[Congressional Record Volume 158, Number 127 (Wednesday, September 19, 2012)]
[House]
[Pages H6125-H6128]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




   CLARIFYING PROVISIONS RELATING TO REGULATION OF MUNICIPAL ADVISORS

  Mr. DOLD. Mr. Speaker, I move to suspend the rules and pass the bill 
(H.R. 2827) to amend the Securities Exchange Act of 1934 to clarify 
provisions relating to the regulation of municipal advisors, and for 
other purposes, as amended.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                               H.R. 2827

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SEC. 1. REGISTRATION OF MUNICIPAL SECURITIES DEALERS.

       Section 15B(a)(1)(B) of the Securities Exchange Act of 1934 
     (15 U.S.C. 78o-4(a)(1)(B)) is amended by striking ``or on 
     behalf of''.

     SEC. 2. MUNICIPAL SECURITIES RULEMAKING BOARD; RULES AND 
                   REGULATIONS.

       Section 15B(b)(2)(L) of the Securities Exchange Act of 1934 
     (15 U.S.C. 78o-4(b)(2)(L)) is amended--
       (1) in clause (iii), by striking ``and'' at the end;
       (2) in clause (iv), by striking the period and inserting 
     ``; and''; and
       (3) by adding at the end the following:
       ``(v) not regulate as a municipal advisor the activities of 
     a person referred to in subparagraph (C) of subsection 
     (e)(4), to the extent that such activities are described 
     under such subparagraph.''.

     SEC. 3. DISCIPLINE OF MUNICIPAL SECURITIES DEALERS; CENSURE; 
                   SUSPENSION OR REVOCATION OF REGISTRATION.

       (a) In General.--Section 15B(c)(1) of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78o-4(c)(1)) is amended to 
     read as follows:
       ``(1) No broker, dealer, or municipal securities dealer 
     shall make use of the mails or any means or instrumentality 
     of interstate commerce to effect any transaction in, or to 
     induce or attempt to induce the purchase or sale of, any 
     municipal security, and no broker, dealer, municipal 
     securities dealer, or municipal advisor shall make use of the 
     mails or any means or instrumentality of interstate commerce 
     to provide advice to or on behalf of a municipal entity or 
     obligated person with respect to municipal financial 
     products, the issuance of municipal securities, or to 
     undertake a solicitation of a municipal entity or obligated 
     person, in contravention of any rule of the Board. A 
     municipal advisor, when acting pursuant to an engagement 
     described in subsection (e)(4)(A)(i), and any person 
     associated with such municipal advisor, shall be deemed to 
     have a fiduciary duty with respect to such engagement to any 
     municipal entity for whom such municipal advisor acts as a 
     municipal advisor, and no municipal advisor may engage in any 
     act, practice, or course of business which is not consistent 
     with such municipal advisor's fiduciary duty or that is in 
     contravention of any rule of the Board. In issuing 
     regulations to carry out the previous sentence and subsection 
     (b)(2)(L)(i), the Board shall--
       ``(A) require that a municipal advisor act in accordance 
     with its fiduciary duty to its municipal entity clients, but 
     only in connection with those specific activities involving 
     such municipal entity client described under subsection 
     (e)(4)(A)(i) (and not excluded under subsection (e)(4)(C));
       ``(B) specify when such duties begin and terminate in 
     relation to such activities; and
       ``(C) not prohibit principal transactions by municipal 
     advisors or the receipt of compensation based on commissions 
     or other

[[Page H6126]]

     standard compensation in relation to the purchase or sale of 
     a security or other instrument (including deposit or foreign 
     exchange), except that the Board--
       ``(i) may issue rules requiring a municipal advisor to only 
     engage in such transactions or receive such compensation in a 
     manner that is consistent with the municipal advisor's 
     fiduciary duty; and
       ``(ii) may prohibit a municipal advisor that has been 
     engaged to provide advice with respect to an underwritten 
     offering of securities from concurrently acting as an 
     underwriter of such offering.''.
       (b) Technical Correction.--
       (1) In general.--Section 975(c)(5) of the Dodd-Frank Wall 
     Street Reform and Consumer Protection Act is amended to read 
     as follows:
       ``(5) in paragraph (4), by inserting `or municipal advisor' 
     after `municipal securities dealer' each place that term 
     appears;''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect on the date of the enactment of the Dodd-
     Frank Wall Street Reform and Consumer Protection Act, as if 
     included in such Act.

