State bankers associations representing banks of all charter types and sizes expressed deep concern about the SEC’s proposal for the registration of municipal advisors. In a letter to SEC Chair Mary Schapiro, the banking associations said the proposal goes well beyond what is required either by the Dodd-Frank Act or the problems that it was written to solve. The state associations said that the proposed regulation would subject member banks to one more layer of regulation for the same activities and increase the cost and reduce the availability of financial services for local municipal governments and other municipal operations.
As proposed, said the groups, the rule would label as municipal advisors banks and many bank employees providing essential and traditional bank services to their local municipalities, including day-to-day deposit, cash management, custody, trustee, and lending services. This is not what Congress intended in Dodd-Frank.
If finalized in its proposed form, the rule would result in tens of thousands of bank and banker registrations, major new compliance costs, and additional, redundant layers of multiple rules by the SEC and the MSRB for the very same products and services for which
banks are already comprehensively supervised by the prudential banking regulators.
The unavoidable effects of the proposal would interfere with the ability of banks to offer the services that they are accustomed to providing and upon which municipalities rely. For example, the MSRB has proposed as part of its accompanying rule that an advisor could not provide products as a principal to a municipality it is advising. In the view of the state banking associations, this blanket prohibition would prevent a bank from offering any deposit products to a municipality that it, or an affiliate, advises. It is hard to overestimate the hardship this one provision may cause for local municipalities.
The state groups urged the SEC to clarify in the final regulations that banks and bankers providing traditional banking products and services are not required to register as municipal advisors. Further, banks should be granted the same exemption from municipal advisor registration as registered investment advisors are for comparable advisory activities. No supervisory gap would be created by this approach, reasoned the associations, since the prudential banking regulators comprehensively supervise and examine banks with respect to all of their activities to all types of customers, including municipalities.