A trade group representing municipal advisors said a proposed rule meant to tighten pay-to-play regulations doesn’t go far enough.
The draft Rule G-20 proposed by the Municipal Securities Rulemaking Board would limit each person to $100 annually to pay for “gifts and gratuities.” But it would allow exemptions such as meals, theater tickets, sporting events and other sponsored functions.
But the National Association of Municipal Advisors said the exclusions would bypass the cap.
“The aggregate value of the gift, meal and entertainment given to this individual would be well in excess of the $100 limit but would be accepted under the Rule and the most expensive items would not even have to be reported nor would records have to be maintained,” said NAMA President Terri Heaton in her written comments to the MSRB.
NAMA suggested to instead raise the limit to $250 and incorporate the exemptions, which would “strike the appropriate balance” governing municipal market participants behavior without raising questions of impropriety.
The exemptions would leave open “a plethora of opportunities for abuse.” And the amendments did not provide any enforcement mechanism, NAMA said.
Rule G-20 already governs the behavior of municipal securities dealers and the MSRB has proposed extending the rule to municipal advisors as part of its initiative to tighten the behavior of municipal market participants. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was passed in the wake of the financial crisis, rulemaking bodies were given the authority to further regulate financial markets and Rule G-20 is one of several that are under review by the MSRB.
Raising the gift threshold and closing loopholes would also make Rule G-20 consistent with MSRB Rule G-37, which limits contributions to individuals seeking elected office to $250 if the contributor is able to vote for the person seeking office, NAMA said.
Heaton said that when municipal business decisions are not based on qualifications or cost, but instead based “on who has given the most lavish gift or gratuity, it is the municipal entity itself and its tax and rate payers that ultimately suffer.”
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