WASHINGTON, March 20 Legislation currently in
the U.S. House of Representatives could further slow the process
of defining municipal advisers, said the head of the municipal
bond office at the Securities and Exchange Commission on
If the bill passes, "we'd have to start over," said John
Cross on the sidelines of a National Association of State
"It would still be a high priority. Just, in terms of
process, we would need a new rule proposal under the new
statute," he said.
Cross said he preferred for the Congress to allow the
commission to finish creating a definition before approving any
legislation, adding "we sort of feel like we're close."
The Dodd-Frank financial reform law required new oversight
of those who advise the cities, states and authorities selling
The SEC's proposed definition of who exactly counted as an
adviser was universally panned in the $3.7 trillion municipal
bond market as being too broad. The commission pulled the
proposal but, more than two years later, has still not released
a new version.
Commenters said that a wide definition risked ensnaring too
many people such as volunteers or board members in cumbersome
regulation, ultimately paralyzing the market. But regulators are
concerned that one that is too narrow could create loopholes
that negate the intent of Dodd-Frank - to make sure issuers',
and the public's, interests are protected.
In February, Representative Steve Stivers, a Republican from
Ohio, introduced a bill that more narrowly defines advisers.
Similar legislation had passed the House last year, but the
Senate never took up corresponding legislation.
"We have carefully considered the theme in that bill," said
He did not explain the reasons for the delay, but Cross, who
started in the Office of Municipal Securities late last year
after a long tenure at the U.S. Treasury's Office of Tax Policy,
said the definition to be unveiled would be more narrow than the
In January the Securities Industry and Financial Markets
Association said a definition would likely be released in the
first half of 2013.
As soon as the SEC releases the definition, the Municipal
Securities Rulemaking Board will "be poised to put out a series
of initial rules for the municipal adviser," the board's
executive director, Lynnette Kelly, told the treasurers' meeting
The MSRB writes is a self-regulatory organization made up of
bankers, issuers and advisers that writes the rules the SEC
Kelly said the most important step after the definition is
approved will be the development and launch of a professional
qualification licensing exam, required under Dodd-Frank.
Other rules could define the federal fiduciary duty
advisers have to clients, fair dealing responsibilities, and
limitations on gifts and gratuities, as well as "pay to play"
restrictions on using donations to gain business, she said.
But these will take time to implement, she cautioned.
"It's a multi-year effort, but those are the sorts of the
rules the board is thinking about," she said.