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News September 23, 2013 Issue

SEC Adopts Final Rule Requiring Municipal Adviser Registration

The SEC last week adopted rules that require advisers that work with municipalities to register if they provide advice on the issuance of municipal securities, about certain investment strategies or about municipal derivatives.

Prior to passage of the Dodd-Frank Act, registration of municipal advisers was not required. "This left many municipalities relying on advice from unregulated advisers, and they were often unaware of any conflicts of interest a municipal adviser may have had," the agency said in announcing the new rules, which were approved unanimously by the Commission.

Registered investment advisers and associated persons will not need to register a second time as municipal advisers "if they provide investment advice regarding...proceeds of municipal securities or municipal escrow investments," the agency said. But the exemption does not apply to advice on the "structure, timing and terms of issues of municipal securities or municipal derivatives" since advice in these areas is outside the focus of investment adviser registration.

The provision not requiring dual registration for RIAs was welcomed by Investment Adviser Association executive director David Tittsworth. It means that "most investment advisers that are just providing investment advice to municipalities are not going to have to re-register," he said, as most are already registered with the SEC, and few give advice to municipalities in the areas of structure, timing and terms of issue.

Registered commodity trading advisers under CFTC rules and their associated persons also do not have to register as municipal advisers "if the advice they provide relates to swaps," the agency said. The exemption does not apply to swap dealers that engage in other municipal advisory activities, "such as providing advice on the issuance of municipal securities or the investment of the proceeds of municipal securities or municipal escrow investments."

Public officials, as long as they are "acting within the scope of their official capacity," will not be required to register.

Temporary registration

About 1,100 municipal advisers are already registered with the SEC under a temporary registration program the agency established after Dodd-Frank became law in July, 2010. The agency issued a proposed rule in December 2010 that received more than 1,000 comments, according to the agency. The adopting release issued last week, while not posted by the SEC as of press time, does the following:

  • Clarifies who is and isn't a municipal adviser
  • Provides guidance on what constitutes "advice"
  • Exempts municipal employees and appointed officials from registration
  • Narrows the application of the term "investment strategies" to apply only to investments of proceeds from the sale of municipal securities, rather than to all public funds.

Municipal advisers will be required to register on a staggered basis beginning in July 2014, the agency said, adding that the expiration date of the temporary rule will be extended, allowing municipal advisers already registered under it to remain temporarily registered during the staggered compliance period. The new rules become effective 60 days after they are published in the Federal Register.