Registered investment advisorss providing advice on the investment of municipal bond proceeds or municipal escrow investments will be exempted from registering as municipal advisors under final rules adopted unanimously by the Securities and Exchange Commission Wednesday.

The Commission said the exemption is being put in place to avoid duplicative regulation of investment advisors.

The exemption would not apply to advice on the structure, timing, and terms of issues of municipal bonds or municipal derivatives because the advice in these areas is considered by the agency outside the focus of investment advisor regulation.

A non-RIA advisor providing information to a municipality on investment strategies would be required to register with the SEC only it the advice involved the investment of the proceeds of municipal bonds, the investment of municipal escrow funds and/or municipal derivatives.

In another exemption brokers, dealers, and municipal bonds dealers serving as underwriters would not have to register if their advisory activities involve the structure, timing, and terms of a particular issue of municipal bonds.

As a change from the earlier issued proposed rules, registered municipal advisory firms will have to provide information on their workers instead of having employees register separately.

The final rule allows the SEC to take disciplinary actions against the workers, including fines and de-registration.

In response to numerous objections filed in comments to the original municipal advisor registration proposal, the SEC is exempting municipal employees and elected and appointed
officers from registration when they are acting in their official duties.

The regulation was mandated by the Dodd-Frank Act which was enacted three years ago.

A temporary registration system for municipal advisors has been in place since Dodd-Frank was enacted. The permanent regime for registration will start July 1, 2014. About 1,100 firms are currently registered.

The stiffening of municipal advisor oversight by Dodd-Frank and the SEC, including bars on political contributions and other compensation by advisors to municipal officials, came in reaction to abuses before the financial crisis which cost local units of government and taxpayers billions.

The poster child for the catastrophe was Jefferson County, Alabama. Bribes paid by JP Morgan to county officials for $5 billion in investments lead the agency to declare the largest municipal bankruptcy in the nation’s history.

Commission members from both parties lauded the rules. Republican Daniel Gallagher called them a rational framework for advisor registration while Chairman Mary Jo White, a Democrat, said they will provided need protection to the municipal bonds market.

The vast majority of municipal bonds are owned by retail investors.

In the wake of the SEC action, the Municipal Securities Rulemaking Board will be developing guidelines for advisor oversight.

MSRB Board of Director Chair Jay Goldstone said the agency will be reaching out to “We  to municipal advisors to help them understand what it means to be regulated and the next steps it will be taking.