February 22, 2011
I appreciate the opportunity to comment on the notice of proposed rulemaking issued by the Securities and Exchange Commission to establish a permanent registration system for municipal advisors under Section 975 of Dodd-Frank.
Section 975 establishes a system of dual registration with the Commission and Municipal Securities Rulemaking Board that will require covered municipal advisors to comply with rules of fair dealing, ongoing education requirements, and a fiduciary duty to their municipal clients.
Section 975 was intended to establish a regulatory scheme for unregulated persons providing advice to municipalities with respect to municipal derivatives, guaranteed investment contracts, investment strategies or the issuance of municipal securities.
The SEC has expanded the definition of "investment strategies" to encompass any funds "held" by a municipal entity, regardless of whether such funds are related to the issuance of municipal securities or investment of bond proceeds.
Alerus Financial provides a variety of products and services to state and local governmental bodies. For example, we offer deposit, cash management, corporate trustee services and various retirement plan services to state and local governmental bodies.
Our corporate trustee services and retirement plan services are currently regulated by the Office of the Comptroller of the Currency (OCC) and in most cases we serve only as a directed trustee. Where we serve as trustee for a bond indenture we do not exercise discretionary investment authority on behalf of the issuer and only provide them at their request with money market options or bank deposit options. The OCC exams Alerus Financial on an annual basis.
The regulation as proposed will require employees of a bank that are involved to register as municipal advisors, where will the line be drawn as to who provides regulated services or advice, is it the teller who provides information about a checking account to a municipal entity, is it the relationship manager assigned to the municipal entity, or is it the product specialist who deals with deposit accounts generally. Who on the trust side of our business would need to be registered? Is it the trust administrators who are primarily involved or the administrator who answers a question or provides information because the assigned administrator is on vacation? Many different employees are involved with various aspects of the various pension plans, 403(b) plans, etc. that we administer, do all have to register or only the main person involved?
The SEC's interpretation would cover traditional bank and trust products and services such as deposit accounts, cash management products corporate trustee services, and administration of retirement plans, meaning banks would have to register as municipal advisors and add a new layer of regulation on bank products for no meaningful public purpose.
This duplicate regulation will raise costs and limit availability of financial services, ultimately harming states and local governments.
The Commission should state clearly that neither Section 975 nor its implementing regulation reach traditional bank products and services.
The Commission should extend the exemption for registered investment advisors to banks that are exempt from the Investment Advisors Act registration.
Thank you for this opportunity to comment on this proposed regulation.
Sincerely,
Douglas C. Carpenter
Director Trust & Investments
Alerus Financial, N.A.
Grand Forks ND 58201
(Attached File #1: s74510-436-1.pdf)