House Panel Approves Legislation Clarifying that Banks Are Excluded from Dodd-Frank Municipal Advisor Registration

The House Capital Markets Subcommittee has approved 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. The vote was 21-10. 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 next step in the process should be mark up and approval by the full Financial Services Committee. 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.

The banking industry supports enactment of HR 2827. In a letter to Subcommittee Members, the American Bankers Association said that the SEC’s proposed regulations implementing Section 975 would require registration and reporting by banks, and also by individual bank employees giving “advice,” a term which is not defined, with enforcement and examination handled by the SEC instead of by bank regulators.

The ABA noted that registration would impose on banks a new and different layer of regulation and examination for no meaningful public purpose, which Congress did not intend when it approved Section 975. Observing that HR 2827 provides for a complete exemption for commercial banks and savings and loan associations, the ABA said that a complete exemption is required because these institutions provide such a broad array of traditional banking products and services to municipalities that any attempt to categorize them would necessarily be incomplete.