By Lisa Lambert
WASHINGTON Jan 10 The Securities and Exchange
Commission on Friday closed potential loopholes in its new
regulation on the financial advisers to U.S. states and cities
and resisted calls to slow down creating oversight of a group
that has long escaped government scrutiny.
The securities industry had asked the SEC for a one-month
delay in enacting its full definition of exactly who counts as a
municipal advisor, which is set to go into full effect on Jan.
The Securities Industry and Financial Markets Association
said firms did not have time to digest the final rule, which
spans more than 700 pages and was approved last September.
The SEC released guidance late Friday that held firm on next
week's effective date. From there, regulators will build up an
extensive regulatory regimen encompassing advisers' fiduciary
duties, compensation and qualifications.
"We continue to encourage the SEC to delay the Jan. 13
effective date...to give the industry sufficient time to
incorporate this guidance into compliance programs and employee
training," SIFMA President Kenneth Bentsen said in a statement.
The Dodd-Frank Act signed in 2010 requires those who consult
with municipalities about selling debt or buying derivatives to
register with the SEC, putting them under the same regulation as
brokers and dealers, and also requires them to carry out
fiduciary duties involving putting clients' interests first.
Determining exactly who is an adviser has been key to
carrying out the law. The SEC largely looks at a firm or
individual's activities to make the classification.
In detailed question-and-answer form, the guidance addressed
scenarios where someone may not be sure about qualifying as an
adviser, where someone may unintentionally fall subject to the
regulation, or where someone may want to give up the adviser
The guidance drove home the point that a broker-dealer
cannot switch from the role of adviser to underwriter once an
issuer decides to go ahead with a deal.
"It owes a fiduciary duty to the municipal entity with
respect to that issue and must not take any action inconsistent
with its fiduciary duty to the municipal entity," according to
Also, issuers must state they have selected a broker-dealer
as an underwriter on a bond sale, confirming they know the firm
does not have an adviser's fiduciary responsibility.
The SEC drew a distinction between general information and
advice, saying that an underwriter could include facts in
business pitches without having to register as an adviser, but
could not make recommendations.
In the same light an underwriter may discuss omissions from
offering documents and lapses in past disclosure filings without
being considered an adviser, and may meet with clients without
having an adviser present.
The SEC initially laid out the parameters of who counts as
an adviser nearly three years ago, but had to pull that
definition after it was universally criticized as too broad.
Now that the final, more narrow definition is in place, the
Municipal Securities Rulemaking Board, a self-regulatory
organization that writes the rules the SEC enforces, is racing
to create a regimen on carrying out the Dodd-Frank provision.
More than 1,100 firms have registered as advisers since
2010, mostly under a temporary placeholder rule. The pace has
picked up since the final definition was approved - with 41
firms and individuals registering since Sept. 19.