U.S. SEC unveils scaled-back municipal adviser rule
WASHINGTON, Sept 18
WASHINGTON, Sept 18 (Reuters) - Employees and appointed officials of municipal governments would not have to register as financial advisers under a final rule federal regulators were set to finalize on Wednesday, which should allay bond market concerns that new laws on advisers would ensnare too many people in cumbersome regulation.
In its final definition of financial advisers, the U.S. Securities and Exchange Commission said it was also narrowing the term "investment strategies" to apply only to the investment of proceeds from bond sales rather than to all public funds.
The wide-sweeping financial reform law known as Dodd-Frank calls for those who provide investment advice to municipalities to register with the federal government and to adhere to a fiduciary standard where the municipalities' interests are put first.
The SEC's proposed definition of exactly who counted as an adviser was universally panned when it was released more than two years ago for being too broad.
Brokers, dealers, issuers and even the Municipal Securities Rulemaking Board, which writes the rules for the $3.7 trillion municipal bond market that the SEC enforces, said it could make selling debt impossible for small issuers. But the SEC was concerned that a narrow definition would create loopholes.
The final definition will apply to people who provide advice to a municipal entity regarding the issuance of municipal securities, including the structure, timing, and terms of transactions. It also encompasses those who advise municipalities on entering into swaps and investing the proceeds of a sale.
"In addition to this increased investor vulnerability due to the scarcity of reliable information, the financial crisis revealed numerous examples of municipal advisors engaging in egregious conduct," said SEC Democratic Commissioner Luis Aguilar in prepared remarks.
"As a result, many municipalities, their citizens, and retail investors suffered significant harm."
The MSRB had multiple rules written for advisers that it had to shelve when the proposed definition was pulled. The board will likely move quickly to have advisers disclose more about their businesses and their transactions with clients once the rule finally goes into effect.
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