WASHINGTON — A former Securities and Exchange Commission member and other speakers at a conference on Friday expressed frustration with the progress of pending municipal market regulations, including measures to regulate independent and other municipal advisors.
Speaking at the 2012 National Municipal Bond Summit in Miami, sponsored by Bond Dealers of America and The Bond Buyer, they also said they see no end to an era of increased enforcement.
Richard Roberts, a former SEC commissioner who is now a lobbyist for BDA, told attendees that delays in getting rules approved for municipal advisors has been a “source of great frustration.”
“It’s been a tough needle to thread … I feel more like I’m banging my head against the wall,” he said.
Roberts said he had approached members of Congress about speeding things up, but the Republicans did not want to do anything to further Dodd-Frank Act provisions and the Democrats did not want to seem critical of the SEC.
MSRB board chairman Alan Polsky, speaking during an earlier session at the conference, also said efforts to regulate muni advisors have created “frustration in the entire market.”
“It is really critical to so many things we do,” he said. “It’s an important piece that’s missing from the regulatory framework.”
The MSRB proposed a series of rules and rule changes for municipal advisors, as required by the Dodd-Frank Act, then filed them with the SEC. But the board retracted them last year, citing the need for the SEC to adopt a permanent definition of the term “municipal advisor.”
The commission has said it is finalizing the definition but that it could be the end of the third quarter before it completes the process.The SEC’s initial definition of municipal advisor, which appeared in proposed registration rules for them, was overly broad and generated extensive criticism, including from lawmakers, Republicans and Democrats.
Roberts said he is concerned the SEC may not finalize its definition until after September.
SEC staff also has spent months writing a report on the municipal bond market that is expected to include recommendations for administrative and legislative changes to improve transparency in the market.
Roberts said he had expected the SEC to release the report by the end of last year. Now, he expects the report “to be out in a matter of weeks.”
“Usually, when things slip past the end of the year, they usually show up around the end of the first quarter,” he said.
Roberts suggested the report might call for issuers to adopt generally accepted accounting principals. He does not expect the report to recommend repealing the Tower Amendment, which prohibits the MSRB and SEC from requiring issuers to file documents prior issuing bonds.
Roberts said he thinks Congress will take action on some of the SEC’s recommendations, but probably not until next year. He said the report will likely be “aired out” in hearings held by the banking and financial services committees.
E. Andrew Southerling of law firm Morgan, Lewis & Bockius LLP said federal regulators have been more aggressive with enforcement actions in recent months.
He also said the SEC “is really taking a hard look at the issuers, particularly the issuers that have experienced financial difficulties.”
Southerling said the SEC seems to be particularly focused on enforcing compliance with disclosure rules and on disclosure training for municipal issuers and their staffers.
He said SEC officials have said they are searching for cases where issuers used money from bond offerings for purposes not specified in offering documents.
“I am understanding that issuers that have been masking their true financial condition – the SEC is looking at those issuers today and enforcement actions are forthcoming,” said Southerling.
Southerling also said that about one year ago the Financial Industry Regulatory Authority asked broker-dealers for information about their pricing policy and procedures. FINRA then fined firms that did not have sufficient policies and procedures.
“As a regulated entity, you want to be cooperative, you want to be proactive and get the information that FINRA or the SEC is seeking,” Southerling said. “It’s unsettling to think that by engaging in that kind of cooperative effort, you are going to be on the other end of an enforcement action. But it’s happening, We’re seeing it.”
Roberts attributed increased regulation largely to recent, high-profile scandals, notably the Ponzi schemes of Bernard Madoff and, more recently, Texas financier R. Allen Stanford, who was convicted in early March by a federal jury on 13 counts of fraud involving $7 billion in investments.
“There is no incentive to give anybody a break. Everything slopes towards increasing the pressure … I wish it would change sooner, but I think it’s unlikely,” said Roberts.
