SEC Announces Municipal Advisor Exam Initiative

August 20, 2014

On August 19, 2014, the U.S. Securities and Exchange Commission (“SEC” or “Commission”) announced that its Office of Compliance Inspections and Examinations (“OCIE”) will launch a “Municipal Advisor Examination Initiative” directed at newly registered municipal advisors (“MAs”). For purposes of this initiative, advisors will be considered “newly registered” if they registered with the SEC after the Commission’s final municipal advisor rules became effective on July 1, 2014. (Note that MAs registered under Rule 15Ba2-6T will fall under this definition as well.)

OCIE plans to examine a significant percentage of MAs over the next two years, focusing on the risk areas described below. During the initiative, OCIE National Exam Program (“NEP”) staff will contact selected MAs for examination. The SEC announcement also indicated that the Financial Industry Regulatory Authority (“FINRA”) will examine MAs that are FINRA members.

OCIE will roll out its initiative in the following three phases.

Engagement Phase

  • National Outreach – During this phase, NEP staff will inform newly registered firms of their obligations and of the resources and guidance available for MAs on the SEC and Municipal Securities Rulemaking Board (“MSRB”) websites.
  • Compliance Outreach Program – This program will create a forum for discussing compliance issues, compliance practices, and the MA examination process with SEC, MSRB, and FINRA representatives. (Program details will be provided at a later date.)

Examination Phase
During its examinations of MAs, NEP staff will focus on one or more of the following SEC and/or MSRB compliance risk areas:

  • Registration – Does the firm comply with SEC and MSRB registration rules?
  • Fiduciary Duty – Does the firm comply with fiduciary duty requirements and certain MSRB rules, including conduct standards and gifts and gratuities requirements?
  • Disclosure – Are the firm’s disclosures to clients accurate?
  • Fair Dealing – Is the MA dealing fairly with any person or entity that it may harm? This risk area includes compliance with MSRB political contribution requirements.
  • Supervision – Does the MA have policies, procedures, and controls in place to supervise its advisory business?
  • Books and Records – Has the firm created and does it maintain required books and records?
  • Training/Qualifications – Does the firm provide a knowledge base and training for its staff? Does it also have policies and procedures for meeting potential licensing and continuing education requirements as rules are amended?

Inform Policy Phase
During this phase, NEP staff will report their observations to the SEC. This information may prompt future rulemaking or interpretive guidance for MAs.

To view or download the SEC announcement and the Commission’s letter to newly registered MAs, please click here.

ACA is one of the largest employers of former SEC, FINRA, NFA, FSA, and state inspectors in the world. We assist municipal advisors in meeting their ongoing SEC, MSRB, and FINRA compliance obligations and specialize in preparing firms for regulatory inspections.

For information on how ACA Compliance Group can assist municipal advisors, please contact:

Dan Campbell
(404) 851-7547
dcampbell@acacompliancegroup.com

Luke Wilson
(312) 505-0307
lwilson@acacompliancegroup.com