Hultgren Plans Bill to Clarify MA Rule's Requirements for Issuers

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WASHINGTON – Rep. Randy Hultgren, R-Ill., plans to introduce legislation during the week of June 27 to clarify that the Securities and Exchange Commission's Municipal Advisor Rule doesn't require municipal issuers to hire MAs in order to issue bonds.

The legislation, called the Municipal Advisor Choice Act, responds to perceived confusion among market participants as to whether that requirement was included in the MA Rule, which became effective in the summer of 2014.

"Washington's regulatory regime has again confused consumers, investors and other participants in the market, and the Municipal Advisor Rule is only the latest example," Hultgren said. "The Municipal Advisor Choice Act ensures that both issuers of municipal debt, and those who advise them, know their obligations under the rule. I look forward to clearing up the confusion surrounding this rule and urge quick action on this legislation."

Securities Industry and Financial Markets Association managing director and co-head of munis Michael Decker said SIFMA commends Hultgren for his attention to MA regulation.

"The SEC has said explicitly that issuers are not required under law or regulation to engage municipal advisors. Nevertheless, we have heard and seen that some municipal advisors have erroneously communicated to issuers that regulations do require the use of municipal advisors," Decker said. "We believe that Rep. Hultgren's bill will help clarify this issue."

Several other market groups agreed that the SEC's rule already made clear that MAs are not mandatory for issuing, but added that the additional clarification is welcome.

"The more clarity we have in our environment about the MA rule and what it does and the context of it is a good thing," said Emily Brock, director of the Government Finance Officers Association's federal liaison center.

GFOA has issued a series of alerts and summaries for its members regarding the MA Rule and the Municipal Securities Rulemaking Board's subsequent municipal advisor rulemaking as it has taken place. The organization recommends that an issuer hire an MA as a best practice, but has made clear in past guidance that an issuer is not required to do so under the MA Rule.

Susan Gaffney, executive director of the National Association of Municipal Advisors, said NAMA is supportive of Hultgren's efforts to "provide clarity about the use of MAs, a determination that should be made by each issuer."

"NAMA will reiterate with its members that there is nothing in the Dodd Frank Act, the SEC's MA Rule or subsequent rulemaking that mandate the use of MAs by issuers," Gaffney said.

Jessica Giroux, general counsel and managing director of federal regulatory policy for Bond Dealers of America, said BDA supports any additional clarity in the area of MA regulation.

The MA Rule and subsequent guidance from the SEC specifies which activities are covered by the Dodd-Frank Act's imposed fiduciary duty of a municipal advisor to its government client. It holds that municipal advisors have a fiduciary duty to their state and local government clients and a more limited duty of fair dealing to their obligated person clients if those clients are not a state or local government.

The rule and subsequent SEC guidance also lays out the limitations put on non-MA market participants who want to advise issuers.

Underwriters can communicate with issuers about general market issues as well as facts and ideas without being labeled an MA. However, if an issuer wants to receive more detailed advice from an underwriter, the issuer must be represented by an independent registered municipal advisor, with the requirement that the MA is providing advice to the issuer on the same aspects of the muni financial product or issuance and the municipal entity represents in writing that it has IRMA representation.

Underwriters can also provide advice in response to issuers' requests for proposal without becoming municipal advisors.

The rule also provides specific exemptions for other market participants including attorneys, accountants, registered investment advisors, commodity trading advisors, and registered swap dealers.

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