states. The summit, sponsored by U.S. Rep. French Hill, was held at the University of Central Arkansas.


SBIA: Regulatory Body Engagement

Opportunity Zones (OZ) 

  • On February 14, 2019, Brett Palmer testified during a stakeholders hearing held by the U.S. Internal Revenue Service about the first round of proposed regulations governing the Opportunity Zone (OZ) program.  His principal messages were that: 1) investments in small business create long-term anchors for jobs, economic growth, and stability in communities; 2) screening practices sufficient to weed out bad actors can help mitigate the risk of abuses within Qualified Opportunity Funds; and, 3) investment success in small businesses requires time and nimbleness in capital deployment because each operating business is unique.
  • On July 1, 2019, the SBIA filed comments with the U.S. Department of the Treasury in its second round of proposed regulations governing the OZ program. SBIA recommended that the OZ program leverage the U.S. Small Business Administration’s (SBA) long-standing SBIC program, created explicitly for small business investing, to complement qualified opportunity funds (“QOFs”) and deliver on the legislative purpose for the OZ program to infuse capital investment in small businesses located in underserved areas.


Securities and Exchange Commission (SEC) 

  • SEC Rulemaking No. S7-05-19.  SBIA Comments on Amendments to Regulation S-X. On July 29, the SBIA filed technical comments on behalf of the business development companies (BDC) industry in response to an SEC proposed rulemaking to the rules that require BDCs and other 1940 Act funds to include in their SEC filings: (i) certain financial information pertaining to their majority-owned or controlled portfolio companies and (ii) historical and pro forma financial information relating to funds acquired or to be acquired.
  • SEC No. 33-10649.  Concept Release on Harmonization of Securities Offering Exemptions.   Thanks to Eversheds Southerland law firm, on September 24, 2019, the SBIA intends to submit comments in response to the Commission’s proposal to harmonize existing securities offering exemptions that facilitate capital raising to help improve consistency and reduce complexities in their application while maintaining appropriate investor protections. Specifically, the SBIA comments will target SEC questions about the definition of “accredited investor.” SBIA expects to revise its 2016 submission in response to the Commission’s 2015 report about the definition.
  • SEC No. S7-19-19.  Amendments to Procedures with Respect to Applications Under the Investment Company Act of 1940. On November 29, 2019, the SBIA filed comments in support of the Commission’s proposal to codify response periods on routine (e.g., 45 days) and novel (e.g., 90 days) applications for exemptive relief from investment companies.  SBIA supports the Commission’s intent because it establishes reasonable timelines and would provide investment companies with a degree of certainty and not leave market participants guessing as to the latest informal staff guidelines from the SEC.


SBIA Meeting with SEC Small Business Advocate Martha Miller 

In February 2019, SBIA staff met with SEC Small Business Advocate Martha Miller to discuss ways the SEC could modify regulations to improve the climate for small business investing in America. SBIA was instrumental in the creation of the office and was able to flag a few issues that are currently being addressed by the SEC.


SBIA Meeting with FDIC Chair Jelena McWilliams  

On October 31, 2019, SBIA’s advocacy team met with FDIC Chairwoman Jelena McWilliams to discuss regulatory developments with the Community Reinvestment Act (CRA) and “covered funds” under the Volcker Rule. The FDIC indicated that the three federal regulators that govern CRA (i.e., FDIC-Federal Reserve-OCC) are still conducting internal negotiations over the scope of proposed revisions to the CRA’s rules. Since we met, the FDIC and OCC released a new proposal (see below).


Community Reinvestment Act (CRA) 

The Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) on Dec. 12 announced their intent to publish a proposed rulemaking that would revise the CRA program comprehensively ( Public comments on the proposed rulemaking will be accepted for 60 days after the regulators publish the proposal in the Federal Register, which has not yet occurred. SBIA intends to file comments and will seek SBIA membership input.


Volcker Rule 

On August 20, 2019, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency approved modifications to the 2013 Volcker Rule that generally restricts financial institutions from proprietary trading and from owning or controlling “covered funds” like hedge funds or private equity funds.