     SEC. 4. DEFINITION OF INVESTMENT STRATEGIES.

       Section 15B(e)(3) of the Securities Exchange Act of 1934 
     (15 U.S.C. 78o-4(e)(3)) is amended to read as follows:
       ``(3) the term `investment strategies'--
       ``(A) means plans or programs for the investment of the 
     direct proceeds of municipal securities (but not other public 
     funds) that are not municipal derivatives or guaranteed 
     investment contracts, and the recommendation of and brokerage 
     of municipal escrow investments, where, with respect to the 
     municipal advisor offering such plans, programs, or 
     recommendations, such proceeds of municipal securities and 
     municipal escrow investments--
       ``(i) are known or should be known to the municipal advisor 
     to be comprised of funds or investments maintained in a 
     segregated account that is exclusively for the purpose of 
     maintaining such proceeds or escrow investment; or
       ``(ii) have been identified to the municipal advisor, in 
     writing, as funds or investments that constitute the proceeds 
     of municipal securities or municipal escrow investments; and
       ``(B) does not include--
       ``(i) merely acting as a broker or principal with respect 
     to the purchase or sale of a security or other instrument 
     (including deposit or foreign exchange);
       ``(ii) providing a list of, or price quotations for, 
     investment options or securities or other instruments which 
     may be available for purchase or investment or which satisfy 
     investment criteria specified by a municipal entity;
       ``(iii) acting as a custodian;
       ``(iv) providing generalized information concerning 
     investments which are not tailored to the specific investment 
     objectives of the municipal entity; or
       ``(v) providing advice with respect to matters other than 
     the investment of funds or financial products;''.

     SECTION 5. DEFINITION OF MUNICIPAL ADVISOR.

       Section 15B(e)(4) of the Securities Exchange Act of 1934 
     (15 U.S.C. 78o-4(e)(4)) is amended to read as follows:
       ``(4) the term `municipal advisor'--
       ``(A) means a person (who is not a municipal entity or 
     obligated person, or an employee of a municipal entity or 
     obligated person) that--
       ``(i) is engaged, for compensation, by a municipal entity 
     or obligated person to provide advice to a municipal entity 
     or obligated person with respect to municipal financial 
     products or the issuance of municipal securities, including 
     advice with respect to the structure, timing, terms, and 
     other similar matters concerning such financial products or 
     issues; or
       ``(ii) undertakes a solicitation of a municipal entity;
       ``(B) includes financial advisors, guaranteed investment 
     contract brokers, third-party marketers, placement agents, 
     solicitors, finders, and swap advisors, if such persons are 
     described in either of clauses (i) or (ii) of subparagraph 
     (A) and are not excluded under subparagraph (C); and
       ``(C) does not include, solely as a result of their 
     performing the following activities--
       ``(i) any broker, dealer, or municipal securities dealer 
     registered with the Commission, to the extent that such 
     broker, dealer, or municipal securities dealer is serving or 
     is seeking to serve as an underwriter, placement agent, 
     remarketing agent, dealer-manager, or in a similar capacity, 
     or is providing advice related to or in connection with any 
     such activities and not for separate compensation, or any 
     person associated with such a broker, dealer, or municipal 
     securities dealer;
       ``(ii) an investment adviser registered under the 
     Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.) or 
     with any State or territory of the United States that is 
     providing investment advice (whether or not of a type that 
     would subject a person to registration under such Act), or 
     any person associated with such an investment adviser;
       ``(iii) any person registered under the Commodity Exchange 
     Act (7 U.S.C. 1 et seq.) or this Act in relation to such 
     person's activities with respect to swaps or security-based 
     swaps that is providing advice related to swaps or security-
     based swaps, or providing advice that is related to or in 
     connection with any such activities and not for separate 
     compensation, or any person associated with such person;
       ``(iv) a financial institution engaging in any of the 
     activities referred to in clause (i), (ii), or (iii) pursuant 
     to an exemption from registration, acting as a dealer or 
     principal with respect to deposits, foreign exchange, or 
     identified banking products (as defined in paragraphs (1) 
     through (5) of section 206(a) of the Gramm-Leach-Bliley Act 
     (15 U.S.C. 78c(a))), providing other traditional banking or 
     trust services otherwise subject to a fiduciary duty under 
     State or Federal law, providing administrative or operational 
     services or support, or providing advice that is related to 
     or in connection with any such activities and not for 
     separate compensation;
       ``(v) any person subject to regulation by a State insurance 
     regulator providing insurance products or services or 
     providing advice that is related to or in connection with any 
     such activities and not for separate compensation;
       ``(vi) an accountant (or person associated with such 
     accountant) providing customary and usual accounting 
     services, including any attestation or audit service or 
     issuing letters for underwriters for a municipal entity or 
     providing advice that is related to or in connection with any 
     such activities and not for separate compensation;
       ``(vii) any attorney offering legal advice or providing 
     services that are of a traditional legal nature;
       ``(viii) an engineer providing engineering advice; or
       ``(ix) any elected or appointed member of a governing body 
     of a municipal entity or obligated person, with respect to 
     such member's role on the governing body;''.

