The House of Representatives has passed a bill that narrows the definition of a municipal advisor. HR 2827 also exempts certain market participants from being subject to certain rules and says that under Dodd-Frank Section 975 already regulated entities are not municipal advisors. This bill comes after the SEC proposed its own definition of municipal advisor two years ago that some considered too inclusive and/or not in line with Congress’s intent.
In an effort to get wide bipartisan support, Rep. Robert Dold (R-Ill) and Rep. Gwen Moore (D-Wis.) modified the legislation and put back in the federal fiduciary standard for municipal advisers that ha been taken out. Democrats had expressed worry that getting rid of the uniform federal standard might reduce the strength of oversight on the industry. The bill also no longer has “blanket exemptions” to its definition of a municipal advisor, including the categorical language stating that broker-dealers, banks, and municipal securities dealers are not municipal advisors. However, per the House Financial Services Committee, which unanimously approved the bill earlier this month, if such entities were to only take part in certain activities, they would still not be included in the definition.
The bill passed the committee with an amendment by Rep. Barney Frank (D-Mass.) that would take out the language that defines a municipal advisor as someone “engaged … in writing” to give a municipality advice. He believed the wording might have set up a possible loophole from municipal advisor regulation by letting parties not have a written contract. The municipal adviser definition, however, would still include those that “engaged … for compensation.” Also moving forward to the House with the bill was an amendment by Dold letting persons “associated” with a municipal advisory firm to not have to individually register with the SEC. Dold said that the Commission had requested this.
The bill has garnered the backing of dealer groups, including the Securities Industry and Financial Markets Association and Bond Dealers of America. Public advocacy organization groups and nondealer MAs, however, said the revised definition might weaken the government protections that the Dodd-Frank Act provides. Other opponents contend that the bill has too many loopholes, such as the swap dealer and underwriting exceptions it creates.
Also against the bill are the Americans for Financial Reform, the AFL-CIO, the American Federation of State, County & Municipal Employees, the Leadership Conference on Civil and Human Rights, the Consumer Federation of America, the United States Public Interest Research Group, and Public Citizen. They tried to get the House to vote against the bill, writing a letter contending that the exemptions created by the legislation would cause many financial entities to claim that they don’t owe taxpayer interests any fiduciary duty even if they are behaving as advisors and not counterparties or underwriters.
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House Passes Muni Advisor Bill, Drawing Mixed Views, Bond Buyer, September 20, 2012
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