Compliance

SEC Votes To Put Financial Advisors To Municipalities Under Federal Control

Tom Burroughes Group Editor 19 September 2013

SEC Votes To Put Financial Advisors To Municipalities Under Federal Control

The US Securities and Exchange Commission yesterday
unanimously voted in favour of a rule to put financial advisors of
municipalities under federal oversight, as required under the Dodd-Frank Act.

State and local governments that issue municipal bonds
frequently rely on advisors to help them decide how and when to issue the
securities and how to invest proceeds from the sales.  These advisors receive fees for the services
they provide, but before passage of the Dodd-Frank Act, municipal advisors were
not required to register with the SEC like other market intermediaries.  This left many municipalities relying on
advice from unregulated advisors, and they were often unaware of any conflicts
of interest a municipal advisor may have had, the SEC said in a statement.  

After the Dodd-Frank Act became law, the SEC established a
temporary registration regime.  More than
1,100 municipal advisors have since registered with the SEC, it said.

Under the new rule, a municipal advisor must permanently
register with the SEC if it provides advice on the issuance of municipal
securities or about certain “investment strategies” or municipal derivatives.

“In the wake of the financial crisis, many municipalities
suffered significant losses from complex derivatives and other financial
transactions, and their investors were left largely unprotected from these
risks,” said SEC chair Mary Jo White. 

The new rules become effective 60 days after they are
published in the Federal Register.

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