A House Financial Services Committee panel approved a bill Wednesday that would exempt municipal advisors from having a federal fiduciary duty to place muni issuers' interests first, but lawmakers said the bill's final version will leave the fiduciary requirement in place.
Rep. Robert Dold, R-Ill., who introduced the bill, had asked the members of the capital markets subcommitee to approve it, while assuring them that he and a bipartisan group of lawmakers will write further amendments that will maintain the federal fiduciary standard for "actual municipal advisors."
"It's critical that committee members have sufficient time to study and fully understand the substitute amendment and its details," Dold said in opening remarks before the vote. He added that he is working closely with Rep. Gwen Moore, D-Wis., on further amendments.
A spokesperson for Dold said the bill, HR 2827, will be introduced to the full committee for a vote after further amendments are completed. The spokesperson said the vote may not take place until Congress reconvenes in September, after the August recess.
Dold's bill was introduced in August of last year. As currently written, it eliminates the fiduciary duty imposed on municipal advisors by the Dodd-Frank Act.
But last week a spokesperson indicated Dold is open to dropping his bid to remove the fiduciary duty if lawmakers agree on a definition of municipal advisor that captures only those who actually advise municipalities.
The bill also limits the definition of municipal advisors to advisors who are formally engaged in work by an issuer. It excludes brokers, dealers, state-registered investment advisors, swap advisors, financial institutions and elected or appointed members of issuers' governing bodies.
Though the subcommittee did not change the bill's fiduciary language, members approved an amendment introduced by Rep. Robert Hurt, R-Va., that excludes so-called obligated persons from the municipal advisor definition.
Obligated persons typically include third-party conduit borrowers, such as universities, hospitals and other nonprofits, as well as some corporations, which finance projects with bonds issued by governmental issuers.
Dold's office said the amendment addresses concerns that the Securities and Exchange Commission's definition places undue burdens on unpaid, appointed officials at such organizations.
Some market participants also supported the change.
"Issuers of nonprofit bonds and nonprofit institutions, as well as borrowers, are pleased about this development," said Chuck Samuels, a partner at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC.
Kenneth Bentsen Jr., executive vice president of public policy and advocacy at the Securities Industry and Financial Markets Association, said SIFMA is encouraged because "there was virtually unanimous recognition that the SEC's December 2010 proposed rule on municipal advisors goes far beyond congressional intent."
The SEC proposed a definition of municipal advisors in temporary registration rules that took effect in 2010.
Many market participants called the definition too broad, and criticized it for encompassing appointed members of public governing bodies and those who are already regulated, such as banks, dealers and investment advisors.
The MSRB filed rule changes for municipal advisors, but withdrew them last year citing the need for a final SEC definition. The commision has said it expects to issue a final definition later this year.
