WASHINGTON — The Municipal Securities Rulemaking Board is asking the Securities and Exchange Commission to approve its proposal to create baseline standards of professional qualification for municipal advisors.
The MSRB filed the proposed amendments to its Rule G-3 Monday night, maintaining the core of what it proposed in March. The proposal would establish two classifications of municipal advisor professionals, representative and principal, and require that firms designate at least one principal to oversee the firm's MA activities. The proposed rule change would also require each MA representative and principal to take and pass a qualification test that the MSRB is currently developing. The board plans to administer a pilot exam in 2015.
"The creation of uniform standards of competency will help ensure municipal advisors engaged in advisory work are qualified in their duties," said MSRB executive director Lynnette Kelly. "The MSRB's proposed standards aim to protect the interests of state and local governments and other municipal entities that rely on the services of municipal advisors, as well as the investing public."
Employees of MA firms whose work is strictly secretarial or clerical will not be required to take an exam.
MAs would have a one-year grace period to pass the test after it becomes available. The board plans to eventually develop a separate test for MA principals, but that exam is not being developed concurrently with the baseline test. The proposal does not provide for "grandfathering" exemptions to taking the test except in "extraordinary cases" and for those who helped develop the exam.
Some seasoned MAs had told the board they should qualify for an exemption, and some broker-dealer MAs argued that they should get a waiver because they had already taken and passed exams testing their muni knowledge.
"Given the significant changes that accompany a new regulatory regime, the MSRB believes it is important for all municipal advisor representatives, regardless of their years of experience or other certifications, to take the exam," Kelly said.
Those who fail to pass the test — and some industry observers have suggested many will — would be able to retake it after 30 days. Failing three consecutive times would result in having to wait six months for another attempt. The passing grade will be determined by the board following analysis of the pilot exam.
The proposal would also eliminate from G-3 the practice of apprenticeship, which required municipal securities representatives to shadow an experienced professional for 90 days before doing business. The board proposed this change to reflect a general regulatory attitude shift, the MSRB has said.
The board has already gotten SEC approval to implement supervisory requirements for MAs, and is also planning to submit rules governing advisory conduct and pay-to-play prohibitions.
