In the August 1 edition of the Virginia Association of Counties’ newsletter County Connections, an article discusses the effects of recent federal financial reforms on county governments engaging in various financial transactions. The article was provided by Frank Shafroth, the Director of Legislative Affairs and Intergovernmental Relations for the Municipal Securities Rulemaking Board (MSRB). From the article:

Pension Plans & SWAPS. State and local governments and governmental pension plans effectively must obtain the services of a swap advisor for their transactions, and the broker/dealer in the transaction would have to verify on a reasonable basis that the government/pension plan has an independent advisor. The legislation states that the Special Entity (such as a county) must have an “independent representative.”

How this will be interpreted depends on the regulators. (A county might use a swap to address a variable rate risk on an outstanding bond or vice versa.)

The article discusses the effects on the new oversight bodies and their roles, noting “A key part of the new legislation is to protect local governments. Key issues: The agreement provides for registration and oversight of advisers by the Municipal Securities Rulemaking Board (MSRB) and imposes a fiduciary duty on municipal advisers.”