Complying with the continuing disclosure obligations specified in Rule 15c2-12 under the Securities Exchange Act of 1934 is a major challenge to municipal underwriters.
In 2014, the SEC offered to provide settlement terms to municipal underwriters and issuers for self-reported material misstatements related to prior compliance with the continuing disclosure obligations specified in Rule 15c2-12. In 2015, self-reported matters resulted in 58 firms settling for over $13 million in fines.
2016 will likely bring another round of settlements, as well as actions against firms that did not take advantage of the favorable settlement terms offered for self-reporting under the Municipalities Continuing Disclosure Cooperation initiative.
ACA Compliance Group has developed a Municipal Underwriter Due Diligence Review Solution to help meet the ongoing challenges of complying with Rule 15c2-12. For firms with an established infrastructure in place to perform reviews, our solution can provide valuable additional assistance or an independent review. Firms without an in-house review process in place can use our effective due diligence information on municipal issuers to meet regulatory expectations.
The due diligence consists of ACA documenting its reviews of preliminary official statements (“POS”) and/or official statements (“OS”) of issuers to help ensure that the underwriter complies with the issuer’s continuing disclosure requirements. As part of this service, ACA also reviews:
- event notices by the issuer;
- issuer timely filing of event notices;
- issuer filing of failure-to-file notifications;
- timely notices of changes to fiscal year-ends;
- timely filing of annual financial information and audited financials in the five years prior to the date of the POS;
- disclosures in the POS of prior failures in filing financial statements or event notices;
- disclosures in the POS/OS in the previous five years;
- potential unreported rating changes; and
- reasonable search of public records for material news alerts.
ACA’s due diligence solution focuses on each previously issued series of bonds with continuing disclosure agreement requirements as set forth in the POS/OS for the period under review, but not for fewer than five years prior to the date of the POS/OS.
Following our review, ACA can summarize the results of the review in a format that can be shared with your firm’s compliance department and the municipal securities underwriting division.