* Municipalities object to SEC proposed rule on advisers
* SEC rule requires municipal advisers to register
* Public comments say plan is too wide in its scope
* Towns fear rule will hinder volunteerism on boards
By Sarah N. Lynch
WASHINGTON, Feb 25 States, local governments
and public pension funds across the United States are objecting
to a proposal by U.S. securities regulators that they say could
kill volunteer participation on local boards by imposing
The plan by the Securities and Exchange Commission would
implement a key provision in the Dodd-Frank financial law that
for the first time empowers the agency to oversee advisers who
offer financial advice to cities, counties and other municipal
entities that float public debt or manage public money.
The proposal would require certain firms or people who
offer advice to municipal entities on products or the issuance
of securities to register with regulators. It would also hold
municipal advisers to a fiduciary standard, meaning they would
need to act in the best interest of the municipality.
But critics say the SEC's definition of who must register
as an adviser is far too broad and could affect regular
citizens who volunteer their time to serve on local boards.
So far, the agency has received more than 600 comment
letters from cities, states, pension boards, transit
authorities, utility boards and other municipal entities.
"The expansive inclusion of board members and other
volunteers who express an opinion into the scope of the
proposed rule only serves to micromanage local governments and
impose duplicative regulatory burdens," wrote the National
League of Cities in a letter to the SEC. "These volunteers are
not motivated by private gain but by public service and the
betterment of their communities."
Another letter from the state treasurer of Massachusetts
says the proposal will "have a chilling effect on informed
analysis and debate" and "dissuade talented individuals from
either serving on boards or actively participating in board
Historically, municipal advisers were not generally subject
to SEC regulations. But the financial crisis highlighted
problems that can occur when towns are ill-informed about their
The Dodd-Frank law required the SEC to get a head start on
registering municipal advisers before most of the other July
2011 deadlines kick in. Last fall the SEC approved a temporary
rule so advisers could begin registering and complying with the
regulations until a final rule could be adopted.
So far, about 900 advisory firms have filed registration
forms with the SEC. More registrations by individual advisers
are expected once a permanent regulatory regime is erected. The
temporary rule expires in December, which means the SEC has a
good amount of time to read through the comments before issuing
a final decision.
The Dodd-Frank law automatically exempts municipal
employees from qualifying as municipal advisers, but gives the
SEC some wiggle room to flesh out the exemption.
The SEC's plan would extend the exemption to include
elected officials, including those who are tapped to serve on
boards as ex-officio members. But it does not exempt appointed
board members from the definition.
Being an appointed board member does not automatically
require registration. But critics fear that failing to exempt
appointed board members opens the door for problems.
They say, for instance, that failing to exempt appointed
board members unfairly targets a select few people and
wrongfully confuses decision makers with advisers.
"There is a fundamental misunderstanding of the individual
board member's role," the Fire and Police Pension Association
of Colorado wrote. "Put quite simply, the board members are
advisees, not advisors."
(Reporting by Sarah N. Lynch, editing by Matthew Lewis)