Bloomberg News

U.S. Municipal Bond Regulator Delays Rules for Advisers

September 12, 2011

(Adds timing of SEC in fifth paragraph.)

Sept. 12 (Bloomberg) -- The agency that oversees the U.S. municipal-bond market delayed proposed rules for financial advisers until the Securities and Exchange Commission defines who will be subject to the regulation.

Municipal advisers would face new limits under the Dodd- Frank Act, which Congress passed more than a year ago. The Municipal Securities Rulemaking Board said it is putting its proposed rules on hold until the SEC issues a legal definition of municipal adviser.

The rulemaking board’s proposals must be approved by the SEC. Before that happens, those with a stake in the outcome are allowed to suggest changes to the SEC.

“We want to make sure that all potential municipal advisers are on notice that they could be affected by our rule proposals and have an opportunity to participate fully in the SEC comment process,” MSRB Executive Director Lynnette Kelly Hotchkiss said today in a statement.

The delay affects proposed rules prescribing financial advisers’ duty to their customers and a ban on political giving to win business, the MSRB said. The hundreds of businesses that provide advice to local public officials who raise money in the $2.9 trillion municipal-bond market were largely unregulated until the passage of Dodd-Frank, which closes loopholes illuminated by the financial crisis.

Matter of Months

The MSRB said it will resubmit the rules once the SEC completes its work. The decision may delay the regulations only for months because the SEC is aiming to complete its work by year-end, according to an agency timeline.

Under Dodd-Frank, municipal advisers must register with the SEC and are subject to rules created by the MSRB. The SEC in December issued proposed regulations regarding registrations, though it has yet to complete them.

The SEC’s definition of who is a municipal adviser drew criticism from local bankers who said it was too broad and would subject them to added regulations for providing services such as bank accounts. Local government groups also expressed concern that the SEC would consider citizens who sit on municipal boards to be financial advisers. That might make people less willing to serve, they said.

--Editors: Mark Schoifet, Stephen Merelman

To contact the reporter on this story: William Selway in Washington at

To contact the editor responsible for this story: Mark Tannenbaum at

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