Draft US municipal debt adviser rules should be ready next year

WASHINGTON Mon Oct 28, 2013 5:00pm EDT

WASHINGTON Oct 28 (Reuters) - The first draft rules governing activities of those who counsel states, cities and other authorities on debt sales and investments should be released by mid-2014, U.S. municipal bond market rulemakers said on Monday.

Because the Securities and Exchange Commission issued a long-delayed definition of who counts as a municipal adviser last month, the Municipal Securities Rulemaking Board can press ahead with regulating a group that has mostly escaped oversight. The group said it is crafting specific directives on five key areas.

The first rule, targeted for release well before June, will detail advisers' fiduciary duties, MSRB Chairman Daniel Heimowitz said on a conference call with reporters.

Also on tap are rules on the supervision of advisers, political contributions, gifts, and the duties of solicitors, MSRB Executive Director Lynnette Kelly said on the same call.

The board is a self-regulatory organization made up of bankers, issuers and advisers and writes the rules for the market that the Securities and Exchange Commission enforces.

In September the SEC approved a definition of municipal advisers and set in motion requirements mandated by the Dodd-Frank financial reform law of 2010. Under the law, advisers who suggest investments for bond proceeds or the structures of debt sales must register with the SEC and adhere to a fiduciary standard in which the municipalities' interests come first.

The $3.7 trillion market roundly rejected the first adviser definition that the SEC proposed for being too broad. The commission took more than two years to rewrite the proposal, forcing the MSRB to shelve draft rules on professional conduct and qualification examination requirements.

Kelly said the board would not simply dust off those draft rules, but create new ones.

The push for greater scrutiny of advisers started about five years ago, after Jefferson County, Alabama, lost millions of dollars partly due to investments in swaps and other derivatives. The county filed for bankruptcy protection in 2011.