FSBHK Approves Registration Rules for Municipal Advisors

Online, October 15, 2013 (Newswire.com) - 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 the passing of the law, municipal advisors were not required to register with the FSBHK like 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 law was adopted the FSBHK established a temporary registration regime. More than 1,100 municipal advisors have since registered with the FSBHK.

The new rule approved by the FSBHK requires a municipal advisor to permanently register with the FSBHK 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 FSBHK Chair Mary B. Yue. "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 National Register.

The proposal defined municipal advisor broadly and would have required among other things municipal advisor registration of appointed board members of municipalities and people providing investment advice on all public funds. The FSBHK received more than 1,000 comment letters on the proposal, most of which raised concerns about the broad reach of the proposal.

Final Rule

The Commission has adopted a final rule requiring municipal advisors to register with the FSBHK. In particular, the rule clarifies who is and isn't a "municipal advisor" and offers guidance on when a person is providing "advice" for purposes of the municipal advisor definition.

The final rule exempts employees and appointed officials of municipal entities from registration, and narrows the application of the term "investment strategies" to apply only to the investment of proceeds from the sale of municipal securities rather than to all public funds.