     SEC. 6. DEFINITION OF SOLICITATION OF A MUNICIPAL ENTITY OR 
                   OBLIGATED PERSON.

       Section 15B(e)(9) of the Securities Exchange Act of 1934 
     (15 U.S.C. 78o-4(e)(9)) is amended by striking ``or on behalf 
     of a municipal entity; and'' and inserting the following: ``a 
     municipal entity, but communications on behalf of a fund or 
     other collective investment vehicle shall not be deemed to be 
     on behalf of any investment adviser that advises or manages 
     such fund or investment vehicle;''.

     SEC. 7. DEFINITION OF MUNICIPAL DERIVATIVE.

       Section 15B(e) of the Securities Exchange Act of 1934 (15 
     U.S.C. 78o-4(e)) is amended--
       (1) in paragraph (10), by striking the period on the end 
     and inserting a semicolon; and
       (2) by adding at the end the following:
       ``(11) the term `municipal derivative' means a swap or 
     security-based swap in which a municipal entity is a 
     counterparty; and''.

     SEC. 8. DEFINITION OF ON BEHALF OF.

       Section 15B(e) of the Securities Exchange Act of 1934 (15 
     U.S.C. 78o-4(e)), as amended by section 7, is further amended 
     by adding at the end the following:
       ``(12) the term to provide advice `on behalf of a municipal 
     entity or obligated person' means to provide advice to a 
     person that is known to be engaged by a municipal entity or 
     obligated person to provide services to such municipal entity 
     or obligated person in connection with the issuance of 
     municipal securities.''.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Illinois (Mr. Dold) and the gentlewoman from Wisconsin (Ms. Moore) each 
will control 20 minutes.
  The Chair recognizes the gentleman from Illinois.


