WASHINGTON - Bills aimed at stepping up federal regulation of financial advisers and the government securities market appear to be dead for this year, Capitol Hill sources said yesterday.
Members of the House Banking Committee and the Energy and Commerce Committee remain deadlocked over the government securities legislation and have agreed to drop it for this year, sources said.
Similarly, the financial adviser bills approved by the House and Senate in the wake of federal action against California investment adviser Steven Wymer are so vastly different that compromise is unlikely, other sources said.
With Congress expected to adjourn for the year in the next few days, the stalemate means that the two bills will automatically die at the end of the Congressional session and new legislation will have to be introduced next year.
Bitter House aides warned yesterday that heavy securities industry opposition that helped halt the financial advisers bill could come back to haunt firms next year if Bill Clinton wins the White House. In a Democratic administration, such a bill is less likely to face a presidential veto and, therefore, could be launched with even stiffer provisions than current bills, they said.
"They are making the calculation that they can do better in the next Congress," said an aide. "Obviously, they're hoping for Bush to be re-elected. They must be doing rosaries, because we will push a tougher bill next year. And the securities industry will look at the 102nd Congress as moderate legislation."
The government securities legislation ran into a roadblock when two powerful House committees supported different bills and were unable to reach a compromise.
The House Banking Committee backed a bill that would limit jurisdiction of the Securities and Exchange Commission to securities dealers and require federal bank regulators to oversee bank dealers.
However, the House Energy and Commerce Committee was backing a tougher version that would expand the role of the Securities and Exchange Commission in the government market.
The dispute between the two committees flared up in a recent House vote that turned back the Energy and Commerce-backed bill earlier this month by a vote of 279 to 124.
"It's very unlikely that this will be brought up again" before Congress adjourns, said a House aide. "The committees involved have decided it should be brought up again next year. Now that we've had the big showdown, people have to focus on other things."
The House aide said Treasury of officials last week tried to prod the Senate to go forward with a limited government securities bill that would extend the department's authority to oversee the market.
However, House members were said to oppose the idea and insist on broader legislation that has drawn complaints from securities firms. The House bill approved by the Energy and Commerce Committee would set rules for broker-dealers on record keeping and price dissemination and require firms to report on large position in the market.
Both versions of the financial adviser bills would raise the fees that advisers pay to register with the SEC. The House bill would require advisers to determine whether the securities they recommend to investors are suitable for their income and investment strategies.
That bill would also direct the SEC to pay particular attention in inspections to new or financially troubled advisers, and it would require the SEC to search for unregistered firms. Advisers would have to supply investors with brochures describing their background and practices as well as their commission or fees for various kinds of transactions.
In a related matter, independent financial advisers that assist municipalities with debt offerings took steps recently to address key SEC staff members' concerns about their activities.
The National Association of Independent Public Finance Advisors, whose members are not registered with the agency despite a surge in their market share of business, adopted a resolution barring members from advising municipal clients on how to invest bond proceeds unless it is "incidental" to the general financial advice they furnish clients.
"No member firm will solicit or provide investment advice service nor solicit or accept separate compensation arrangements for any investment advisory services, except as incidental to the general financial advice furnished to clients in connection with debt management and debt issuance purposes," according to the resolution.
And as part of providing incidental advice, member firms may not "purchase, sell or hold investment securities for the client, nor receive commission or any other income derived from their purchase, sale or safekeeping."
The action follows concerns raised in March by Thomas Harman, chief counsel for the SEC's investment management division, about the agency's decision last year not to take enforcement action against firm that said it advises municipal clients on how to invest temporarily idle bond proceeds.
Harman said the agency may not grant such exemptions in the future.