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SEC Announces Exams For Newly Registered Municipal Advisors



The Securities and Exchange Commission (SEC) has announced that during the next two years, “newly registered municipal advisors” can expect to undergo examinations by the agency’s Office of Compliance Inspections and Examinations (OCIE).

The examinations are part of a new registration regime implemented by the SEC to regulate previously unregulated municipal advisors in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Newly registered advisors are those who registered after July 1, when final registration rules governing municipal advisors took effect.

As of Aug. 24, the SEC had received temporary registration forms from more than 80 municipal advisors, according to the agency’s database.

Municipal advisors have until Oct. 31 to register with the agency, after which the SEC has 45 days to approve them.

Letters to all advisors permanently registered with the SEC will go out after Dec. 31.

Kevin W. Goodman, national associate director of the OCIE’s broker-dealer examination program, said the examinations would focus on “areas that are most important to protecting issuers, investors and municipal taxpayers.”

In an Aug. 19 letter addressed to the “Senior Executives or Principal of a Newly Registered Advisor,” Goodman said examinations will occur in three phases: an “engagement” phase, an “examination” phase and an “informing policy” phase.

The engagement phase of the program consists of a nationwide outreach to inform newly registered advisors operating in the $3.7 trillion municipal bond market. This phase will provide municipal advisors with a forum to discuss compliance issues and speak with staffs of the SEC, the Financial Industry Regulatory Authority (FINRA) and the Municipal Security Rulemaking Board (MSRB).

During the examination phase, SEC officials will review risk areas of the business and operations of a municipal advisor. These areas include record-keeping and compliance with SEC and MSRB registration rules, fiduciary duty, disclosure, fair dealing, supervision, and training and qualifications, SEC officials said.

In the last “informing policy” phase, officials with the SEC’s National Exam Program will report their findings to the commission.

Dodd-Frank was passed in response to the 2008 financial crisis. When the markets collapsed, municipalities that had borrowed heavily found it hard to repay creditors as tax revenues dried up. To meet their debt obligations, communities had to resort to restructurings, layoffs or tax increases.

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In 2012, the SEC recommended that Congress set basic standards for disclosure, require closer scrutiny of municipal issuers and enforce compliance with the fiduciary obligations of issues to protect municipal securities investors.

is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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