                             General Leave

  Mr. DOLD. Mr. Speaker, I ask unanimous consent that all Members may 
have 5 legislative days in which to revise and extend their remarks and 
to add extraneous material on this bill.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Illinois?
  There was no objection.
  Mr. DOLD. Mr. Speaker, I yield myself such time as I may consume.
  I rise today in support of H.R. 2827, which would clarify the 
definition of a ``municipal adviser'' to reflect the intent of the 
United States Congress. This bill received unanimous support and passed 
out of the Financial Services Committee with a vote of 60-0. I would 
like to urge my colleagues to support this important bipartisan 
legislation.
  Municipal advisers are consultants who advise local municipalities 
about bond issuances, bond-proceed investment, financial derivative 
uses, and other financial matters. Like traditional financial advisers, 
municipal advisers must comply with an existing legal and regulatory 
framework while owing their clients a fiduciary duty.
  But before Dodd-Frank, certain municipal advisers were not subject to 
any regulations--State, Federal or otherwise. Obviously, this legal and 
unjustified discrepancy between regulated and unregulated municipal 
advisers created a significant and, I would

[[Page H6127]]

argue, unfair competitive advantage in favor of the unregulated 
municipal advisers.
  Even more importantly, the regulatory gap gave a few bad actors the 
opportunity to take advantage of the State and local government 
officials who, like most people, aren't familiar with advanced and 
technical financial products. Dodd-Frank section 975 addressed this 
problem by requiring these unregulated advisers to register with the 
SEC and to follow rules written by the Municipal Securities Rulemaking 
Board.
  The provisions generally have bipartisan political support as well as 
widespread industry support. However, most of us, both Republicans and 
Democrats, believe that the SEC's interpretation of the law has gone 
far beyond what Congress intended by, among other things, requiring 
volunteer members of local governing boards, engineers providing 
technical and comparative analysis, and bank tellers to register with 
the SEC as municipal advisers. In response to its proposal, the SEC 
received over 1,000 comment letters from across the industry that were 
overwhelmingly critical of the proposed rule.
  This is why I introduced H.R. 2827. H.R. 2827 takes important steps 
to address these widely acknowledged concerns and specifies the scope 
and limits of Dodd-Frank's municipal adviser provisions.
  After introducing our original version of H.R. 2827, we asked 
everyone on both sides of the aisle--and industry participants as well 
with a wide variety of perspectives--to give us their comments and 
suggestions for improving the legislation. My colleague and cosponsor 
from Wisconsin (Ms. Moore) and I have spent countless hours working and 
listening to all concerned parties to ensure that we have fully 
considered all the viewpoints in order to come up with the best 
possible legislation that could also pass with broad bipartisan 
support. At this time, I certainly want to thank her for all of her 
efforts.
  Mr. Speaker, there were two concerns about the original version of 
H.R. 2827 that were the most significant. The first was that the 
original version of the bill would strike the Federal fiduciary duty 
for municipal advisers, leaving in place just the State-based fiduciary 
duty standards. Second, even when explicitly engaged to provide 
municipal adviser services, the original bill would have excluded 
certain parties from regulation as municipal advisers.
  During the subcommittee markup, Ms. Moore and I articulated our plan 
for going forward with the legislation, and we invited more comments 
and suggestions from industry and all concerned parties. We were very 
pleased with the genuine engagement of the parties from across the 
industry and with their willingness to generously share their time, 
experience, effort, and knowledge with us. All of these contributions 
ultimately produced a better and stronger amended bill. We believe that 
this new version of the bill addresses the points raised since the 
subcommittee markup while still maintaining our broad coalition of 
bipartisan supporters.
  This new bill preserves the Federal fiduciary standard and removes 
the blanket status exemptions while still maintaining a bright-line 
municipal adviser definition. It protects issuers by establishing clear 
lines and rules for municipal advisory activity and provides clarity in 
the marketplace.
  In addition to the amendment's substance, I am very proud of the 
process that we've been able to undertake to get us to this point. I 
would like to thank my colleague again, Ms. Moore, and her staff for 
working with me and my staff, and I thank all of those who worked with 
us to get us to where we are in this process. They were so generous in 
sharing their time, and I am confident that what we have is a good bill 
with which we can move forward. Again, I urge my colleagues to support 
H.R. 2827.
  With that, I reserve the balance of my time.
  Ms. MOORE. Mr. Speaker, I yield myself such time as I may consume.
  I think Mr. Dold has dealt very well with very many of the specifics 
of H.R. 2827 relating to the regulations of municipal advisers. So, 
before I lose people, I want to briefly talk about the process that 
brought the bill to this point, and I want to thank a lot of people for 
their contributions to the final legislation.
  As you've heard, the bill that passed the Financial Services 
Committee by 60-0 reflects the legislative process at its absolute 
best. It was a collaborative effort between Republicans and Democrats, 
issuers and market participants, and very, very diligent staffers on 
both sides of the aisle. If there is a single element that is most 
responsible for the bill's getting to this point, it is the integrity 
of the people involved. It speaks to their professionalism in that they 
stayed at the table and negotiated with the singular purpose of getting 
to the best result for the municipal market. There were times when the 
issues were tough and the disagreements real. There were times when it 
would have been very easy for people to just give up and walk away.

