[ by Howard Haykin ]

The United States Congress is on the verge of defining municipal advisers.  Members of both parties in a House Committee approved legislation on Wednesday that would define the term, and moved the proposed bill the entire U.S. House of Representatives for discussion and a final vote. 

In fact, all 60 members of the House Financial Services Committee voted for the bill, which specifies exactly who falls under the tougher regulations included in the Dodd-Frank financial reforms passed two years ago.

How Far Along is the SEC? The SEC released a proposed definition in December 2010, or a little more than 1-1/2 years ago.  The release drew hundreds of coment, and almost all of the comments said that the definition would ensnare too many people in the regulation - many of them serve on the fringes of the $3.7 trillion U.S. Muni Market.  The SEC then pulled the proposal and has since been revising it. 

Representative Robert Dold Steps Up.   This Illinois Republican decided to put the matter back into congressional hands and proposed the legislation earlier this year. Muni market professionals raised concerns that the bill would eliminate the fiduciary duty for municipal advisers, and excluded too many people from the definition. 

Mr. Dold, who made revisions, issued a statement that said:  "This legislation protects state and local governments by preserving the federal fiduciary duty for municipal advisers, while maintaining a bright line definition that removes confusion in the market."

Potential Fly In The Ointment. The Senate has not introduced a corresponding bill, which could make it hard for the legislation to reach the president's desk.  Thatis, unless the required majority of the Senate go along with the House version.  [C-I Note:  Another reason that the Senate has not introduced its own version might be that the Democratic-controlled Senate wants the SEC to define municipal market participants, which eventually will be introduced for the industry and all of Washington to see.  Politics being politics, is probably a sure thing that an SEC version ultimately is used.]

And hope springs eternal, because the SEC supposedly is expected to release its definition soon.  Fine, we're willing to give them some wiggle room.

For further details, go to:  [Reuters, 9/12/12].