New Municipal Advisor Regulations Effective Date Delayed

The new rules require municipal advisors to register with the SEC, and mandate a new level of disclosure.
(Published Jan 21, 2014)

The Securities and Exchange Commission announced on Jan. 13 that it has delayed implementation of new municipal advisor rules until July 1, 2014. The rules were initially supposed to take effect on Jan. 13, 2014.

For the better part of the last three years, the SEC has been considering proposed rules intended to provide greater protection for municipalities working with “municipal advisors.” While municipal interests were generally supportive of the rules, there were initial concerns that the definition of municipal advisor was overly broad and might include some municipal officials, as well as professionals such as city attorneys, city engineers, and accountants. The League and other state and federal associations submitted comments to the SEC, and the final rules issued on Sept. 20, 2013, generally addressed the concerns of municipal entities.

The new rules—which are complicated and exhaustive in their scope—require municipal advisors to register with the SEC, and mandate a new level of disclosure. The intent is to provide greater transparency within the municipal financial world.

Historically, cities and other local governments that issue municipal bonds have relied on advisors to help them decide how and when to issue the securities and how to invest proceeds from the sales. In July 2010, Congress passed the Dodd-Frank Act, which included a provision to protect municipalities, taxpayers, and investors from conflicted advice and unregulated advisors. The new SEC rules attempt to address this concern.

A “municipal advisor” is a person (who is not a municipal entity or an employee of a municipal entity) who provides advice to or on behalf of a municipal entity with respect to municipal financial products or the issuance of municipal securities, or that undertakes a solicitation of a municipal entity or obligated person.

Professionals such as city attorneys, city engineers, and accountants are exempted from the rules when those individuals are providing advice or services that are of a traditional nature with respect to the issuance of municipal securities or municipal financial products.

While the rules do not directly regulate cities, a number of the exemptions for those providing financial advice to municipalities (e.g., underwriters, brokers, etc.) are tied to a city having a financial advisor, or to the source of the funds being invested. Accordingly, cities may be asked to provide certain written representations. The League will continue to monitor this subject and provide additional advice as best practices develop.

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