WASHINGTON – The Municipal Securities Rulemaking Board has agreed to clarify certain definitions and extend the effective date for proposed rule changes on complaints in response to market participants' concerns, but will not move forward with changes to address several other issues raised.
The MSRB described its intended rule changes in a letter filed with the Securities and Exchange Commission as well as an amendment the self-regulator is calling Amendment 1. The amendment to rule changes the MSRB first proposed in November would increase the amount of time participants would have to adjust to the rule to nine from six months. Bond Dealers of America had said more time would be needed because of other large regulatory adjustments coming up like a switch to a two-day settlement cycle.
The amendment also includes technical changes to clarify the definition of "municipal advisory client" for solicitor and non-solicitor MAs as well as the definition of "complaint."
The originally proposed rule changes would amend the complaint process for dealer customers and then extend that process to municipal advisor customers. The MSRB did not solicit comments before submitting its changes to its Rules G-10 on investor brochure deliveries, G-8 on books and records, and G-9 on preservation of records to the SEC. The choice to go directly to the SEC drew criticism from market participants but the MSRB maintained in its recent response to comments that participants had a "fulsome comment period" through the SEC and that it was not required by federal securities laws to seek public comment before such a submission to the commission.
John Vahey, BDA's managing director of federal policy, said BDA appreciates the newest amendments, which "should reduce future regulatory burdens for dealers that are active in both the municipal and taxable markets." He added that BDA members will continue to examine the amendment and possibly comment further.
Susan Gaffney, executive director of the National Association of Municipal Advisors, said NAMA also appreciates the clarifications the MSRB provided but said the group still believes that the issue of customer complaints can be better addressed in other rules, such as Rule G-42 on the core conduct of MAs.
"It is likely NAMA will provide guidance to members on how best to develop appropriate policies and procedures for client complaints," Gaffney said.
Rule G-10 currently requires dealers to send complaining customers a brochure with information about how to file a complaint. The rule changes would eliminate the need to send a brochure and instead require other disclosures for dealer customers and MA clients. The dealer and MA requirements would mandate the firms give notification of: their registration with the MSRB and the SEC; the MSRB's website address; and the brochure available on the MSRB's website that describes the protections available under MSRB rules and how to file a complaint with financial regulatory authorities. The MSRB plans to create a separate brochure specifically for MAs.
Dealers would be required to notify customers with that information annually and MAs would have to share the information "promptly," but no less than once a calendar year over the course of the MA relationship. The MSRB, in its recent amendment proposal, clarified that "promptly" means "promptly, after the establishment of a municipal advisory relationship."
NAMA had proposed that instead of using G-10 to require the information, the MSRB should instead have MAs send information along with conflicts of interest and disciplinary disclosure required under G-42. It also suggested allowing MAs to post the annual notifications on their websites.
The MSRB responded by saying MAs could post the notification on their websites, but that doing so would not erase the need to send notifications. It also said that its changes provide "sufficient flexibility to address … [the] suggestion that the annual notifications be included with the written disclosures" under G-42, but would not require it.
The MSRB's originally proposed changes to Rule G-8 would require dealers and MAs to keep an electronic log of all written complaints from customers or MA clients as well as any person acting on behalf of the customers or MA clients. The log would have to include information about the action, if any, the dealer or MA took in response. All complaints would be coded using a standard set of product and problem codes that the MSRB would make available, similarly to current SEC and Financial Industry Regulatory Authority requirements.
NAMA raised questions about certain terms that would be used in the electronic complaint logs and asked for examples of suitable logs. The MSRB said in its response that the information it plans to release about its codes will provide guidance on the terms used in relation to the logs. It also responded to concerns from BDA that the codes may diverge from existing FINRA codes by assuring participants that it will work to harmonize its set of codes with those that regulators are already employing.
The original MSRB changes to Rule G-9 require dealers and MAs to retain their complaint records for six years. MAs urged the MSRB to keep the MA requirement at five years, but the MSRB defended its proposed amendments by saying the changes would level the playing field and help regulators with their inspections and surveillance of MAs.
