The Dodd-Frank Wall Street Reform and Consumer Protection Act requires municipal advisors to register with the Securities and Exchange Commission (“SEC”). On September 20, 2013, the SEC adopted final rules governing municipal advisors (the “Rules”). Those rules are effective on July 1, 2014.
Who is an municipal advisor?
A municipal advisor is an individual who solicits or provides advice to or on behalf of a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities.
What type of advice requires a person to register as a municipal advisor?
There is no bright line test to determine what constitutes advice under the Rules and all relevant facts and circumstances should be considered. SEC staff has stated that “advice includes, without limitation, a ‘recommendation’ that is particularized to the specific needs, objectives, or circumstances of a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities, including with respect to the structure, timing, terms, and other similar matters concerning such financial products or issues, based on all the facts and circumstances.”
What is not considered to be advice?
General information with no subjective assumptions, opinions or views and information that is not particularized to a specific municipal entity or type of entity is not advice. Information that does not involve a recommendation would not be construed as advice.
Other examples of information that would not be construed as advice include: professional qualifications and prior experience; general market and financial information; terms, maturities and rates at which an institution offers investments or price quotes for purchase of investments that meet criteria specified by a municipal entity; factual information describing various types of debt including comparison of each (i.e., risks, advantages, disadvantages); and factual information regarding various government financing programs and incentives. Market information about an entity’s bonds could be general if it is factual in nature and does not contain subjective assumptions. The more the information is tailored to a specific entity or type of entity, the more likely the information will be construed as a recommendation or advice.
Who is exempt from registration?
The Rules contain general exemptions from registration for attorneys, accountants, other professionals such as engineers, vendors and actuaries, but the exemptions limit the types of advice or services provided by such persons. Certain activities of underwriters may be exempt from the Rules and certain activities of underwriters may require registration under the Rules.
SEC staff recently issued responses to a detailed list of Frequently Asked Questions (FAQs) regarding compliance with the Rules. The FAQs can be accessed at http://www.sec.gov/info/municipal/mun-advisors-faqs.pdf. For a more detailed discussion of the exemptions, and guidance on the types of advice that can be given, promotional materials that can be used and the RFP/RFQ process, see the FAQs.