Ideas & Insights

The Dodd-Frank Act – What Is It, How Does It Impact Municipalities?

What Has Happened Since The Law Went Into Effect?

By Scott Johnson, CPA, CGMA
Partner, State & Local Government, Advisory Services
Macias Gini & O’Connell LLP (MGO) CPAs & Advisors


During my municipal career I had the privilege and opportunity to serve the City of San Jose as Director of Finance at a period we characterized as the “Decade of Investment”. I started in San Jose in 2001 and continued as the Finance Director until I left to serve the City of Oakland as Assistant City Administrator in 2011. During my time in San Jose, along with many other responsibilities, I was responsible for the City’s debt management program. We issued over $6 billion of debt, (comprised of new issues and refundings) for a comprehensive capital improvement program that included a new city hall complex, a new airport, expansion of the convention center and new parks, libraries, public safety facilities and various other public improvements. It was during this time that we all experienced the “Great Recession” and the many impacts and changes in response to that challenging time.

As a former municipal finance officer and administrator, I recognize the need for continuous monitoring and tracking of changes and updates relating to the laws and regulations that impact municipalities. In response to the Great Recession, the Dodd–Frank Wall Street Reform and Consumer Protection Act [(the Act), commonly referred to as Dodd–Frank], was passed and later signed into federal law by President Obama on July 21, 2010. Dodd-Frank was one of the most significant laws that impacted municipal finance and brought the most significant changes to financial regulation in the United States since the regulatory reform that followed the Great Depression.

Dodd-Frank made changes in the American financial regulatory environment that affect all federal financial regulatory agencies and almost every part of the nation’s financial services industry, including municipal issuers.

This comprehensive law provides for regulations affecting U.S. banking, securities, derivatives, executive compensation, consumer protection, and corporate governance. The law also created the Consumer Financial Protection Bureau, the Office of Financial Research, and the Office of National Insurance, all under the U.S. Department of the Treasury (Treasury.) It also created the Financial Stability Oversight Council, which is chaired by the Secretary of the Treasury.

In addition to the new agencies, other federal agencies have been tasked with creating new rules and conducting studies, including the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the Federal Reserve, the Federal Trade Commission, the Government Accountability Office, the U.S. Department of Housing and Urban Development, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Securities and Exchange Commission (SEC), and the Treasury.

What does this all mean? – Highlights of the Dodd-Frank Act

What should municipal finance officers be aware of that changed as a result of reform and regulation brought forth by Dodd-Frank? Municipal issuers and investors should be aware that the roles and responsibilities for both consultants and issuers have changed, in addition to how the relationships between parties have changed. The purpose of this article is to take a brief view into Dodd-Frank and the provisions that impact municipal issuers and investors. Municipal finance officers should be aware of the following key areas of Dodd-Frank.


The Act closes regulatory gaps by providing the SEC and Commodity Futures Trading Commission (CFTC) with authority to regulate over-the-counter derivatives so that irresponsible practices and excessive risk-taking can no longer escape regulatory oversight. In addition, the Act requires central clearing and exchange trading for derivatives that can be cleared and provides a role for both regulators and clearing houses to determine which contracts should be cleared. The Act also requires data collection and publication through clearing houses or swap repositories to improve market transparency and provide regulators important tools for monitoring and responding to risks. Finally, the Act adds safeguards to the system by ensuring dealers and major swap participants have adequate financial resources to meet responsibilities and by providing regulators the authority to impose capital and margin requirements on swap dealers and major swap participants, not end users. Through these measures, there is a higher standard of conduct. The Act establishes a code of conduct for all registered swap dealers and major swap participants when advising a swap entity. For example, when acting as counterparties to a pension fund, endowment fund, or state or local government, dealers are to have a reasonable basis to believe that the fund or governmental entity has an independent representative advising them. Municipal finance officers should be keenly aware of these regulations, including the monitoring and reporting aspects.


