No U.S. Senate vote seen on muni adviser bill before elections
WASHINGTON, Sept 20 |
WASHINGTON, Sept 20 (Reuters) - Municipalities and their financial advisers may have to wait until after the November elections for the U.S. Senate to consider legislation that more clearly defines who must comply with new, tougher regulations.
Senate Majority Leader Harry Reid will not schedule a roll-call vote on a House-passed bill clarifying the definition of municipal advisers before Congress leaves Washington at the weekend to concentrate on re-election campaigns, a Senate Democratic leadership aide said on Thursday.
The Senate often passes some bills and confirms nominations in a "unanimous consent" package just before adjourning for a lengthy recess, but it was too soon to determine whether the municipal adviser bill would be considered for that, the aide said.
The clarification - long sought by municipalities, the firms that advise them on financing, and bond dealers - was approved by the House on Wednesday night on a voice vote.
It aims to ensure that new regulations enacted as part of the Dodd-Frank financial reform law don't ensnare too many people on the periphery of the $3.7 trillion municipal bond industry because of an overly broad definition.
By providing more specific legislative guidance, the measure also is likely to increase the pressure on the Securities and Exchange Commission to revise its own guidance on who qualifies as a municipal adviser under Dodd-Frank.
Municipal financial advisers, swap advisers, guaranteed investment contract brokers, placement agents and other consultants were largely unregulated for years -- a situation that took part of the blame for a wave of recent municipal financial crises involving complex financial instruments that panned out badly for local taxpayers.
The Dodd-Frank law passed two years ago aimed to close this regulatory gap.
The House-passed law creates a "bright-line" test for determining who falls under the jurisdiction of the new regulations, excluding securities dealers. It specifies that activities related to the investment of bond-issue proceeds are considered "investment strategies" that get increased scrutiny, but routine brokerage activities are not.
To gain Democratic support, the bill's sponsor, Republican Representative Robert Dold of Illinois, agreed to maintain a provision specifying that municipal advisers have a fiduciary duty to their municipal clients, ensuring that they act in the best interests of the school districts, cities and counties they advise.
"This legislation preserves the federal fiduciary duty, and removes the blanket status exemptions, while still maintaining a bright-line municipal-advisor definition," Dold said in a statement. "It protects issuers by establishing clear lines and rules for municipal advisory activity and provides clarity in the marketplace."
The House bill was applauded by the Securities Industry and Financial Markets Association, which argued that initial SEC rules defining municipal advisers went far beyond the scope of the protections that Congress had envisioned -- unnecessarily increasing the costs and legal burdens on Wall Street and regional financial firms.
"This legislation appropriately clarifies the scope of regulatory oversight on municipal advisors," SIFMA executive vice president of public policy and advocacy Ken Bentsen said in a statement.
He said the bill "will ensure proper regulatory oversight of municipal advisors without subjecting already regulated entities to an additional, unnecessary layer of regulation."
"We urge the Senate to consider this legislation before the end of this Congress," Bentsen said.
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