WASHINGTON — With lawmakers from both chambers of Congress set to begin hammering out a single financial regulatory reform bill on Wednesday, one of the most contentious municipal-market issues to be worked out centers on who will regulate non-dealer financial advisers, swap advisers and other market intermediaries.

Market participants involved in regulatory reform discussions said House Democrats remain skeptical about self-regulators in general and may fight language in the Senate bill that would give the Municipal Securities Rulemaking Board regulatory authority over intermediaries. Dealers currently control 10 of the board’s 15 seats.

The House lawmakers, along with non-dealer FAs, instead favor giving the Securities and Exchange Commission authority over the market participants, as a related bill passed by the House would accomplish.

Market participants who have discussed the issue with ­congressional staffers note that there is no particular animus among House lawmakers towards the MSRB — in fact, the board remains unknown to most, if not all, lawmakers. They are simply skeptical about any provision in the law that would allow the financial industry to self-regulate, the market players said.

A spokesman for House Financial Services Committee chairman Barney Frank, D-Mass., declined to comment until the conferees meet.

Senate Democratic staffers have said that they favor the MSRB because it has far more personnel focused exclusively on munis. They have also said concerns about the board being captive by the industry are addressed by provisions in both chambers’ bills that would reconstitute the MSRB so that a majority of its members were “public” or non-industry individuals.

Separately, market participants said there is support among conferees to change a provision in the Senate bill — introduced by Senate Agriculture Committee chairman Blanche Lincoln, D-Ark. — that requires dealers to hold the interests of their clients ahead of their own when they enter into swap agreements with public entities like states and public pension funds.

Dealers, issuers, and public pension funds have said that Lincoln’s “fiduciary duty” provision is legally unworkable or inappropriate. Some issuers are said to instead favor as a possible replacement language sponsored by Sens. Tom Harkin, D-Iowa, and Bob Casey, D-Pa., that was circulated late in the process for the Senate bill but never came up for a vote.

Harkin’s proposal would impose anti-fraud mandates when dealers enter into swaps with states and localities and would require dealers to disclose “the capacity in which the swap dealer is acting.”

Additionally, it would require that a swap dealer “make reasonable efforts to obtain such information as is necessary to determine whether the transaction is in the best interests of the protect customer.”

Dealer groups are said to be opposed to the Harkin-Casey amendment, especially the “reasonable efforts” language.

In addition to Harkin and Lincoln, the Senate’s Democratic conferees are: Banking Committee chairman Christopher Dodd, Conn.; Tim Johnson, S.D.; Jack Reed, R.I.; Charles Schumer, N.Y.; and Patrick Leahy, Vt.

The Republicans will be represented by the Banking Committee’s ranking member Richard Shelby, Ala.; Bob Corker, Tenn.; Mike Crapo, Idaho; Judd Gregg, N.H.; and Saxby Chambliss, Ga.

Frank, who is charing the House-Senate committee, has recommended that conferees from the House consist of eight Democrats and five Republicans.

Specifically, he suggested that Rep. Carolyn Maloney, D-N.Y., chairman of the Joint Economic Committee, be named a conferee alongside the six subcommittee chairs: Paul Kanjorski, Pa., Mel Watt, N.C.; Luis Gutierrez, Ill.; Maxine Waters, Calif.; Gregory Meeks, N.Y.; and Dennis Moore, Kan. The House Republican conferees are still not known.

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