The Investment Company Institute is urging Congress to give the Securities and Exchange Commission expanded authority over the municipal securities market so it can take steps to ensure investors have timely access to key information about muni offerings.
In written testimony submitted to the House Financial Services capital markets subcommittee for a hearing Friday, ICI noted that the SEC proposed rule changes to improve muni disclosure earlier in the week and said that while it is "encouraged by these efforts," it "strongly" agrees with SEC chairman Mary Schapiro that "more will need to be done."
"The SEC itself has stated on several occasions that it is near to the statutory limits of its present authority to address the disclosure needs of investors in municipal securities," ICI said, noting that former SEC chair Christopher Cox issued a white paper two years ago asking Congress for more authority over munis.
The SEC and the Municipal Securities Rulemaking Board currently are statutorily prohibited from requiring muni issuers to file disclosure documents before bonds are sold.
Meanwhile, ICI president Paul Schott Stevens, Securities Industry Financial Markets Association executive vice president Randy Snook and other market participants gave lawmakers their groups' views on the Obama administration's regulatory reform proposals for the financial markets.
Snook said SIFMA applauds the administration's legislative proposal to establish "a new federal fiduciary standard of care that supersedes and improves upon existing fiduciary standards" and would apply to broker-dealers, investment advisers, and other financial intermediaries providing advice to investors. Such a standard would require advisers to put investors' interests first, before their own.
But Stevens said the administration's proposed legislation "fails to state expressly that brokers and advisers alike must act as fiduciaries" and warned that, "in effect, it would dilute the protections currently provided to advisory clients."
SIFMA and ICI disagreed on other issues as well. While SIFMA supports the administration's proposal to create a single systemic regulator and believes the Federal Reserve would be well-suited for that role, ICI would prefer systemic risk to be overseen by a statutorily created council of senior federal regulators.
Stevens noted that the administration has called for the creation of a Financial Services Oversight Council but complained it would be relegated to an advisory or consultative role under the Fed.
"The ICI believes that the administration's approach would strike the wrong balance, by expanding the mandate of the Federal Reserve well beyond its traditional areas of expertise and failing to draw appropriately on the expertise of the other federal functional regulators," he told the lawmakers.
The two groups, however, were both worried about the administration's proposal to create a Consumer Protection Financial Agency and said Congress should explicitly prohibit it from having any jurisdiction over securities products, funds, college savings plans created under Section 529 of the tax code, and funds regulated by the SEC or the Commodity Futures Trading Commission. Snook added that the CPFA should be funded through the appropriations process rather than industry fees.
On derivatives, both SIFMA and ICI said that not all standardized over-the-counter derivatives can be centrally cleared or exchange traded, as the administration has proposed. ICI said that all institutional investors should be required to periodically publicly disclose derivatives positions, as funds are required to do.
