• SEC Adopts Final Municipal Advisor Registration Rules; Grants Limited Exemptive Relief for Banks
  • October 21, 2013 | Author: J. Andrew Gipson
  • Law Firm: Jones Walker LLP - Jackson Office
  • On September 18, 2013, the Securities and Exchange Commission ("SEC") adopted permanent final rules governing the registration of "municipal advisors" under the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act").

    A "municipal advisor" is defined broadly by statute as a person (who is not a municipal entity or an employee of a municipal entity) that: (1) provides advice to or on behalf of a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities, including advice with respect to the structure, timing, terms, and other similar matters concerning such financial products or issues; or (2) undertakes a solicitation of a municipal entity. This definition generally includes financial advisors, guaranteed investment contract brokers, third-party marketers, placement agents, solicitors, finders, and swap advisors that provide municipal advisory services. A "municipal financial product" includes municipal derivatives, guaranteed investment contracts, and investment strategies.

    Some 300 comment letters were filed with the SEC requesting exemptive relief for banks for traditional banking activities. While banks were not excluded by statute from the definition of municipal advisors, the SEC's final permanent rule does provide limited exemptive relief for banks.

    In its final rule, the SEC narrowed its proposed application of "investment strategies" to matters relating to the investment of the proceeds of municipal securities or the recommendation of and brokerage of municipal escrow investments, instead of advice regarding all public funds of municipal entities. Moreover, the final rule provides a new tailored exemption from the definition of municipal advisor for a bank providing advice with respect to: (1) any investments that are held in a deposit account, savings account, certificate of deposit, or other deposit instrument issued by a bank; (2) any extension of credit by a bank to a municipal entity or obligated person, including the issuance of a letter of credit, the making of a direct loan, or the purchase of a municipal security by the bank for its own account; (3) any funds held in a sweep account; or (4) any investment made by a bank acting in the capacity of an indenture trustee or similar capacity (e.g., a bond indenture trustee, paying agent, or municipal escrow agent).

    Banks that engage in municipal advisory activities, such as acting as financial advisors to municipal entities in structuring issues of municipal securities or providing advice with respect to municipal derivatives, are required to register as a municipal advisor.

    Municipal advisors have registered with the SEC since October 1, 2010, on Form MA-T on a temporary basis. This temporary registration process was extended until December 31, 2014, so as to accommodate the staggered permanent compliance dates under the new rules. For temporarily-registered municipal advisors, compliance dates range from July 1, 2014, to October 31, 2014, depending on the municipal advisor's temporary registration number.