  • The final rule also included several narrow technical amendments to certain provisions governing covered funds, but federal regulators intend to propose a separate rulemaking on the covered funds portion of the Volcker Rule later this fall. While SBICs are statutorily exempted from the Volcker Rule because of the long-term nature of the investments, any future proposals to modify its application to conventional hedge and private equity funds could influence the advantage from this exemption.

The new rule, which must still be approved by the Federal Reserve, SEC and CFTC, took effect on January 1, 2020. Banks have one year to comply with the rule but may opt in earlier.


SBIA Hosts Events for Financial Services Appropriators 

SBIA hosted the leadership of the Financial Services (FSGG) Appropriations Subcommittee at two separate events in May 2019. The FSGG Subcommittee writes the budget for both the SBA and the SEC and determines funding levels for all programs/offices within the agencies. Chairman Mike Quigley (D-IL) joined SBIA at the Midwest event in Chicago while SBIA’s Tonnie Wybensinger was with Ranking Member Tom Graves (R-GA) touring a St. Cloud Capital portfolio company in Los Angeles.


Acquired Funds Fees and Expenses (AFFE) Rule 

SBIA continues to work closely with Congress, external stakeholders, and the SEC to address the AFFE issue for BDCs. The following are just some of SBIA’s activities on AFFE in 2019.

  • BDC Council “Mini Fly-Ins.”  Over the course of 2019, SBIA organized numerous groups of BDC executives to meet with senior Congressional staff over the course of 2019. Discussions focused on AFFE and encouraging individual Members of Congress to weigh in with the SEC.
  • SEC Forum on Small Business Capital Formation. Because of SBIA’s advocacy and the support of Congressman Steve Stivers (R-OH), an influential 2019 industry report to the U.S. Securities and Exchange Commission (SEC) will include a formal recommendation to exempt BDCs from the Acquired Fund Fees and Expenses rule (AFFE).
  • Senator Pat Toomey (likely the next Chairman of the Banking Committee) met with SEC Chairman Jay Clayton to discuss AFFE. Commissioner Clayton is actively working on the issue and that we could see a resolution by spring.
  • SBIA AFFE Relief Letter. As follow up to the Toomey meeting, SBIA sent a letter to the SEC once again requesting AFFE relief for BDCs. SBIA has continually weighed in with regulators and policymakers to ensure a practical solution is found. Progress is being made and SBIA’s most recent letter to Chairman Clayton outlining our earlier submission in response to the “funds of funds arrangement” rule proposal was timely and important.
  • SEC Rulemaking on Fund of Funds Arrangements.  SBIA filed comments outlining the issue with AFFE and the need to exempt BDC purchasers from the rule.  Along with working closely with our member companies on their submissions, SBIA staff engaged with numerous influential stakeholders, including ICI, IPA, US Chamber, and NASDAQ, to weigh in with the SEC.
  • Congressman Steve Stivers had a one-on-one discussion with the SEC regarding plans and timing for addressing AFFE.  Again, the SEC said that they were “reviewing closely” all of the comments submitted as part of the Funds of Funds Arrangements rule proposal.
  • Concept Release on Harmonization of Securities Offering Exemptions.  On September 24, 2019, the SBIA submitted comments in response to the Commission’s proposal to harmonize existing securities offering exemptions that facilitate capital raising to help improve consistency and reduce complexities in their application while maintaining appropriate investor protections. Specifically, the SBIA comments will target SEC questions about the definition of “accredited investor,” limiting investment threshold without precedence, AFFE for BDCs.
  • On September 24, 2019. the House Financial Services Committee held a hearing with all five SEC Commissioners titled, “Oversight of the Securities and Exchange Commission: Wall Street’s Cop on the Beat.” Members of Congress asked several bipartisan questions on AFFE.  The SEC responded that “they are taking a close look at the issue.”
  • Draft Comment Letter Re Exemptive Relief Applications. The SBIA filed comments on November 25, 2019, on behalf of our members in response to proposed amendments to establish an expedited review procedure for applications under the Investment Company Act that are substantially identical to recent precedent, as well as a new informal internal procedure for applications that would not qualify for the new expedited process.


