Section 975 of Dodd-Frank directs the SEC to set up an effective registration and examination program for municipal financial advisors. While he supports the SEC’s efforts to police this segment of the municipal market, House Financial Services Committee Chair Spencer Bachus (R-AL) does not support proposed Rules 15Ba1-1 and 15Ba1-7 because they are overly broad and would reach significantly more people than Congress intended. For example, in a letter to the SEC, he said that the broad definition of municipal financial products combined with the failure to define ``advice’’ would result in thousands of bank employees conducting routine business with municipal entities having to register with the SEC
Chairman Bachus urged the Commission in developing rules under Sec. 975 to strike a balance ensuring that non-broker-dealer financial advisors to register with the SEC, of which an SEC official has estimated there are only about 260, while not forcing thousands of unsuspecting individuals to comply with yet another regulatory burden that he feels would be detrimental to the very municipal entities Congress is trying to protect.
An example of the overly broad nature of the proposed rules is that they would require appointed, non-ex-officio municipal board members and officials to register with the SEC. In addition, many small towns frequently appoint rather than elect their municipal administrators, he noted, and, public university boards of trustees are similarly appointed. In the Chairman’s view, forcing these individuals, who are often volunteers, to register with the SEC would create a significant disincentive for qualified persons to serve their communities. The Commission has also ignored an explicit exemption in Section 975 for engineers providing engineering advice to municipal entities.
Prior to the Dodd-Frank Act, a municipal financial advisor was not subject to registration with the Commission unless it was either a broker or dealer subject to registration under the Exchange Act or an investment adviser subject to registration under the Investment Advisers Act. Section 975 of the Act amended Section 15B of the Exchange Act to, among other things, require municipal advisors to register with the Commission, establish a fiduciary duty between a municipal advisor and a municipal entity for which it is acting as a municipal advisor, and subject municipal advisors to additional anti-fraud provisions.