Hill and Cotton revive their 2018 bid to exempt brokerages under 150 staff from PCAOB audits

The second eligibility test is custody, and that is what decides who qualifies: a three-person shop holding customer assets keeps its PCAOB-registered auditor, while a 149-person firm holding none is exempt ^[3]. Dodd-Frank's extension answered an investor fraud ^[6], and the carve-out is drawn to leave the requirement wherever client money sits. The bill unwinds that 2010 extension. The 2002 statute applied PCAOB audits to publicly traded firms ^[5]. There is a second objection the custody test does not settle, and it is capital: the annual inspection the bill would make optional covers regulatory compliance and capital as well as the financial statements ^[4], and a firm with no custody can still fall short of its capital requirement.

Lieblong's roughly $40,000 works out to $10,000 for each of the four people in the shop ^[7][1]. The headcount ceiling written into the bill is 37.5 times that firm's size ^[2]. Small brokers have complained for years that PCAOB audits cost significantly more than the generally accepted auditing standards work they replaced ^[8], and that the audits run to tens of thousands of dollars a year ^[9].

"Currently, a 3-person, non-public small business is held to the same standards as Merrill Lynch; this is not right, fair or reasonable," some 300 small broker-dealers wrote to Senate Banking Committee leaders in 2018 ^[10]. Regulators "wrote this rule for Wall Street and then applied it to small firms on Main Street," Cotton said in a statement ^[13].

Hill introduced the latest House version on Sept. 17, eight years after the first one, with Cotton set to follow with the Senate companion ^[1][2][3]. In between, the measure got practically nowhere save a successful House Financial Services markup in 2018 ^[15]. Four committee Democrats voted for it then and two have since left Congress ^[18][4], with Vicente Gonzalez, a longtime co-sponsor, and Jim Himes among those still in place ^[19].

Hill chairs the committee ^[23] and came out of the business, having founded and run Delta Trust & Banking Corp., a broker-dealer and community bank, before selling it in 2014 after winning his seat ^[20]. Several of his other bills this year would tailor community bank rules to a lender's size and business risk instead of applying big-bank rules ^[21]. "Small, privately held broker-dealers deserve that same attention," Hill said in a statement ^[12]. A senior Senate aide said the two Arkansans keep hearing from broker-dealers "fed up with accounting fees" ^[22].

Two paths are live: the exemption attaches to something larger this session, or it starts again in a new Congress. I would expect the second, because a bill that has drawn one markup in eight years ^[15][3] needs someone else's vehicle to move. And the case for it is sized off the smallest example available: if most firms under the 150-employee ceiling are nothing like a four-person shop paying $10,000 a head ^[1][2], the relief is priced on the wrong firm.