Pass Through Tax Parity 

SBIA is leading an effort to give BDCs full tax parity with S-Corp banks — a 20% deduction on QBI from direct lending activities — and near full parity with REITs with draft legislative language soon to be introduced as a bill. In 2019, SBIA, supported by its member firms, had a successful year in garnering support for future tax parity legislation.

SBIA Congressional and Administration Meetings on Tax Parity.  Congress suggested that industry first meet with IRS and Treasury staff.  Treasury sought to be helpful but eventually notified group that they could not provide through rulemaking the relief sought and that industry should go back to Congress to resolve issue. Among other policymakers, SBIA met with the most senior tax policy leaders in Washington. Congresswoman Stephanie Murphy’s office drafted legislative language restoring BDC tax parity (with S-Corp banks) and submitted legislation to JCT for a score on the revenue impact to the Treasury. A scored of $800 million over ten year was received on December 3rd, 2019.


SBIA BDC Related Events 

  • SBIA “Washington Update” in New York.  In April 2019, SBIA hosted a BDC Council “Washington Update” event in New York to ensure members were in support of our approach to both AFFE and tax relief.
  • Stephanie Murphy New York Event. On June 13, 2019, SBIA hosted an event with an SBIA Champion of Small Business Investing award recipient and BDC leader, Rep. Stephanie Murphy.  Many of SBIA’s New York based BDC members attended and discussed, among other financial services related topics, the compromise tax parity language.
  • SBIA/Nasdaq/RSM “Trends in BDCs” Event. On June 25, 2019, SBIA cohosted “Trends in BDCs” with RSM and NASDAQ.  With 150+ participants SBIA moderated a legislative/regulatory update panel.
  • Eversheds Sutherland/SBIA BDC Roundtable. On September 4-5, 2019, Eversheds Sutherland and SBIA hosted the 17th annual BDC Roundtable in Washington DC.  Widely acknowledged as the premier industry event, over 300 representatives of issuers and their service providers heard presentations from 15 panels that included senior management from the largest BDCs, investment banks, accounting firms, valuation consultants and shareholder participation organizations, as well as a number of senior officials from the SEC.  SBIA Brett Palmer moderated the “Legislative Developments” panel.


Nomination of Jovita Carranza  

On March 29, 2019, SBA Administrator Linda McMahon announced she would be leaving the Small Business Administration on April 12, 2019. President Trump nominated U.S. Treasurer Jovita Carranza to replace McMahon.

  • In advance of the Committee’s December 11th hearing, Senators on the Small Business Committee held private meetings with Carranza, and many questioned her about the SBIC program. SBIA worked hard to inform Senators on the impact SBICs have on the U.S. economy and asked them to get assurances from Carranza that the SBIC program would run efficiently on her watch.
  • We met face-to-face with many of the Senators on the Committee multiple times and followed up with their staffs to provide data and questions to discuss with Carranza. In her testimony, Carranza mentioned that every Senator she met with privately asked her about the SBIC program and she publicly committed to fixing the management issues at OII.


SBIA Online SBIC Regulations Class 

In response to SBA’s refusal to hold SBIC regulations classes in 2019 (the class is required by SBA’s Standard Operating Procedures), SBIA created its own online SBIC regulations class for SBIC funds and funds in formation. This online SBIC regulations class was produced at no taxpayer cost, and the content draws on the SBA curriculum from its last class offered in November 2018.


House Small Business Hearing on Rural American Small Businesses 

On November 14, 2019, the House Committee on Small Business held a hearing entitled, “Assessing the Government’s Role in Serving Rural American Small Businesses (Part One).” The hearing focused on challenges that rural small businesses face, including access to capital and technology, and how government can work to address these issues. SBIA submitted a letter for the hearing record highlighting the significant impact our members (including SBICs and RBICs) are having on rural America.


