SEATTLE - The debt committee of the Government Finance Officers Association Saturday unanimously approved a policy statement on the regulation of municipal finance professionals as well as a revised best-practices document on the role of issuers' in the selection of underwriters' counsel.
The policy statement says that the GFOA supports legislation that uniformly regulates municipal market intermediaries such as financial advisers, investment brokers, swap advisers and broker-dealers.
"Rules that apply to one set of professional should also apply to others," according to a draft of the statement.
The statement will be voted on by the full GFOA membership today, along with two additional policy documents: one that endorses uniform credit ratings for munis and other types of debt, and another urging direct federal assistance for the municipal bond market.
The statement on regulating muni finance professionals comes after legislation was introduced into the House Financial Services Committee in May that would require the Securities and Exchange Commission to oversee all muni market advisers that are currently unregulated. The Municipal Securities Rulemaking Board, a self-regulatory organization that currently only regulates dealers, is also seeking that authority.
Under the proposed legislation, the term municipal financial adviser is defined as anyone providing advice to an issuer regarding the issuance or proposed issuance of securities, the investment of proceeds, the hedging of any risks - including advice tied to securities-based swap agreements - as well as the preparation of disclosure documents and the selecting and negotiating of guaranteed investment contracts or other investment products.
However, the definition does not include bond attorneys, rating agencies or registered broker-dealers acting as underwriters.
The GFOA policy statement, in a reference to the MSRB's push for oversight over these currently unregulated intermediaries, said that "any governing body for these professionals should also include significant public representation that includes issuers of municipal securities."
Currently, the MSRB's 15-member board is made up of five representatives of banks, five from securities firms, and five members of the public, including a representative of the issuer community and a representative of the investor community.
Of the two additional policy statements that GFOA membership is expected to vote on today, one on uniform ratings was approved in 2008 but misunderstood and voted down by the membership at last year's annual meeting in Ft. Lauderdale, Fla. The board is reproposing the measure as a board policy statement.
The other policy statement, on federal assistance to the muni market, was approved by the debt committee at its winter meeting in Washington. It calls for legislative and regulatory efforts to extend direct assistance to help state and local governments better access the municipal securities market.
Though February's $787 billion federal stimulus package helped many states and localities fill gaps in their budgets, issuers have long argued that they need assistance accessing the capital markets.
Meanwhile, the GFOA's best practices document on the selection of underwriters' counsel, its first update since 1998, suggests that governmental issuers have a more limited role in the selection of underwriters counsel.
While the document recommends that issuers "minimize" their involvement in the selection of underwriters' counsel, it nonetheless urges issuers to negotiate with underwriters on the cost of services performed by underwriters' counsel.
The GFOA executive board will vote on the measure at its fall meeting.
At its Saturday meeting, the debt committee also delayed action on a number of additional best-practices documents, including ones tied to disclosure and financial leadership, for which the committee had draft outlines.
Both documents may be reworked in the coming months and reconsidered at the committee's next meeting in Washington in January.
