WASHINGTON — The American Bankers Association has issued guidance designed to help members determine if they need to register as municipal advisors under the Securities and Exchange Commission’s registration rule.
The ABA guidance includes a chart bankers can follow and urges them to take special care to determine if they are advising pension or other funds that hold muni bond proceeds, which could require they register as a municipal advisor.
The Dodd-Frank Act requires MAs to register and take on a fiduciary duty to put the interests of their clients above their own. Banks did not receive a wide exemption from registration under the final rule, though the ABA had pushed for that and legislation offered in the House during the past two Congresses would have granted it.
The ABA guidance notes that the final rule, adopted on Sept. 18, is still much more narrowly-tailored than the SEC’s original 2010 proposal that was withdrawn amidst heavy industry criticism for having an MA definition that was too broad.
“Although the SEC did not adopt ABA’s position that banks should be entirely exempt from the rule, it did incorporate exemptions for many traditional bank products, including advice with respect to deposit products and extensions of credit,” the guidance explains. “Nonetheless, ABA remains concerned about certain issues, including entering into an interest rate swap in connection with a bank loan, and the provision of advice to public pension plans.”
The chart includes boxes with questions that ABA members can use to see if they fall under the MA regulatory regime, such as “are you making a recommendation, suggestion, or pitch?”
The MA rule requires registration of anyone who provides specific advice to municipalities or conduit borrowers on the issuance of bonds or derivatives, or the investment of muni proceeds. Providing education on the state of the market without any recommendations, or simply advertising services as being available, do not require registration and the chart has these pointing back to a box reading “no registration needed.”
“Investment advisory activities offered in the bank itself, typically through trust departments, are not exempt under the final rule,” the ABA guidance notes. “Thus, a bank that provides investment advice, for example, to government pension plans or pooled investment vehicles that contain proceeds,’ would be required to register as a municipal advisor. However, if the advice is provided through a bank’s affiliate registered as an investment adviser under the Investment Advisers Act, registration would not be required.”
Banks should be able to ask issuers whether pension funds they are managing contain proceeds of taxable munis, the guidance says, but they could be exempt from registration if the pension plan retains its own registered MA. Under the SEC’s final rule, an entity providing advice can be exempt from registering if the issuer certifies it is relying on its own MA.
Cristeena Naser, vice president and senior counsel at the ABA’s Center for Securities, Trust & Investment, said work on the guidance began immediately with the rule’s adoption. “We’ve been watching this issue for years,” Naser said. “We began working on the final rule as soon as it was issued because it will definitely impact banks.”
