The House Financial Services Committee yesterday voted 41 to 28 to approve a bill that would require financial advisers in the municipal market to register with the Securities and Exchange Commission and direct the Municipal Securities Rulemaking Board to have a majority of public members.

The Investor Protection Act of 2009, HR 3817, would broadly define muni financial advisers to include any person who, for compensation, advises a municipal issuer with regard to: the issuance or remarketing of bonds; the investment of bond proceeds, including GIC brokers; the hedging of any risks associated with bonds or investments, including advice on swap agreements; and the preparation of disclosure documents.

However, attorneys, rating agencies, and muni broker-dealers acting as underwriters would be excluded from the definition.

The provision on the MSRB would give it until October 2010 to change its makeup.

Currently 10 of the board’s 15 seats are held by bank or securities firm representatives. But the SEC has been pushing self-regulatory organizations to have more independent or public members on their boards.

The bill also would require the SEC to establish qualifications for MSRB board members to ensure they have financial expertise.

State securities regulators applauded a provision of the bill that would raise the threshold for investment advisers that would be regulated by the states. Under the provision, investment advisers with up to $100 million in assets under management would be subject to state regulation, while larger investment advisers would remain under the SEC’s jurisdiction.

However, state regulators and consumer groups are concerned about provisions that would permit the SEC to delegate responsibility to the Financial Industry Regulatory Authority for investment advisers and potentially weaken the “fiduciary duty” standard even while requiring every financial intermediary who provides advice to have such a duty to clients.

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