House Small Business Hearing on SBA Management Challenges 

On October 16, 2019, the House Small Business Committee held a hearing entitled, “SBA Management Review: SBA IG Report on the Most Serious Management and Performance Challenges Facing the SBA.” The hearing focused on significant issues that could enhance the effectiveness of the agency and its programs. Several Committee Members raised issues surrounding the management of the SBIC program. SBA IG Hannibal “Mike” Ware replied that the Office of the Inspector General is planning to address the SBIC program in FY 2020.


House Small Business Hearing on SBIC Program 

On September 26, 2019, the House Committee on Small Business held a hearing on the SBIC program entitled, “SBA Management Review: Small Business Investment Company Program.”

  • SBIA President Brett Palmer and Associate Administrator of the Office of Investment and Innovation Joe Shepard testified (on separate panels). Ronda Penn, CFO of SBIA member Plexus Capital and Walt Rodgers with Family RV – a portfolio company of SBIA members Northcreek Mezzanine, Spring Capital, and Resolute Capital Partners – told their SBIC success stories before the Committee.
  • SBIA and its members presented the industry perspective on the program and the serious operational challenges that are hampering its growth. Many Members of the Committee challenged Associate Administrator Shepard on his management of the program and called for serious improvement.


SBA Ombudsman National Regulatory Fairness Hearing 

On August 19, 2019, Palmer testified at the SBA Ombudsman’s National Regulatory Fairness hearing. This was an opportunity to publicly raise the issues surrounding regulatory and management challenges in SBA’s Office of Investment and Innovation.


SBIC Hearing–Senate Committee on Small Business & Entrepreneurship 

On June 26, 2019, the Senate Committee on Small Business & Entrepreneurship held a hearing on the SBIC program. The hearing was a combination of SBIC program oversight and a discussion of its pending reauthorization. SBIA President Brett Palmer and Associate Administrator of SBA’s Office of Investment and Innovation Joe Shepard testified (on separate panels).

The hearing focused on:

  • The role of the SBIC program and its history, stability, and success;
  • How the SBIC program can become a more inclusive and reach underserved communities frozen out of traditional venture capital markets; and
  • Common sense reforms to make the SBIC program more attractive to investors and more efficient for SBIC funds, with an emphasis on an expedited licensing process.


SBIA Fly-In for Senate Small Business Committee Members 

SBIA held a targeted Fly-in to advocate for the SBIC program. Nearly 20 SBIA members who are constituents of Senators on the Small Business Committee attended. SBIA members and Government Relations staff had contact with 16 Member offices, including face-to-face meetings with 10 Members.


SBIC Program Reauthorization 

SBIA has worked extensively throughout this Congress with Chairman Marco Rubio and Ranking Member Ben Cardin and their staffs on a complete SBA Reauthorization bill they are leading through the Senate.  SBIA compiled a thorough list of legislative proposals for Committee staff.


House Financial Services and General Government (FSGG) Appropriations Language 

On June 11, 2019 SBIC report language expressing the intent of Congress was included in the FSGG bill that passed out of the House Appropriations Committee. The language called for an expedited and streamlined licensing process for repeat SBICs, improvement to the green light process, and faster and better SBIC data reporting by SBA.


Small Business Field Hearing in Idaho 

On May 3, 2019, SBIA President Brett Palmer testified at a Senate Small Business Committee field hearing in Boise, ID entitled, “Investing in Idaho: Exploring Ways to Encourages Small Business Innovation and Startups.” Sen. Jim Risch (R-ID), past Chair of the Committee, presided over the hearing. Associate Administrator Joe Shepard of SBA’s Office of Investment and Innovation also testified. Brett highlighted the success of the SBIC program, outlined how SBIC investment could help Idaho companies grow and create jobs, and discussed some of the challenges currently facing the SBIC program.

SBIA is the voice and advocate for the lower middle market. Go to to learn more about the Small Busines Investor Alliance.

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