Securities Regulation Daily MSRB structure, pay would get second look in House-passed minibus appropriations bill
Tuesday, December 17, 2019

MSRB structure, pay would get second look in House-passed minibus appropriations bill

By Mark S. Nelson, J.D.

The SEC and CFTC get modest funding boosts but provisions on municipal securities and digital currencies may draw attention away from the now-standard political spending rider.

Appropriations legislation passed by the House would slightly increase funding for the SEC and the CFTC while also addressing a variety of other topics, including municipal securities, digital currencies, and corporate political spending. The Further Consolidated Appropriations Act, 2020 (H.R. 1158 and H.R. 1865) set appropriations under the Financial Services and General Government (FSGG) and agriculture components of the two FY 2020 minibus bills. The FSGG minibus passed by a vote of 280-138 and the agriculture minibus passed by a vote of 297-120. The bills now go the Senate and, if passed, to the president for his signature. The current continuing resolution funding the government expires on Friday December 20, 2019.

SEC and CFTC funding. The minibus containing the FSGG provisions would appropriate $1.815 billion to the SEC, an increase of $140 million over the FY 2019 amount of $1.675 million. For purposes of perspective, the SEC increase is nearly one half of the entire FY 2020 appropriation for the CFTC. Under the separate minibus containing agriculture appropriations, the CFTC would receive $284 million or $16 million more than the $268 million it received in FY 2019.

Moreover, as is typical, the SEC and the CFTC would not be bound by other spending limits regarding the funding and sponsorship of a joint advisory committee on emerging regulatory issues. The minibus also would provide for a scholarship program maintained by the Public Company Accounting Oversight Board.

Municipal securities study. The FSGG minibus requires the SEC to submit a report on the Municipal Securities Rulemaking Board within one year after enactment of the minibus to the House Financial Services Committee, the Senate Banking Committee, and to the House and Senate Appropriations Committees. Specifically, the report must address the SEC’s legal authority regarding the MSRB’s selection, composition, and compensation (board members and executive staff). The report also must assess whether MSRB compensation practices are consistent with those for public finance officials at the state and local levels. Moreover, the SEC must assess whether the mode of selecting MSRB members ensures that municipal securities stakeholders are adequately represented and that the selection process ensures accountability to local governments and municipal bondholders.

The minibus provision is much less extensive in its details than the MSRB overhaul envisioned by the Municipal Securities Rulemaking Board Reform Act of 2019 (S. 1236), sponsored by Sen. John Kennedy (R-La). The Kennedy bill would require the Commission to appoint members of the MSRB from among public and regulated representatives "as evenly divided as possible" but subject to the further requirement that the MSRB be composed of a majority of public representatives. Public representatives must not have been associated with a municipal securities broker, municipal securities dealer, or municipal advisor within the five years before appointment. The Commission would have to fix the maximum pay for MSRB members, could remove members at will, and would fill any vacancies.

Senator Kennedy likened the MSRB to "an insider’s club" in a press release announcing the reform bill. "Public seats on the board shouldn’t be filled by executives who just quit their Wall Street jobs."

Digital currencies. Subtitle G of the agriculture minibus contains provisions regarding Cryptocurrency and Ensuring the Effectiveness of United States Sanctions. Specifically, the Secretary of State and the Treasury Secretary would have to consult the chairs of the SEC and the CFTC as part of a process of developing a methodology to assess how any digital assets (e.g., digital currencies, coins, or tokens) issued by or on behalf of Venezuela’s Maduro regime are being used to evade U.S. sanctions against the regime. The Secretary of State and the Treasury Secretary would then have to provide a briefing within six months of the minibus’s enactment on the methodology adopted to the House FSC and the Senate Banking Committee, and to the House Foreign Affairs and Senate Foreign Relations Committees.

Previously, in March of 2018, President Trump issued an executive order barring U.S. persons from dealing in any digital currency developed by Venezuela’s government. More specifically, the executive order applies to: "[a]ll transactions related to, provision of financing for, and other dealings in, by a United States person or within the United States, any digital currency, digital coin, or digital token, that was issued by, for, or on behalf of the Government of Venezuela on or after January 9, 2018, are prohibited as of the effective date of this order [the order states that it became effective on March 19, 2018]."

The executive order defined "Government of Venezuela" to mean "the Government of Venezuela, any political subdivision, agency, or instrumentality thereof, including the Central Bank of Venezuela and Petroleos de Venezuela, S.A. (PdVSA), and any person owned or controlled by, or acting for or on behalf of, the Government of Venezuela."

Political spending rider. As has been the case in recent years, the minibus containing the FSGG appropriations provisions would retain a policy rider that bars the SEC from adopting regulations to mandate that public companies disclose their political spending habits. Corporate political spending has been the subject of SEC rulemaking petitions, including a petition signed by current SEC Commissioner Robert Jackson, who recently commented on a range of House bills that would, among other things, address corporate political spending.

Additional legislation outside of the appropriations process would remove existing limits on SEC authority to adopt political spending disclosure regulations. For example, the Accountable Capitalism Act (H.R. 7294S. 3348), originally sponsored in the last Congress by Sen. Elizabeth Warren (D-Mass) (who is also running for president) would have required that 75 percent of a company’s shareholders and directors approve corporate political donations. The Shareholders United Act (H.R. 936), sponsored by Rep. Jamie Raskin (D-Md), would disallow corporate political spending unless a company first assesses its shareholders’ preferences on the topic. The For The People Act (H.R. 1), which passed the House in March 2019 by a vote of 234-193, includes the Raskin bill and also would repeal the appropriations policy rider barring the SEC from mandating corporate political spending disclosures.

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