New Regulations for Municipal Advisors« All News
March 03, 2014
Raftelis Financial Consultants, Inc. (RFC) is a registered Municipal Advisor with the Municipal Standards Rulemaking Board (MSRB) and the Securities and Exchange Commission (SEC). Requirements for registration are a result of the Dodd-Frank (Dodd-Frank Act), which is re-shaping the financial markets of the United States and affecting any municipal entity that is seeking to borrow money in the public market. RFC’s Alexis Warmath and Bart Kreps recently authored an article on the subject in the Money Matters column of the March 2014 issue of the American Water Works Association (AWWA) Journal. Any government-owned utility issuing debt to address water or wastewater capital investment needs falls under the definition of a municipal entity (as defined under the Securities and Exchange Act of 1934 §15B(e)(8)) and will be required to comply with the new rules and regulations promulgated by the SEC. Although much uncertainty still exists about these regulations in the world of public finance, recent information, or Rules, distributed by the MSRB, the federal agency charged with the regulation of the municipal debt markets, has provided much needed clarification regarding the definition, registration, and regulation of Municipal Advisors. These rules may have a significant impact on some government-owned utilities since they address the roles and responsibilities not only of underwriters (bond brokers and dealers) and financial advisors, but also include other types of consultants and advisors typically involved in providing debt issuance support for utilities that may fall under the definition of Municipal Advisors.
There are several principles anticipated to provide a framework and structure to the rules regulating Municipal Advisors. Of primary importance, Municipal Advisors will be subject to MSRB Rule G-17, which, among other requirements, establishes a federal fiduciary duty for Municipal Advisors to put their client’s interest above their own and to act fairly and honestly, and not to engage in any deceptive or dishonest practices. Other principles that will play a role in the final regulatory structure include a municipal advisor’s demonstration of adequate policies and procedures for internal supervision; full disclosure of conflicts of interest; monitoring and tracking of political contributions; compliance with MSRB compensation regulations; and maintenance of books and records to document advisory activities. Additionally, Municipal Advisors may be subject to professional qualification and examination requirements. Currently, the MSRB is in the process of defining the regulatory structure more fully and is soliciting comments on these regulatory principles and requirements.
RFC staff will continue to author Money Matters articles in Journal AWWA, with the next article to be published in the July issue.