• The Aquorn Team

Regulatory change and the long-term impact on Public Agencies


The enactment of the Dodd-Frank Act, signed into law on July 21, 2010 in the aftermath of the 2007-09 financial crisis, represents the single most important set of regulatory changes in the municipal market since the mid-1970s.


Among other things, Dodd-Frank created a statutory responsibility for municipal financial advisors to meet fiduciary standards. It imposed business conduct requirements on swap dealers in their dealings with municipalities. It established the Office of Municipal Securities within the SEC and authorized the Financial Industry Regulatory Authority (“FINRA”) to collect an annual support fee to fund the Government Accounting Standards Board.


Federal Securities Laws

  • Municipal Advisor Rule. As a part of the Dodd-Frank Act, anyone who advises issuers concerning the timing or structure of municipal bonds is regulated by the MSRB as a “municipal advisor.” Municipal advisors now have a federal statutory duty to act as a fiduciary in the best interests of the municipal issuers they serve.

  • SEC’s Regulatory Activity Regarding Issuers. Since 2005, the SEC has entered cease-and-desist orders against the City of San Diego, the State of New Jersey, the State of Illinois, the City of Harrisburg, and the City of South Miami. In addition, the SEC has brought an enforcement action against the City of Victorville, and has conducted several investigations of other California agencies.

  • SEC Rule 15c2-12. In May 2010, the SEC issued its final rule amending SEC Rule 15c2-12 (“Rule 15c2-12”) to increase the number of events that issuers and obligated persons must report to EMMA, remove the materiality qualifier for some of the existing events and impose a 10-day filing requirement. In the same release, the SEC issued interpretative guidance that explained to underwriters that due diligence regarding past compliance with continuing disclosure undertakings by issuers and obligated persons is a part of the due diligence responsibilities of underwriters. This may be one of the most poorly understood elements of regulatory change by smaller, less frequent issuers. Implemented February 27, 2019, the SEC yet again increased the disclosure obligations of public agencies to cover private placements and other events and obligations that have a material effect on bondholders.

  • The formation of an Office of Municipal Securities and a Municipal Securities and Public Pensions Unit. For the first time at the SEC, there is a dedicated office and dedicated personnel who are permanently responsible for oversight of the municipal markets.

  • The Municipal Market Report. In 2012, the SEC published a municipal market report in which, among other things, it requested Congress to provide the SEC with broad new powers over issuers, including the power to regulate content of primary disclosures and continuing disclosure, filing requirements, and financial statement oversight.

Other Legal Changes

  • Increased Focus on Post-Issuance Compliance. In recent years, the IRS has become more focused on the post-issuance tax compliance of municipal bond issuers and beneficiaries. In 2008, the IRS sent compliance check questionnaires to 501(c)(3) beneficiaries of tax-exempt bonds to evaluate their post-issuance and record retention policies, procedures, and practices. In 2009, similar questionnaires were sent to various governmental entities. The IRS’s Advisory Committee on Tax Exempt and Government Entities has issued a series of reports recognizing the importance of post-issuance compliance and record retention procedures


All of the actions and regulations described above were intended to change the way municipal securities market participants behave and have done so. The fiduciary duty has forced more discipline on, and ensured more consistently educated, municipal advisors. The SEC actions were meant to ensure consistent disclosure practices so that more timely and accurate information is available for municipal investors.


The increased oversight requirements and reporting responsibilities impact advisors and issuers alike while bringing benefits to investors and the broader market. The implementation of these requirements has placed a heavy burden on issuers. This has led to an increasing number of issuers shying away from public debt issuance in favor of private bank loans and other alternative borrowing structures to avoid the increased reporting demands.


While a robust regulatory environment that promotes transparency benefits everyone, it is important to ensure that the necessary tools are available so that the municipal debt issuing community can easily facilitate their responsibilities and don't forego the financial benefits of borrowing from the capital markets.


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