WASHINGTON — House Financial Services Committee chairman Spencer Bachus, R-Ala., is warning the Securities and Exchange Commission that he does not support its proposed rules for a municipal adviser registration system because they are too broad and do not reflect congressional intent.

The SEC proposed the rules on Dec. 22 after the Dodd-Frank Wall Street Reform and Consumer Protection Act directed it to establish a registration and examination program for muni financial advisers.

“I am supportive of the SEC’s efforts to police this segment of the municipal market, particularly as I have closely followed the effects on Jefferson County, Ala., in my congressional district,” Bachus said in a one-page letter sent to SEC chairman Mary Schapiro last week. “Jefferson County’s financial woes can partially be attributed to unscrupulous municipal advisers who pocketed the lucrative fees associated with the county’s sewer bond offerings while ignoring the welfare of the taxpayers. Unfortunately, even though I agree with the goal, I cannot support the proposed rules 15Ba1-1 through 15Ba1-7, which are overly broad and would reach significantly more people than Congress intended.”

Bachus was particularly upset that the proposed rules would include appointed municipal board members and officials as muni advisers that would have to register with the SEC.

“Many small towns frequently appoint rather than elect their municipal administrators. Similarly, boards of trustees of public universities are appointed,” Bachus said. “Forcing these individuals, who often volunteer their time and expertise, to register with the SEC, would create a significant disincentive for qualified individuals to serve our communities.

“Additionally, the broad definition of 'municipal financial products’ combined with the failure to define 'advice’ would result in thousands of bank employees who conduct routine business with municipal entities having to register with the SEC,” he said.

Under Dodd-Frank, persons are muni advisers if they provide advice to or on behalf of a municipal entity with regard to the issuance of muni securities or financial products. The act defines muni financial products as including muni derivatives, guaranteed investment contracts and investment strategies. It says investment strategies may include plans or programs for the investment of proceeds of muni securities, GICs and the recommendation and brokerage of securities for advance refunding escrows.

But the SEC’s proposed rules define investment strategies more broadly such that they would apply to banks and brokers who recommend securities for the investment of state and local general funds.

Bachus also complained that “the SEC has ignored an explicit exemption [for muni advisers in Dodd-Frank] for 'engineers providing engineering advice’ to municipal entities.”

In its proposed rules, the SEC said the exemption would not apply when “an engineer is engaging in municipal advisory activities, including cash-flow modeling or the provision of information and education relating to municipal financial products or the issuance of municipal securities, even if those activities are incidental to the provision of engineering advice.” The exemption also would not apply when “the engineer is preparing feasibility studies concerning municipal financial products or the issuance of municipal securities that include analysis beyond the engineering aspects of the project,” the SEC said.

Bachus noted that Martha Mahan Haines, chief of the SEC’s Office of Municipal Securities, told committee members last May that the registration system probably would only apply to about 260 advisers. He said the SEC’s rules “must strike a balance” that ensures the 260 register, but that does not “force thousands of unsuspecting individuals to comply with yet another regulatory burden that would be detrimental to the very municipal entities we are trying to protect.”

Meanwhile, the National Association of Bond Lawyers also criticized the SEC’s proposal to include appointed board members as muni advisers, warning the agency’s analysis of the issue “is fundamentally flawed .... counterproductive to good governance” and could possibly violate the Constitution’s 10th Amendment on states’ rights and First Amendment on free speech.

The proposed rules “fail to recognize that the governing board of a municipal entity cannot be a municipal adviser to such entity” because “the municipal entity acts through its governing body,” NABL said in its Feb. 25 letter.

To subject appointed board members to registration requirements, federal fiduciary standards and federal securities law liability “can only have the effect of discouraging participation,” the group said.

The proposed rules might violate the 10th Amendment, which “reserves to the states those powers not delegated to the United States by the Constitution,” NABL said. It could also violate the First Amendment, which “protects the rights of citizens to communicate to all departments of government, regardless of their motive,” it said.

NABL also complained the SEC too narrowly interprets the Dodd-Frank Act exemption of attorneys from being advisers.

“We urge the commission to repropose the proposed rules,” NABL said.