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Securities Law

Muni Advisor Bill Amended, Ready for House Committee Vote

WASHINGTON — A pending municipal advisor bill that has been amended to more precisely define the term and to leave a statutorily mandated federal fiduciary duty in place could be voted on by a House committee as early as next week, according to sources.

The bill, which was introduced by Rep. Robert Dold, R-Ill., in August 2011, has a strong chance of being placed on the House Financial Services Committee’s schedule for next week, they said. 

Congress is in session only 13 more days before the November elections. The Financial Services Committee has scheduled votes for Sept. 12, but has not yet identified the bills.

The staffs of Rep. Gwen Moore, D-Wis., and Dold have spent the last several weeks meeting with market participants and hammering out a municipal advisor definition that will likely receive bipartisan support, the sources said.

“The ducks are in a row in terms of mechanically finalizing the language at a staff level, and [staff] are preparing for a potential markup next week,” said Susan Collet, senior vice president of government relations at Bond Dealers of America, a group that has worked with congressional members on modifications to the bill.

As originally introduced, Dold’s bill would have eliminated the fiduciary duty imposed on MAs by the Dodd-Frank Act, and would have limited the firms that would be required to register as advisors.

Dold introduced the bill to address concerns that the Securities and Exchange Commission’s initial MA definition, which was in temporary registration rules that took effect in 2010, was overly broad. Those rules are not expected to be finalized until late this year.

A number of market participants criticize that definition, saying it would needlessly encompass appointed members of state and local government boards, as well as those who are already regulated, such as advisors at banks and dealer firms.

But some market participants call the fiduciary duty a critical component of the Dodd-Frank Act — one that would require advisors to put the interests of municipal issuer clients first before their own. They say this duty is especially important because some issuers have limited financial experience and may be unfamiliar with the potential risks of a transaction.

Following the SEC’s release of a temporary definition for municipal advisors, the Municipal Securities Rulemaking Board proposed rule changes and new rules that would apply to them. But the MSRB withdrew them in 2010, citing the need for a final MA definition.

The House Financial Services Committee’s capital markets panel approved Dold’s bill on Aug. 1 after Dold assured members that he and a bipartisan group of lawmakers would amend the bill so that it maintained the federal fiduciary standard for “actual municipal advisors.”

Sources this week confirmed that the amended bill will not seek to eliminate the fiduciary duty and will narrow the MA definition.

The bill now includes a “bright-line test” that would clearly define those who would be considered an MA, said an aide, who added that it will winnow down the number of those who would need to resister with regulators. Currently, MAs must register with both the SEC and the MSRB.

Sources said the revised bill is a collaboration of Democratic and Republican lawmakers and a broad group of market participants.

“It’s been a bipartisan process,” Collet said. “There is bipartisanship going on in many pockets of [Washington].”

BDA supported regulatory parity between dealer and nondealer advisors, but agreed the original SEC definition was problematic.

Collet said the narrowed definition in Dold’s bill could pave the way for the SEC to finalize its definition, which would allow the MSRB to proposed rules.

“We are basically just happy that [lawmakers and their staff] are moving forward with some clean up … to narrow the definition,” Collet said. “We need the SEC to act.”

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