Having spent almost a year on Capitol Hill when the Dodd-Frank financial reform bill was being debated and drafted, my antenna goes up when an industry trade group praises something done by Congress. It’s usually a sign that the trade group was successful at getting their points of view adopted into law. I’m much happier when trade groups are screaming and kicking about provisions of the law, such as the new rules for derivatives trading and reporting.
This week the Bond Buyer ran an op-ed from Michael Decker, managing director of the securities industry and financial markets association (SIFMA),that praises recent legislation by the House Financial Services Committee. The new legislation amends the Dodd-Frank definition of “municipal advisors” by narrowing who the law would cover and specifically removes securities dealers from that designation. Municipal advisors are professionals paid to advise cities and other municipal issuers on the best ways to structure new bond offerings and manage the debt they have outstanding.
Thankfully the legislation leaves in place a “fiduciary” responsibility for municipal advisors, which requires that they act in the best interests of their clients, the municipal bond issuers (ie cities, states, sewer and water authorities). A “fiduciary” obligation is the strictest form of relationship between two parties.
This threshold of care makes sense for a party acting as a “municipal advisor” to public officials who are directing or investing taxpayer funds. The problem with the recent legislation is that it exempts the following parties who might be doing large transactions with the municipal entity:
[B]rokers, dealers, municipal securities dealers, any investment adviser registered under the Investment Advisers Act of 1940, commodity trading advisor, swap dealer…
