SEC’s Sanchez weighs in on financial transparency legislation

The director of the Securities and Exchange Commission’s Office of Municipal Securities urged the Government Finance Officers Association to continue to lobby Congress to ensure that any new disclosure legislation aimed at issuers will be “workable” and doesn’t “upend” the current disclosure landscape.

Dave Sanchez made the comments Wednesday during the GFOA’s annual Minimuni conference when answering a question about the pending Financial Disclosure Transparency Act. The bill has the muni market on edge.

The FDTA would require issuers to standardize their financial reports with machine-readable language under standards set by the Municipal Securities Rulemaking Board. The House passed the legislation in July as part of the new defense authorization bill, which the Senate is expected to take up in November.

“It is important for the GFOA to educate lawmakers on the real effects of any legislation,” Sanchez said, adding he knows it can be “real frustrating” to communicate to Congress “how unique” the municipal bond market is.

“I encourage the GFOA …to make their case so we can either continue to operate within current operating rules, where we’ve seen great progress on continuing disclosure,” or to ensure that the market has “a workable new rule that truly enhances [disclosure] and doesn’t upend the existing structure.”

The “unfunded mandate” could cost issuers $1.5 billion to implement, said GFOA federal liaison Emily Brock.

Muni issuers have always been free of direct regulatory requirements on the presentation and delivery of their financial disclosure, though the SEC since 2009 has required private companies to use XBRL on their financial statements.

In practice, the SEC regulates continuing disclosure in the muni market by means of regulations imposed on underwriters in rule 15c2-12. That rule requires that underwriters ensure that issuers have entered into contractual agreements to provide certain information to investors on an ongoing basis.