Everyone acknowledges that the Dodd-Frank definition for municipal advisors was too broad, said Rep. Stivers. The original language that defines municipal advisors includes people who are already regulated somewhere else, like volunteers on boards, bank tellers, attorneys, accountants, and other professionals. 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 Municipal Advisor Oversight Improvement Act would clarify the Dodd-Frank Act’s municipal advisor definition to prevent financial market participants who do not advise municipalities from facing improper, duplicative, and onerous regulations under securities, banking, commodities, and other laws.
This bill is very similar to legislation, H.R. 2827, passed by the House during the 112th Congress with unanimous support. After being voted out of the Financial Services Committee by a vote of 60-0, H.R. 2827 passed the House by voice vote. According to then Ranking Member Barney Frank (D-MA), the SEC supports the bill as approved by the full Committee. H.R. 2827 was never taken up in the Senate. However, there is every expectation that the legislation will receive serious Senate consideration in the 113th Congress given that Senate Banking Committee Chair Tim Johnson (D-SD) recently indicated that the Committee is willing to consider bi-partisan changes to the Dodd-Frank Act.
The then full Committee Chair, Rep. Spencer Bachus (R-ALA), expressed concern over the scope of Section 975. While he supports efforts to police this segment of the municipal market, Rep. Bachus, who is currently Chairman Emeritus of the Committee, 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. 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 the legislation. It is an exclusionary definition that creates certainty for market participants. HR 2827 also created 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 terminate in relation to municipal advisor activities. The legislation specifies that municipal advisors could engage in principal transactions with their clients, subject to MSRB regulation. This is consistent with the fiduciary duty that applies to registered investment advisors.