The proposal stems from the Dodd-Frank Act's efforts to boost oversight of tax-exempt borrowing. Congress included the first-ever registration rule for tax-exempt advisers in the far-reaching financial services law. The SEC included some hospital and state finance authority board members in its proposed registration rules.
Directors and trustees appointed to not-for-profit hospital boards would be subject to new oversight as advisers. Appointed boards do not have the same accountability as elected boards, and should therefore be registered, the SEC said. Advisers must disclose employment history, business relationships and information on prior legal, regulatory or bankruptcy actions.
“This requirement, and the civil and criminal penalties attached for failure to comply, would act as a powerful deterrent to voluntary service and could result in the loss of many talented and dedicated community leaders,” the American Hospital Association argued in its letter.
An estimated 60,000 directors or trustees govern not-for-profit hospitals, the American Hospital Association said, though the trade group did not identify the number appointed to boards.
Board members' discussions would be hampered by fear of violating adviser registration rules, the National Association of Health and Educational Facilities Finance Authorities argued (PDF). The association includes 40 state agencies that bring debt to market for hospitals and schools and its board members may also be subject to new oversight.
“The abuses Dodd-Frank sought to eliminate simply are not part of board deliberations or employees working with borrowers on structuring transactions,” the association letter said.
The AHA and NAHEFFA said every board is already subject to fiduciary duties. The Internal Revenue Service has oversight over not-for-profit hospital boards, the AHA noted.
A temporary adviser registration rule, with will be replaced with permanent regulation, is scheduled to expire by the end of the year.