Wednesday, September 19, 2012

House Passes Legislation Clarifying Scope of Dodd-Frank Municipal Advisor SEC Registration

The House  of Representatives has passed by voice vote bi-partisan legislation clarifying that Section 975 of the Dodd-Frank Act requiring municipal advisors to register with the SEC does not include dealers, banks, investment advisers and members of municipal governing bodies, and others who were either already regulated before the enactment of Dodd-Frank or are appointed, volunteer public servants. According to Ranking Member Barney Frank (D-MA), the SEC supports the bill as approved by the full Committee.


According to the sponsor of HR 2827, Rep. Robert Dold (R-IL), the intent of Congress in enacting Section 975 was not to impose a regulatory structure on previously unregulated entities that are active in the financial markets. The full Committee Chair, Rep. Spencer Bachus (R-ALA), earlier expressed concern over the scope of Section 975. While he supports efforts to police this segment of the municipal market, Chairman Bachus believes that Section 975 and the SEC proposed regulations implementing the statute are overly broad and would require appointed, non-ex-officio municipal board members and officials to register with the SEC. In an earlier letter to the SEC, he said that the broad definition of municipal financial products combined with the failure to define ``advice’’ would also result in thousands of bank employees conducting routine business with municipal entities having to register with the SEC.

According to Rep. Gwen Moore (D-WI), a cosponsor of the bill, HR 2827 eliminates confusion around the SEC proposed regulations implementing Section 975. The definition of municipal advisor is the heart of HR 2827. It is an exclusionary definition that creates certainty for market participants. HR 2827 also creates a federal fiduciary standard for municipal advisors with no blanket exemptions. The bill specifies that municipal advisors have a fiduciary duty to their municipal entity clients and specifies when such duties begin and end in relation to municipal advisory activities. The legislation also provides that municipal advisers can engage in principal transactions with the clients, subject to MSRB regulation.  

An amendment offered by Rep. Dold was approved in Committee providing that persons associated with municipal advisory firms did not have to separately register with the SEC. An amendment offered by the Ranking Member Barney Frank was approved in Committee deleting the phrase ``in writing'' from the definition of municipal advisor as one that is engaged, in writing, and for compensation by a municipal entity to provide advice. Rep. Frank described the amendment as anti-evasion, forcing a look at the reality of the transaction whether or not it was in writing.

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