On Dec. 20, 2010, the Securities and Exchange Commission (SEC) released new proposed rules to implement the municipal advisor registration requirement found in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Public-Law 111-203, 124 Stat. 1376 (2010)).
Under the Dodd-Frank law, the registration requirement applies to all municipal advisors who provide advice to "municipal entities" and other borrowers involved in the issuance of municipal securities. The advice may be related to derivatives, guaranteed investment contracts, "investment strategies," or the issuance of municipal securities. It also applies to advisors who solicit business from a state or local government for a third party.
As drafted the rule would exempt municipal elected officials and staff from the registration requirement. Not excluded, however, are appointed volunteer members of local government boards or other citizen volunteers. The rulemaking's reach would thus subject citizen board members and other volunteers to federal SEC fiduciary duty, pay-to-play, and other rules, and reporting requirements.
As you know, many states and cities already have statutory provisions concerning the fiduciary responsibility of volunteer board members of their authorities. In our view, the proposed rule would only serve to micro-manage local governments and impose duplicative redundant regulatory burdens as an answer to unsubstantiated and undefined issues. Practically for cities, registration with its associated costs and burdensome paperwork requirements will have a chilling effect on local governments' ability to obtain the highest quality volunteer participation for their municipal entities.
The National League of Cities will file comments by the Feb. 22, 2011 due date.
