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Public Statements

Clarifying Provisions Relating to Regulation of Municipal Advisors

Floor Speech

Location: Washington, DC


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.


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