It will take five years to turn the new federal financial reform law into rules and regulation, an industry expert from the Securities Industry and Financial Markets Association said last week.
“The United States has finished the first act of a multi-act play ... responding to the financial crisis,” said Kenneth Bentsen Jr., SIFMA’s executive vice president of public policy and advocacy. “Now we move into this multi-year rule-making process that will go through fits and starts as we go through the normal administrative procedures and processes of doing that.”
About a dozen agencies will have to produce close to 250 rules and the Securities and Exchange Commission has to produce about 90 of those, he said.
“This is a huge undertaking for the independent agency regulatory bodies,” Bentsen said. “It’s probably a great time to be a regulatory lawyer.”
Speaking at a luncheon in New York City sponsored by the Municipal Forum of New York, Bentsen was joined by SIFMA senior managing director of research and public policy Michael Decker in a talk about how the new law will affect municipal finance. They also discussed the status of possible extensions of bond programs created last year under the federal stimulus package, such as taxable Build America Bonds.
New rules regulating derivatives will add some heightened business-conduct requirements to protect municipal issuers but won’t kill the market, according to Decker.
The kinds of “derivatives that are prevalent in the muni market will be able to be executed in the same way they always have been for the most part,” he said. “One of the practical effects of the provision is it’s going to strongly encourage, maybe even effectively require, that issuers use swap advisers when they execute swap transactions.”
The law calls for the Government Accountability Office to conduct two studies about municipal bond practices, Decker said. One will study issuer disclosure practices and require the GAO to make recommendations about whether the so-called Tower amendment should be retained, amended or repealed.
The Tower amendment prevents the SEC and the Municipal Securities Rulemaking Board from requiring muni issuers to file disclosure documents with them prior to bond sales.
The SEC plans to hold hearings later this year and early next year on municipal market practices.
“It’s a distinct possibility the SEC will request from Congress some authority to regulate issuer disclosure practices,” Decker said.
The financial reform act also increased the MSRB’s role in regulating the municipal market. Previously the board made rules and the SEC or the Financial Industry Regulatory Authority enforced them. Under the new law, the SEC and FINRA will have to engage the MSRB when pursuing regulatory actions and formally meet with them twice annually.
“The MSRB has never been an enforcement agency organization before and now they are,” Decker said.
Bentsen said Congress will probably revisit the financial reform bill next year with a technical corrections act. That act could be a stand-alone bill or part of a housing finance reform bill dealing with the Federal Housing Administration and the government-sponsored enterprises Freddie Mac and Fannie Mae, he said.
Bentsen said they were hopeful that a stalled tax bill that could extend bond programs created under the American Recovery and Reinvestment Act such as BABs would be revived.
“Majority in Congress wants it, there’s just not a sufficient majority in the Senate to get it across the finish line — unrelated, frankly to the BABs issue,” Bentsen said. “But we feel pretty confident we’re going to get that done.”
