Municipal Advisor Rules Kick In July 1



Municipal advisors looking to conduct business in the $3.7 trillion municipal securities market have until Tuesday, July 1, to register with the Securities and Exchange Commission (SEC).

The July 1 deadline was pushed back from Jan. 13, to give advisors time to adapt company policies and procedures, develop internal controls, edit record-keeping procedures, and inform, educate and train employees about the SEC’s new registrations regime.

The Municipal Securities Rulemaking Board, the chief regulator for the municipal market, lists 880 registered advisors, according to the MSRB website.

Last year, SEC officials adopted a new registration regime to impose a stricter regulatory framework for advisors operating in the municipal market in which billions of dollars are raised every year by state and municipal governments to pay for construction and public improvement projects.

The Dodd-Frank Act, passed in the wake of the financial crisis, called for a stricter regulatory framework for municipal advisors.

When municipal governments borrow too much or can’t pay back their obligations, governments are forced to raise taxes, cut services or both.

Compared to the U.S. Treasury market, which is liquid and transparent, the municipal bond market is more opaque and less regulated. Advisors and broker/dealers collect billions of dollars in fees every year. For years, watchdogs have called on closer scrutiny of the municipal market.

Last year, the SEC brought complaints against a host of municipal entities ranging from local school and regional improvement districts to the state of Illinois.

Municipal entities charged by the SEC include the Greater Wenatchee Regional Events Center Public Facilities District and its bond advisor Piper Jaffray & Co.; the Public Health Trust of Miami-Dade County, Florida; West Clark Community Schools in Clark County, Ind., The City of South Miami; Harrisburg, Pa.; Victorville, Calif., and the state of Illinois.

Charges range from alleged fraud to misleading investors about the funding municipal obligations, the SEC said.

Big Wall Street companies from Goldman Sachs to GE Funding Capital Market Services have previously been cited by the SEC for alleged fraud.

In 2012, the SEC recommended that Congress set basic standards for disclosure, require closer scrutiny of municipal issuers and enforce compliance with the fiduciary obligations of issues to protect municipal securities investors.

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In testimony before Congress and other industry organizations, SEC commissioners have cited the new registration regime for advisors as one of several initiatives that that agency considers essential to an orderly and fair marketplace.

is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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