The Act gives the SEC the authority to impose a fiduciary duty on brokers who give investment advice — the advice must be in the best interest of their customers. In addition, a Whistleblower Program was established within the SEC to encourage people to report securities violations, creating rewards of up to 30 percent of funds recovered for information provided. The Act also implemented several SEC Management Reforms including Mandating a comprehensive outside consultant study of the SEC, an annual assessment of the SEC’s internal supervisory controls, and the Government Accountability Office’s review of SEC management. Lastly, several new advocates for investors were created, including; the Investment Advisory Committee, a committee of investors to advise the SEC on its regulatory priorities and practices; the Office of Investor Advocate in the SEC, to identify areas where investors have significant problems dealing with the SEC and provide them assistance; and an ombudsman to handle investor complaints.


The Act requires registration of municipal advisors and subjects them to rules written by the Municipal Securities Rulemaking Board (MSRB) and enforced by the SEC. In addition, the Act puts “Investors First” on the MSRB by requiring that at all times, the MSRB must have a majority of independent members, to ensure that the public interest is better protected in the regulation of municipal securities. Finally, the Act imposes a fiduciary duty on advisors to ensure that they adhere to the highest standard of care when advising municipal issuers.


After the Act became law, a number of new rules and regulations were implemented. Below are highlights of just a few of the new rules and regulations, such as the SEC Municipal Advisor (MA) Rule, the MSRB G-42 and G-37 rules, and the Municipalities Continuing Disclosure Cooperation (MCDC) Initiative. It should be noted that additional regulations and rules have been implemented due to the Dodd-Frank Act, including new disclosure requirements, new arbitrage provisions, and other rules and regulations by federal agencies such as the MSRB, SEC, and IRS, to name a few.

The MA Rule – The SEC gave final approval to this rule which took effect July 1, 2014, defining the term, Municipal Advisor. The SEC MA Rule specifies activities which are covered by the Dodd-Frank Act’s imposed fiduciary duty of a municipal advisor to its government client, which may limit the manner in which underwriters and other professionals interact with issuers. The Rule does not regulate issuers directly; however, there are numerous indirect implications. The effect of the MA Rule on issuers is to limit the ability of underwriters to provide advice to issuers. However, it should be noted that a few exemptions to the Rule may apply. The GFOA has issued a comprehensive alert on this topic which can be found at:

MSRB Rule G-42 – Effective June 23, 2016, this Rule establishes core standards of conduct for municipal advisors engaging in municipal advisory activities. Implementation of Rule G-42 has implications for underwriters. Further amendments were approved to Rule G-42, which became effective August 12, 2016. For a comprehensive overview of this rule, please refer to the MSRB website at

MSRB Rule G-37 – In 1999, the MSRB published a notice on the application of Rule G-37, on political contributions and prohibitions on municipal securities business to issuer officials related to Presidential campaigns. On September 28, 2011, the MSRB issued a reminder regarding the application of Rule G-37 to federal election campaigns of issuer officials. Specifically the Rule; (a) prohibits brokers, dealers, and municipal securities dealers from engaging in municipal securities business and municipal advisors from engaging in municipal advisory business with municipal entities if certain political contributions have been made to officials of such municipal entities; and (b) requires dealers and municipal advisors to disclose certain political contributions, as well as other information, to allow public scrutiny of such political contributions, the municipal securities business of dealers, and the municipal advisory business of municipal advisors. The purpose and intent of this rule is to ensure that the high standards and integrity of the municipal securities market are maintained; to prevent fraudulent and manipulative acts and practices; to promote just and equitable principles of trade; to perfect a free and open market; and to protect investors, municipal entities, obligated persons, and the public interest. A comprehensive overview of this Rule can be found at:

Municipalities Continuing Disclosure Cooperation Initiative (MCDC Initiative) was established by the SEC in March 2014. The MCDC Initiative provided issuers and underwriters the opportunity to self-report instances of material misstatements in bond offering documents regarding the issuer’s prior compliance with its continuing disclosure obligations. The deadline for self-reporting under the MCDC Initiative was December 1, 2014. This Initiative was intended to address potentially widespread violations of the federal securities laws by municipal issuers and underwriters of municipal securities in connection with certain representations about continuing disclosures in bond offering documents.

Most recently, on August 24, 2016, the SEC announced enforcement actions against 71 municipal issuers and other obligated persons (collectively, the municipal issuers) under the Initiative for selling municipal bonds with offering documents that contained materially false statements or omissions about compliance with continuing disclosure obligations. These enforcement actions are the first against municipal issuers since the first action under the MCDC Initiative was announced in July 2014 against a school district in California.

