RTTNews - A U.S. Securities and Exchange official urged the House Financial Services Committee to allow the agency to regulate financial advisors Thursday. Martha Mahan Haines, the SEC's assistant director for the division of trading and markets, told lawmakers that granting that authority would benefit issuers and investors alike.
A number of issues concerning financial advisors, including their professional qualifications, standard of care, conflicts of interest and pay to play activities necessitate active consideration of statutory change, Haines said in prepared remarks. Granting regulatory authority over the activities of municipal financial advisors to the SEC would significantly benefit issuers and investors alike.
She noted the increase in the size of municipal bond markets in recent years, explaining that it had jumped to $2.6 trillion securities outstanding with nearly $400 billion new bonds and notes issued in 2008, leading to a daily trading volume of nearly $20 billion.
However, the SEC has no regulatory authority over municipal financial advisers, and certain practices - like pay to play - are allowed to go on unmarked.
Pay to Play allows stockholders to buy stock but requires that they also participate in subsequent stock offerings in order to benefit from certain antidilution protections. However, for investors who choose not buy in subsequent rounds, sometimes their original preferred stock is converted to common stock.
The SEC is concerned about the pay to play practice, among others, including advice rendered by financial advisors without adequate training or qualifications, and failure to place the duty of loyalty to their clients ahead of their own interests, Haines said.
However, the limited regulatory authority held by the SEC prohibits them from addressing these concerns, she added, urging congress to expand the SEC's authority and pass the Municipal Advisers Regulation Act.
The Municipal Advisers Regulation Act would provide tools that would help address the problems we have observed concerning financial advisors who advise municipal issuers and conduit borrowers concerning their securities offerings, transactions in swaps and other derivative products intended to hedge risk, and the investment of bond proceeds. Haines said. In particular, we support the Act's clarification of the specific duty of care that a financial advisor owes to its client.
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