09/24/2013

SEC exempts engineering companies from registration as 'municipal advisors'

In what is a major victory for ACEC, the Securities & Exchange Commission has determined that engineering companies providing municipal clients with cash-flow modeling, feasibility studies and similar services will not be required to register with the commission under its new "municipal advisor" rule.

The SEC met September 18 and unanimously approved the final rule, which establishes a permanent registration regimen for municipal advisors as required by the Dodd-Frank Act.

Katharine Mottley, ACEC's Director of Tax & Regulatory Affairs, reports that during a discussion last week with SEC staff members, they described several exemptions to the registration regime, including the engineering exemption.

In what is a significant change from the original rule, cash-flow modeling and feasibility studies and similar activities will be included under the engineering exemption and will not trigger registration – an exception for which ACEC had lobbied vigorously.
 
Engineering companies would still be required to register with the SEC, however, if they provide advice on the issuance of municipal securities, advice on the investment of proceeds from municipal securities, or advice on municipal derivatives.

State and local governments that issue municipal bonds frequently rely on advisors to help them decide how and when to issue the securities and how to invest proceeds from the sales.  These advisors receive fees for the services they provide.

Prior to passage of the Dodd-Frank Act, municipal advisors were not required to register with the SEC, as are other market intermediaries.  This left many municipalities relying on advice from unregulated advisors, and they were often unaware of any conflicts of interest a municipal advisor may have had.

After the Dodd-Frank Act became law, the SEC established a temporary registration regimen.  More than 1,100 municipal advisors have since registered with the SEC.

The new rule approved by the SEC requires a municipal advisor to permanently register with the SEC if it provides advice on the issuance of municipal securities or about certain “investment strategies” or municipal derivatives.

“In the wake of the financial crisis, many municipalities suffered significant losses from complex derivatives and other financial transactions, and their investors were left largely unprotected from these risks,” said SEC Chair Mary Jo White.  “These rules set forth clear, workable requirements and guidance for municipal advisors and other market participants, which will provide needed protections for investors in the municipal securities markets.”

The new rules become effective 60 days after they are published in the Federal Register.