SEC Approves Baseline Compliance Obligation For Muni Advisors

By Cyril Tuohy

InsuranceNewsNet

The Municipal Securities Rulemaking Board (MSRB) announced it has received approval from the Securities and Exchange Commission (SEC) to adopt rules dedicated to the supervisory and compliance obligations of municipal advisors.

The bulk of the rule changes become effective April 23, 2015. A year later -- by April 23, 2016 -- executives of municipal advisor firms are required to make “the first of their annual certifications in writing” that the firm has processes in place “to establish, maintain, review, test and modify written compliance procedures,” to comply with the rules, the MSRB said.

The changes affect Rule G-44, with other changes affecting Rule G-8 and G-9. Rule G-44 deals with the supervisory and compliance obligations of municipal advisors, while Rules G-8 and G-9 affect recordkeeping and document handling.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act passed in the wake of the financial crisis, the MSRB was charged with developing a comprehensive regulatory framework for municipal advisors.

Before Dodd-Frank, advisors were loosely regulated. MSRB officials began reviewing comments on the proposed changes in February.

MSRB executive director Lynnette Kelly said in a news release that effective supervision and compliance is a “critical step” for municipal advisor firms.

“The MSRB’s supervision rule will help firms prevent and promptly detect and address any compliance issues,” Kelly said.

Comments submitted to the MSRB over the past several months called for advisory firms to have flexibility in developing supervisory procedures, and that leeway appears to have been incorporated into the final version of Rule G-44.

Municipal advisors, for example, may tailor supervisory procedures to account for their size, business model and advisory structure. Significant latitude was also given to advisors who operate as sole proprietorships.

“When Rule G-44 is in effect, municipal advisor firms will have an explicit obligation to effectively supervise their personnel in the interest of promoting compliance with all regulatory requirements,” Kelly said.

MSRB officials are also moving to tighten oversight of standards of conduct that apply to nonsolicitor municipal advisors, and are considering extending municipal dealer pay-to-play rules to municipal advisors.

Earlier this year, the SEC imposed new registration rules for municipal advisors in an effort to tighten regulation of who qualifies as a municipal advisor.

For years, the $3.7 trillion municipal securities market operated with little oversight, and watchdog groups have called for greater oversight to protect taxpayers.

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