In a bi-partisan letter to the SEC, two House oversight chairs urged the Commission to scale back the scope of the proposed regulations defining municipal securities advisors as part of implementing Section 975 of the Dodd-Frank Act, which directs the SEC to set up an effective registration and examination program for municipal financial advisors. Capital Markets Subcommittee Chair Scott Garrett (R-NJ) and Oversight Subcommittee Chair Randy Neugebauer (R-TX) said that the SEC regulations should exempt from the definition of municipal advisor broker-dealers, investment advisers and banks that are already regulated by the Commission and the federal banking agencies. The letter was signed by 30 other House Members.
In the view of the Members, the SEC’s proposal goes far beyond the legislative intent of Section 975 and embraces parties and activities neither anticipated by Congress nor authorized by the statute and imposes duplicative regulation on parties that are already heavily regulated. The proposal may even harm state and local government, said the Members, by driving some parties out of the municipal market or limiting the services they provide.
The intentionally narrow focus of Section 975 is to bring under the regulatory umbrella of the SEC and the MSRB parties who provide advice to municipal entities on securities issuances and the investment of the proceeds of municipal securities and who are not already regulated. Specifically, Congress intends Section 975 to apply to parties known in the municipal securities markets as independent financial advisors, swap advisors, and other parties who are not already regulated by the SEC, the MSRB or the federal and state bank regulators. Congress did not intend to impose additional layers of regulation on parties and entities that are already well regulated.
In an earlier letter to the SEC, Financial Services Committee Chair Spencer Bachus (R-AL) said that the proposed regulations are overly broad and would reach significantly more people than Congress intended. For example, 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 register with the SEC, 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.