                              {time}  1940

  But to the credit of all involved, everyone kept talking and kept 
searching for solutions.
  Mr. Dold deserves a tremendous amount of credit for his leadership of 
this bill. He was consistently willing to engage tough issues in an 
open and thoughtful manner. I would also like to thank all of my 
colleagues on the committee, Republican and Democrat alike, for their 
invaluable input as we negotiated the bill. Finally, I think it is 
important that I mention the important contributions of Mr. Frank and 
Ms. Waters. At many critical points, both were instrumental in 
providing guidance.
  H.R. 2827, which passed the House Financial Services Committee 60-0, 
almost didn't pass at all as there was so much confusion generated from 
the SEC promulgating a rule that initially was very confusing. It's 
only the second legislative effort related to Dodd-Frank to pass the 
committee unanimously.
  Prior to the passage of Dodd-Frank, non-dealer advisers to municipal 
governments were unregulated. These unregulated parties were involved 
in a number of municipal market scandals that ultimately defrauded 
taxpayers. Section 975 brings municipal financial advisers, swap 
advisers, placement agents, and GIC brokers under Federal securities 
law. It is a goal that is not partisan.
  Unfortunately, in 2010, the SEC released a proposed rulemaking 
related to section 975 that created massive confusion in the municipal 
market regarding how section 975 would be applied in the real world. 
H.R. 2827 seeks to clarify section 975 to provide certainty to the 
market so that the rules can be implemented and taxpayers can benefit 
from the protection it brings. This bill takes a fundamentally 
different approach from the SEC and the definition of municipal 
advisers. It makes ``municipal adviser'' an exclusionary definition, 
rather than trying to outline and define certain transactions which end 
up being very vague and overly broad.
  Mr. Speaker, how much time is remaining?
  The SPEAKER pro tempore. The gentlewoman from Wisconsin has 16 
minutes remaining.
  Ms. MOORE. It doesn't unnecessarily sweep in the universe of other 
professionals or impinge on the relationships of issuers and other 
market participants engaged in legitimate and necessary market 
activities like underwriting, providing accounting services, 
engineering advice, or offering traditional deposits and cash-
management services to municipalities. It is a straightforward approach 
that effectuates the goals of 975 while meeting the real world needs of 
market participants.
  I want to urge all my colleagues to support this important regulatory 
legislation. Again, I cannot thank the participants enough who 
participated in this bill.
  With that, I reserve the balance of my time.
  Mr. DOLD. Mr. Speaker, I just want to again thank the gentlelady for 
her help and support with regard to this process which, as she aptly 
points out, was at times a little strenuous; but I believe in the end 
we were able to come together in a bipartisan fashion to produce what I 
hope is quality legislation that will be better for municipal advisers 
all across the country.

