At House Hearings, Securities and Banking Industry Support Legislation Clarifying Scope of Dodd-Frank Municipal Advisor Provisions

Securities and banking industry representatives told a House panel that they support legislation, HR 2827, to clarify the scope of the statutory and regulatory framework for the registration of municipal advisors pursuant to Section 975 of the Dodd-Frank Act. In testimony before the House Capital Markets Subcommittee, Kenneth Gibbs, a SIFMA director, said that proposed SEC regulations implementing Section 975 would encompass in the definition of municipal advisor a wide breadth of entities and activities that are outside Congressional intent, such as banks providing traditional banking services and appointed, unpaid members of issuer governing bodies, such as volunteer members of a local government board or commission.

American Bankers Association Chair Albert Kelly, Jr. testified that the SEC proposed regulations interpreting the scope of municipal financial products in Section 975 go far beyond the securities activities of state and local governments to reach all funds held by or on behalf of a municipal entity. In the ABA’s view, this would mean that giving advice about traditional bank products such as deposits and loans could trigger registration as municipal advisors by most banks and each of their employees who may give advice to local governmental bodies. This would work against the intent of Section 975, he said, which was not intended to cover banks.

He noted that the ABA fully supports legislation that would clarify what constitutes a municipal advisor and would remove financial institutions from the proposed ill-defined definition. In the absence of this legislation, the ABA urged Congress to conduct oversight of the SEC as it goes through the process of issuing a final rule in order to ensure that the results do not impose unnecessary costs and unintended consequences.

The legislation supported by the securities and banking industries is HR 2827, which is a bi-partisan measure introduced by Rep. Robert Dold (R-IL). At the hearings, Rep. Dold said that HR 2827 would clarify the intent of Congress as expressed in Section 975 so that entities are not improperly captured into a regulatory framework, while at the same time maintaining Dodd-Frank’s purpose and policy of protecting municipalities. HR 2827would exclude from the definition of municipal advisor banks and elected or appointed members of a governing body of a municipal entity. 


According to Rep. Dold, the SEC proposal would force appointed members of government boards into the municipal advisor regulatory regime, as well as certain bank employees. Similarly, accounting firms would become subject to the regime by simply performing their customary services for their municipal clients, all with no meaningful improvement to investor protection.

Subcommittee Chair Scott Garrett (R-NJ) spoke of the absolute necessity of enacting HR 2827, while also mentioning that the subcommittee and the full Financial Services Committee are working on addressing the concerns of some commenters, particularly involving fiduciary duty issues.

In an earlier letter to the SEC, full Financial Services Committee Chair Spencer Bachus (R-AL) said that the Commission’s proposed definition of municipal finance 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.  Section 975 directs the SEC to set up an effective registration and examination program for municipal financial advisors, noted the full Committee Chair. While he supports the SEC’s efforts to police this segment of the municipal market, Chairman Bachus does not support overly broad proposed regulations that would reach significantly more people than Congress intended.