WASHINGTON — Financial advisers in the municipal market would have to register with the Securities and Exchange Commission under an amendment added to the Investor Protection Act of 2009 yesterday by House Financial Services Committee members.
Meanwhile, the Municipal Securities Rulemaking Board would have until October 2010 to ensure a majority of its 15 members are independent and the Securities and Exchange Commission would be required to establish qualifications for those members, under another amendment added to the bill.
The full committee is expected to vote on the legislation next Tuesday.
Rep. Steve Driehaus, D-Ohio, introduced the 23-page amendment on muni FAs, which was similar to legislation he proposed in May. The committee’s ranking Republican, Rep. Spencer Bachus from Alabama, said he would try to persuade Driehaus to modify that provision to give oversight authority for muni FAs to the Financial Industry Regulatory Authority because the SEC is over-extended.
Bachus’ move comes eight months after the MSRB urged Congress to give it authority to regulate FAs, investment brokers and others in the muni market that are currently unregulated.
In a brief interview yesterday, Driehaus said he is “happy to discuss” giving FINRA oversight over municipal FAs with Bachus, but added: “I think we’ve got to be convinced why FINRA would be better than the SEC.”
Bachus had also tried to add an amendment to the investor protection bill that would give FINRA oversight over investment advisers.
But committee chairman Barney Frank, D-Mass., warned that having an industry SRO substitute for the SEC, a federal agency, “makes me nervous.” Bachus said he would not replace the SEC with FINRA, but only add FINRA oversight. Frank said he was “open to conversation” with Bachus.
Driehaus’ bill would broadly define financial adviser 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. Attorneys, credit rating agencies, and muni underwriters would be excluded from the definition.
Frank and capital markets panel chairman Rep. Paul Kanjorski, D-Pa., offered the so-called manager’s amendment that included the provision to give the MSRB more time to change its board and ensure the independent members have financial expertise — revisions pushed for by the Securities Industry and Financial Markets Association.
As originally drafted, the bill would have required the board to become majority independent within six months of enactment and was silent on member qualifications. SIFMA had argued the board should make the transition at the start of its next fiscal year.
Currently 10 of the MSRB’s 15 seats are held by bank or securities firm representatives. But the SEC has been pushing self-regulatory organizations to have more independent members on their boards. The MSRB is one of the few SROs that has not made such a change.