January 15, 2014
Authored by: Dan Wheeler
The SEC announced on January 13, 2014 that compliance with the final municipal advisor registration rules will be phased in beginning July 1, 2014, notwithstanding that the final rules are effective on January 13, 2014 (following their September 30, 2013 adoption date). Municipal advisors currently registered under the temporary regime (there are currently about 1,100) are required to register under the permanent regime on a phased-in basis. As set forth in the table below, a municipal advisor’s temporary registration number determines the applicable compliance period during which the municipal advisor is required to register as such on the final registration forms under the final rules.
Temporary Registration Number Range –>Period for Filing Complete Application for Registration
- 866-00001-00 through 866-00400-00 –> July 1, 2014 to July 31, 2014
- 866-00401-00 through 866-00800-00 –> August 1, 2014 to August 31, 2014
- 866-00801-00 through 866-01200-00 –>September 1, 2014 to September 30, 2014
- after 866-01200-00 –> October 1, 2014 to October 31, 2014
If a person provides regulated “advice” after January 13, 2014, fits the definition of a municipal advisor, does not qualify for an exemption or exclusion and has not previously registered, then that person must register under the temporary registration rule and then register under the final rules under the above phase-in schedule. If a person enters the municipal advisory business after October 1, 2014, then the advisor must apply and register under the permanent registration regime. In any case, an advisor must register before engaging in municipal advisory activities.
The stated reason for the SEC’s delayed phase-in was to give market participants additional time to analyze, implement, and comply with the final municipal advisor registration rules. Those final rules require persons or entities to register as “municipal advisors” if they provide advice to municipal entities or certain other persons on the issuance of municipal securities, or about certain investment strategies or municipal derivatives.
The municipal advisor regime has moved unusually slowly, in part because of the industry’s disagreement with provisions in the rules and the difficulty in understanding and interpreting the rules. Under Dodd-Frank, the registration requirement for municipal advisors became effective on October 1, 2010. Shortly before that deadline, on September 1, 2010, the SEC adopted interim final temporary Rule 15Ba2-6T To enable municipal advisors to temporarily satisfy the registration requirement. Over a year later, on December 21, 2011, the SEC extended the expiration date another 9 months, and on September 21, 2012, the SEC again extended the expiration date of the temporary registration regime another year to September 30, 2013. And, in the January 2013 releases, the SEC again extended the expiration date of the temporary registration regime to December 31, 2014.
In an effort to mitigate the uncertainty surrounding the final rules, on January 10, 2014, the SEC published its Interpretive Guidance on Municipal Advisor Registration Rules. That Guidance covers topics such as (1) when communications rise to the level of regulated “advice,” (2) the types of promotional materials that can be provided and still fall short of a regulated “recommendation,” (3) confirming that an RFP does not have to be part of a municipal entity’s formal procurement process, guidance on the RFP process, (4) how market participants can provide advice when a municipal advisor is involved, and other topics. Overall, it is fairly difficult for market participants to engage in discussions with municipal entities without subjecting themselves to municipal advisor registration and regulation. As illustrated by the SEC’s FAQs, the analysis can be highly fact-specific and involves judgment calls. As a result, many market participants will insist that the municipality hire a municipal advisor so that the other participants can communicate freely with the municipality and the obligated persons. Market participants need to be aware of the MSRB’s additional rules applicable to municipal advisors.