MSRB Requests Comments on Regulatory Approach to Bank Loan Disclosure

Thursday, April 7, 2016

On March 28, 2016, the Municipal Securities Rulemaking Board (MSRB) announced that it is seeking public comment on a regulatory approach that would require municipal advisors to disclose information about the bank loans and direct purchases of their municipal entity clients to the MSRB’s Electronic Municipal Market Access (EMMA) website. GFOA has significant concerns with this proposal, including the following:

  • Municipal advisors are the only party in a municipal debt transaction that have a fiduciary responsibility to issuers, as outlined in the Securities and Exchange Commission’s 2013 municipal advisors rule. MSRB’s proposed approach to pass along responsibility of issuer disclosure of bank loans and private placements breaches that fiduciary duty, making municipal advisors beholden to the investor community as well. Such a requirement would change the nature of issuers’ relationships with municipal advisors in a manner that is beneficial to neither issuers nor municipal advisors.
  • Requiring municipal advisors to assume this responsibility goes well beyond the scope of work that is typical of issuer’s engagement of municipal advisors, and this additional requirement would likely drive up the costs of engaging municipal advisors on debt transactions. 
  • This MSRB proposal ignores the ongoing and increasing level of activity of GFOA and our municipal market partners (National Association of Bond Lawyers; National Association of State Treasurers; National Association of State Auditors, Comptrollers and Treasurers; Securities Industry and Financial Markets Association; Bond Dealers of America; National Federation of Municipal Analysts; and others) in working collaboratively to improve continuing disclosure from municipal interests. GFOA recognizes and embraces the need for issuers to provide investors with accurate financial information, which is why we have developed best practices to provide guidance to issuers on disclosure. 
  • This proposal seems to trample on bond counsel’s role to issuers in determining what financial information is material and should be disclosed to investors. Municipal advisors do not currently have that responsibility, and it is unclear what expertise they could lend to such a determination. 
  • Establishing this requirement would further complicate the already unnecessarily confusing matrix of responsibilities assigned to municipal advisors by the 2013 municipal advisor rule and subsequent SEC and MSRB regulations, such as Rule G-42. Some municipal governments and all municipal advisors are still trying to figure out how the new regulatory regime applied to municipal advisors is supposed to function.

GFOA will submit comments on this proposal to the MSRB and invites GFOA members to do the same. Comment letters are due on May 27 and can be transmitted to the MSRB through this link. GFOA members can access full text of the short regulatory proposal here.