MSRB Reform Act legislation gets a Democratic cosponsor

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Sen. Doug Jones, D-Ala., joined Sen. John Kennedy, R-La., this week as a cosponsor on the Municipal Securities Rulemaking Board Reform Act.

Sen. Kennedy introduced the original bill, which looks to curb industry influence on the MSRB, in late April. It’s been sent to the Senate Banking Committee, on which both senators sit. No action has yet occurred on the bill.

“For both municipalities and investors, this step to improve the independence and transparency of the MSRB is a much-needed reform," Sen. Jones said in a statement. "While the MSRB isn’t often in the news, it plays a critical role in ensuring the fairness and efficiency of the $3.8 trillion-plus municipal bond market. I’ve joined Sen. Kennedy on this effort because I believe this is a common-sense step to ensure board members are independent, and to increase the oversight role of the SEC and Congress.”
Kennedy's office has been in discussion with another committee Democrat, sources said.

Kennedy’s bill would whittle down to 15 the 21-member board and require a five-year “cooling-off” period for public members who have previously worked as bankers, brokers or municipal advisors. The board's current public membership requirements state that individuals may not be “associated” with a regulated firm for at least two years or “employed by” a regulated firm for at least three years.

The bill would also cap board members' compensation and grant control of board membership to the Securities and Exchange Commission, rather than the current internal process in which the MSRB solicits applications and then selects its own members.

Federal law requires that the board be made up of a majority of public board members. Kennedy and many market participants have pointed out that public board seats are sometimes filled by retired investment bankers. While those members have always met the board membership requirements for public members, there have been calls to increase the length of time members must be away from the industry before they can qualify as public representatives.

Kennedy, who was treasurer of Louisiana prior to his election to the Senate in 2016, applied unsuccessfully to the board multiple times.

MSRB Chair Gary Hall said in a statement when the original bill was introduced that the board continually re-examines its governance process against industry best practices, and that it may ramp up those efforts in the near future.

“I intend to recommend that the board undertake an even more substantial governance review in the coming fiscal year to ensure we are adhering to best practices and addressing concerns expressed by Sen. Kennedy in his legislation,” Hall said in April. “The MSRB stands ready to discuss with Sen. Kennedy and other policymakers our current process and any proposed changes.” The MSRB had no further comment.

Kennedy has publicly railed against the board, calling it "an insider's club" and "incestuous."

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