[[Page H6128]]

  I reserve the balance of my time.
  Ms. MOORE. Mr. Speaker, I yield such time as she may consume to the 
gentlewoman from New York (Mrs. Maloney).
  Mrs. MALONEY. Mr. Speaker, I rise in support of H.R. 2827 and commend 
my good friends and colleagues, Ms. Moore and Mr. Dold and Ranking 
Member Frank, and everyone else who worked very hard on this bill and 
for their willingness to work in a bipartisan way.
  It is helpful to recall that the original Dodd-Frank regulations 
relating to municipal bond advisers only came about because of a number 
of manmade financial disasters involving municipalities and their 
advisers who were unregulated. It was just about a year ago that 
Jefferson County, Alabama, filed the biggest municipal bankruptcy in 
U.S. history. They joined the ranks of 11 other entities to file a 
chapter 9 bankruptcy that year, including Boise County, Idaho; Central 
Falls, Rhode Island; and Harrisonburg, Pennsylvania. They all had 
unique problems, but one of the things that they had in common was that 
they got some pretty costly advice, and it will haunt taxpayers for 
years.
  This was an area that was completely unregulated before the financial 
crisis; and the Dodd-Frank reforms, including the municipal adviser 
registration requirement, were enacted to respond to those crises. The 
Dodd-Frank reforms require individuals who advise municipalities to 
register with the SEC and be subject to regulation by the Municipal 
Securities Rulemaking Board. This is a very good thing, but most of us 
agree that the SEC's proposed original rule went just a little bit too 
far and made the definition of a municipal adviser a little bit too 
broad. It was defined in a way that could have potentially captured 
those who were not actually providing investment advice.
  For example, I know many institutions were concerned that under the 
SEC's proposed rule merely providing a bank account to a municipality 
could mean that an institution would have to register as an adviser and 
be subject to MSRB regulation all because they just provided basic 
banking services. As someone who was there during the consideration of 
Dodd-Frank, I can tell you that that was not what Congress intended; 
however, I was concerned that the original version of this bill went 
too far in the other direction, and that could have opened up such a 
gaping hole you could have driven a truck full of other people's money 
through it. I was concerned that the draft bill eliminated the critical 
fiduciary duty standard that we included in Dodd-Frank. The fiduciary 
duty is a vital element that ensures that the advisers provide advise 
that is in the best interest of the municipality.
  I think that with this revised bill we have struck a good balance. 
Fiduciary duty is back in, and unintended capture is out. The revised 
language clearly and reasonably defines the activities that municipal 
advisers engage in and describes the kinds of advice that they provide. 
This bill now gives clear legislative guidance to ensure that the goal 
of heightened supervision of municipal advisers is realized. It keeps 
taxpayers a little bit safer, credit markets more stable, and 
regulations a bit fair.
  All in all, I would say that it is a job well done, done in a 
bipartisan spirit with a great deal of time and commitment. I commend 
the two major sponsors who are speaking with us today; and I thank my 
good friend, Gwen Moore, for her work on this bill.
  Ms. MOORE. I thank the gentlewoman from New York.
  I just want to say again that I think we need to credit Mr. Dold, who 
is a fairly new Member. We actually listened to Members who were senior 
Members and didn't base it on our partisan differences as so often 
occurs. We really respected people's experience, and listened to their 
advice very earnestly.
  Again, I would urge my colleagues to support this legislation, and I 
yield back the balance of my time.
  Mr. DOLD. Mr. Speaker, I don't have any other speakers, but I do want 
to wrap up with a couple of thank-yous.
  I certainly want to thank Chairman Bachus for allowing this markup to 
move forward, and I certainly appreciated his help and support. I want 
to again highlight how this was able to move forward in a bipartisan 
fashion, and I certainly want to thank my good friend, Ms. Moore from 
Wisconsin, for all of her work and efforts to work with me on what I 
hope is going to be a bill that everyone here in this Chamber will 
support.
  With that, Mr. Speaker, I ask every one of my colleagues on both 
sides of the aisle to support H.R. 2827, and I yield back the balance 
of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from Illinois (Mr. Dold) that the House suspend the rules and 
pass the bill, H.R. 2827, as amended.
  The question was taken; and (two-thirds being in the affirmative) the 
rules were suspended and the bill, as amended, was passed.
  A motion to reconsider was laid on the table.

                          ____________________