WASHINGTON — At a meeting Thursday and Friday in Nashville, the Municipal Securities Rulemaking Board will tackle a host of muni adviser issues, including whether it will require financial advisers to pay fees to help defray the self-regulator’s increasing costs.
Currently, the MSRB only collects such assessments from broker-dealers.
Executive director Lynnette Hotchkiss said the board had been weighing the possibility of imposing fees on muni advisers since last fall, when it gained regulatory authority over the FAs under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
“This is a continuation of a discussion we’ve been having since October,” Hotchkiss said, adding that the board will consider “fair and reasonable assessments” on the newly regulated group.
Currently, muni advisers pay an initial $100 fee and a $500 annual registration fee. In January, despite industry opposition, the Securities and Exchange Commission approved a proposal almost doubling the fees the MSRB collects from dealers. The SEC said the fee hikes would help defray the board’s administrative costs, which had substantially increased.
At The Bond Buyer’s National Municipal Bond Summit in Miami last month, Mike Nicholas, the chief executive of the Bond Dealers of America, said the board’s fees have spiked as much as 200% to 400% for some dealers, at least on a monthly basis.
MSRB deputy general counsel Peg Henry told Nicholas that the board’s transaction fee increases and new technology fees were designed to reduce its reliance on underwriting assessments, historically the bulk of dealer-assessed fees.
This year, new issues have plunged to a level not seen in a decade.
At the Nashville meeting, Hotchkiss said, the board will also mull a muni-adviser supervision rule, comparable to existing Rule G-27 for broker-dealers, which requires dealer firms to establish and maintain supervisory systems reasonably designed to ensure compliance with securities laws and regulations, including MSRB rules.
Any such rule would fall within the “core set” of muni adviser rules proposed by the MSRB since last fall, Hotchkiss noted.
In addition, the board will review the comment letters from two recent and controversial rule proposals: amendments to Rule G-23 that would prohibit dealer FAs from switching roles and acting as an underwriter and adviser on the same muni issue, and draft Rule G-42 that would bar pay-to-play practices by muni advisers.
The SEC’s comment period on Rule G-23 proposal closed last month. Eighteen market participants filed comment letters with the commission, including independent FA firms, which complained the MSRB’s proposal was too lax, and dealer groups, which said it was too restrictive.
The MSRB’s comment period on draft G-42 closed in February. In the 16 comment letters on that proposal, independent FAs urged the board to adopt a stricter approach.
The Securities Industry and Financial Markets Association raised concerns about conflicting interpretations of the term “muni adviser” by the SEC and the MSRB.
