Are you familiar with the new penalties and registration requirements being imposed on advisors selling into the municipal market? If you’re considering selling in the municipal market and are uninformed about the new Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) requirements, you could be knocked out of the game before you get a chance to start.
The American Society of Pension Professionals & Actuaries (ASPPA) and the National Tax Sheltered Accounts Association (NTSAA) recently expressed concern regarding the application of the Dodd-Frank financial reform act. “Clearly, a law aimed at regulating the practices associated with municipal bonds should not be applied inappropriately and inconsistently to those advising participants in governmental retirement and savings arrangements,” said Craig Hoffman, General Counsel and Director of Regulatory Affairs of ASPPA.
First, Do You Know the Rules?
Section 975 of the Dodd-Frank Act amended the Securities Exchange Act of 1934 by requiring municipal advisors to register with the Securities and Exchange Commission (“SEC”) by October 1, 2010. The SEC adopted a temporary rule – effective until the end of 2011 – to help advisors comply during this transitional phase.
The SEC’s proposed rule includes a permanent registration requirement and record-keeping requirements. It will enable regulators, investors, and state and local governments to better understand the roles municipal advisors serve by requiring municipal advisors to complete certain forms. These forms will require municipal advisors to provide their identification and contact information. Advisors will indicate which services they provide by checking selections on a
pre-determined list. Municipal advisors will also keep up-to-date profiles regarding any disciplinary actions.
If approved, the proposed rules will become effective on January 1, 2012. Yearly form renewals will be imposed.
Second, Do You Know the Players?
A municipal advisor is generally defined as a person who provides financial advice concerning the issuance of municipal securities and investment of bond proceeds to states, local governments and other borrowers.
The Dodd-Frank Act definition of “municipal advisor” includes the following:
- financial advisors
- guaranteed investment contract brokers
- third-party marketers
- placement agents
- certain swap advisors.
Do You Know How to Play the Game?