The 71 municipal issuers charged comprise a wide variety of issuers from 45 states, including states, state authorities, local issuers ranging from small towns to large counties, local authorities, school districts and charter schools, colleges and universities, health care providers, utilities, and a retirement community. These municipal issuers settled the actions without financial penalty (unlike the SEC’s prior MCDC enforcement actions against underwriters) and without admitting or denying the findings and agreed to cease and desist from future violations. Pursuant to the terms of the MCDC Initiative, the municipal issuers agreed to establish appropriate policies, procedures, and training regarding continuing disclosure obligations; comply with existing continuing disclosure undertakings (including updating past delinquent filings); disclose the settlement with the SEC in future offering documents; and cooperate with any future SEC investigations.

The settlements included disclosure failures that occurred between 2011 and 2014 and covered both competitive and negotiated transactions. The conduct the SEC cited in the settlements ranged from failures to disclose that such municipal issuer had made no continuing disclosures at all to those where the disclosures were very late or incomplete. The settlements also included situations where municipal issuers made false statements that they were in compliance with their continuing disclosure agreements, as well as those where municipal issuers were silent about their continuing disclosure and misled investors by omission. The settlements also included a situation where there was a failure to file a material event notice.

Below is a summary of other impacts and changes that have been implemented due to the Act:

Consumer Protections with Authority and Independence: Created a new independent watchdog, housed at the Federal Reserve, with the authority to ensure American consumers get clear, accurate information they need as they consider mortgages, credit cards, and other financial products, and protect them from hidden fees, abusive terms, and deceptive practices.

Ends Too Big to Fail Bailouts: Ends the possibility that taxpayers will be asked to write a check to bail out financial firms that threaten the economy by; (1) creating a safe way to liquidate failed financial firms; (2) imposing tough new capital and leverage requirements that make it undesirable to get too big; (3) updating the Federal Reserve’s authority to allow system-wide support but no longer prop up individual firms; and (4) establishing rigorous standards and supervision to protect the economy and American consumers, investors, and businesses.

Advance Warning System: Creates a council to identify and address systemic risks posed by large, complex companies, products, and activities before they threaten the stability of the economy.

Transparency and Accountability for Exotic Instruments: Eliminates loopholes that allow risky and abusive practices to go on unnoticed and unregulated — including loopholes for over-the-counter derivatives, asset-backed securities, hedge funds, mortgage brokers, and payday lenders.

Executive Compensation and Corporate Governance: Provides shareholders with a say on pay and corporate affairs with a non-binding vote on executive compensation and golden parachutes. Provides tough new rules for transparency and accountability for credit rating agencies to protect investors and businesses.

Enforces Regulations on the Books: Strengthens oversight and empowers regulators to aggressively pursue financial fraud, conflicts of interest, and manipulation of the system that benefits special interests at the expense of American families and businesses.

In closing, as municipal finance officers, one must continue to keep up-to-date on changes and updates relating to the laws and regulations that impact municipalities. The Dodd-Frank Act and related regulations and rules highlighted above are only a small representation of the overall regulatory environment that is ever changing. One good reason why organizations such as the California Society of Municipal Finance Officers, the California Debt and Investment Advisory Commission and the Government Finance Officers Association are such valuable resources to municipal finance professionals is the continuous educational programs and training resources they offer us that help us navigate through such regulatory and legislative changes.

About the Author

Scott Johnson has over 30 years of experience in government administration, with a focus on successfully overseeing internal service operations including; debt management, information technology, human resources, municipal finance and budget. He has led large and mid-sized operations in government including the cities of Santa Clara, Milpitas, San Jose, Oakland, and Concord and the County of Santa Clara. Scott is a past president of CSMFO and continues to be an active member of the organization. During his municipal career, he oversaw over $6 billion of debt issuances. He is currently a partner with Macias Gini & O’Connell LLP (MGO), leading the Advisory Services sector, specializing in State & Local Governments. He welcomes any questions or comments via email:

Disclaimer: The views expressed in this article are those of the author and do not reflect the official policy or position of CSMFO or Macias Gini & O’Connell LLP.

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