Legislation that would limit the scope of regulation requiring municipal advisers to register with the Securities and Exchange Commission sailed through a congressional panel last Wednesday.
The House Financial Services Committee unanimously approved the bill. It now heads to the House floor for a vote as early as this week.
The measure responds to lawmakers' concerns that a proposed SEC rule is too broad and would sweep too many people under the “adviser” label.
The SEC rule would implement a part of the Dodd-Frank financial reform law designed to make the activities of muni advisers more transparent by putting them under SEC oversight for the first time.
The bill defined as a muni adviser anyone who is paid by a local or state government to advise them on financing roads, bridges, schools and other public projects.
The measure, approved Wednesday, would exempt broker-dealers serving as underwriters or placement agents, accountants, attorneys, any elected or appointed members of a local governing board, and bankers providing depository services for governments.
“It clearly defines "municipal adviser,'” said Rep. Gwen Moore, D-Wis., who wrote the bill along with Rep. Robert Dold, R-Ill. “This approach provides certainty for market participants.”
The key to getting enough of Ms. Moore's Democratic colleagues to support the bill is that it requires muni advisers to adhere to a federal fiduciary duty when working with government clients in the $3.7 trillion muni market.
“A federal fiduciary standard is essential in order to help protect issuers and remove any confusion about what standards apply to investment advisers,” said committee member Rep. Maxine Waters, D-Calif.
The top-ranking Democrat on the Financial Services Committee, Rep. Barney Frank, D-Mass., said that lawmakers on both sides of the aisle want muni advisers to act in the best interests of taxpayers.
SHARED CONCERN
“This is not an ideologically divisive issue,” he said.
Worries over muni financing have spiked in recent months. In June, Stockton, Calif., filed for bankruptcy protection, while Jefferson County, Ala., declared the biggest muni bankruptcy in history last year.
Financial Services Committee Chairman Spencer Bachus, R-Ala., agreed that tougher regulation of muni advisers is necessary.
“If this had been in effect in Jefferson County years ago, we could have avoided a problem,” he said.
Mr. Bachus charged that the government's financial advisers “pocketed the lucrative fees associated with the city sewer bond offering while ignoring the welfare of taxpayers.”
But Mr. Bachus and his committee said that the original SEC proposal overreached.
In an April congressional hearing, SEC Chairman Mary Schapiro agreed that the SEC went too far.
It isn't clear when the SEC will propose a final regulation.
In the meantime, Mr. Dold's bill appears to be on its way to overwhelming House approval next week. It isn't clear when or if the Senate will take up the legislation.
No matter what happens on the other side of the Capitol, the measure is designed in part to send a message to the SEC as it reworks the muni adviser regulation, according to Mr. Dold.
“I hope this is the clear signal that this is the congressional intent,” he said.
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