Sunday, June 19, 2011

Senate Banking Committee Chair Asks SEC to Exempt Banks Offering Traditional Products from Municipal Advisor Registration

SEC final regulations on the registration of municipal advisors should ensure that banks offering traditional banking products such as loans and deposits accounts to municipalities should not have to register as municipal advisors, said Senate Banking Committee Chair Tim Johnson (D-SD). In a letter to the SEC Chair Mary Schapiro, he noted that the registration of banks offering traditional banking products to municipalities was not the focus of Section 975 of Dodd-Frank and was not intended by Congress. Chairman Johnson also emphasized that the regulations should not require the registration of members of a governing body of a municipality solely because they have been appointed and not elected.

Section 975 responded to a serious problem in the municipal securities market, he noted, in that individuals who were neither qualified nor accountable were giving bad advice to municipalities preparing to issue bonds. Dodd-Frank requires a municipal advisor to register with the SEC and defines a municipal advisor to exclude a person who is not a municipal entity or an employee of a municipal entity. Chairman Johnson emphasized that Dodd-Frank does not create, nor does the legislative history suggest the creation of, a distinction between an elected member of a governing body of a municipal entity and an appointed member of such a body who is acting within the scope of his or her authority.

According to Chairman Johnson, Dodd-Frank was not intended to discourage such well-meaning and competent individuals, who are appointed and volunteer their time, from serving on municipal governing boards considering the issuance of bonds or making decisions on financial matters. In his view, an individual who has been appointed to serve on a municipal entity’s governing board is not necessarily less accountable than an elected individual.

The Senator agrees with the SEC’s view that elected members of the governing body of a municipality and appointed members who are ex officio members by virtue of holding an elective office should be exempted from the definition of municipal advisor. He also believes that the regulations should not require registration of members of a municipality’s governing body solely because they have been appointed.

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