SEC Updates Frequently Asked Questions Regarding Municipal Advisor Registration Rules


The SEC’s Office of Municipal Securities has updated its frequently asked questions (the “FAQs”) that present its views regarding various aspects of the SEC’s municipal advisor registration rules (the “Final Rules”).   (See the Municipal Advisor topic on the Goodwin Procter Dodd-Frank Minisite for additional information on the Final Rules, the FAQs as issued in January 2014, the application of the Final Rules to banks and trust companies, and other developments affecting municipal advisors.)

The updated FAQs provide answers to questions across several categories.  Among other things, the staff provides helpful guidance regarding the definition of “proceeds of municipal securities.”  The updated FAQs set forth the staff’s view that if a municipal entity issues pension obligation bonds and contributes the proceeds to a municipal entity’s public pension fund where the proceeds are commingled with other funds, those proceeds will cease to be considered “proceeds of municipal securities” under the Final Rules.  However, if the municipal entity segregates the proceeds and continues to account for them separately, or retains control over the ability to use such proceeds for any purpose other than the exclusive benefit of pension beneficiaries, such proceeds would continue to constitute proceeds of municipal securities under the Final Rules until they are used to pay pension fund beneficiaries or to carry out other authorized purposes of the bonds.

The FAQs provide transitional guidance and relief for market participants with respect to the due diligence that they must perform on client accounts in existence prior to the July 1, 2014 compliance date of the Final Rules.  Such transitional guidance includes the staff’s suggestion that, under certain circumstances, it would be reasonable for a market participant to conclude that an account does not include proceeds of municipal securities if the market participant requests that a client provide confirmation regarding its account and does not receive a response from the client.  Market participants should document the steps undertaken in making determinations with respect to each account.  The FAQs note that, for new investments after July 1, 2014, market participants should develop policies and procedures consistent with the Final Rules and the SEC’s related guidance to determine whether such investments involve proceeds of municipal securities.  The Final Rules and guidance generally provide that in determining whether or not funds constitute proceeds of municipal securities, a person may rely on representations in writing made by a knowledgeable official of a municipal entity or obligated person regarding the nature of such investments, provided that the person seeking to rely on such representations has a reasonable basis for such reliance.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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