The SEC Adopts Final Registration Regime and Record-Keeping Obligations for Municipal Advisors

by K&L Gates LLP
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As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Securities and Exchange Commission (the “SEC” or Commission”) adopted on September 20, 2013 final rules and forms establishing a permanent registration and record-keeping regime for municipal advisors. These rules are scheduled to take effect on January 13, 2014. The new rules should be examined closely by those who work with governmental entities in capacities that might touch upon providing financial advice to a municipality in order to determine if the new registration and record-keeping requirements apply.

The new rules were created in response to requirements in the Dodd-Frank Act, signed into law by President Obama in 2010. The Dodd-Frank Act amended Section 15B of the Securities Exchange Act of 1934, rendering it unlawful for municipal advisors to provide certain kinds of advice to, or to solicit municipal entities without registering with the Commission. The Dodd-Frank Act also granted the Municipal Securities Rulemaking Board regulatory authority over municipal advisors and imposed a fiduciary duty on municipal advisors.

Registration is required as a prerequisite to (1) soliciting a municipal entity or obligated person or (2) providing advice to or on behalf of a municipal entity or an obligated person with respect to municipal financial products or the issuance of municipal securities. Thus, municipal advisors would include financial advisors, guaranteed investment contract brokers, third-party marketers, placement agents, solicitors, finders, and swap advisors that provide municipal advisory services, unless they fall within an exemption in the new rules.

Those exemptions from registration cover certain specific activities set out in Rule 15Ba1-1(d)(2); including exemptions for: underwriters, registered investment advisers, Commodity Trading Advisors, attorneys, and engineers providing typical advice. The new rules also provide a broad exemption from the municipal advisor registration for all employees, governing body members, and other officials of municipal entities acting within the scope of their employment or official capacity.

Although the new rules are generally limited to financial advice related to municipal securities instead of applying to all public funds, the scope of the covered financial products and investment strategies is broad. “Municipal financial products” include municipal derivatives, guaranteed investment contracts, and investment strategies. “Investment strategies” include plans or programs for the investment of proceeds of municipal securities that are not municipal derivatives and guaranteed investment contracts, and the recommendation of and brokerage of municipal escrow investments.

There are staggered compliance dates for using the final forms to register under the permanent registration regime for those municipal advisors registered under the interim rules from 2010.

Understanding the requirements and impact of the new rules is an ongoing task; please contact us if you would like to discuss your concerns and whether the new requirements apply.

To read the full alert, click here.

The new rule is available here.

 

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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