NAMA to SEC: Make All MAs Take Test

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WASHINGTON - All individuals engaging in municipal advisory activities should be required to take a new qualifications test, and regulators should consider developing more specialized and supplemental exams at a later time, the National Association of Municipal Advisors told the Securities and Exchange Commission this week.

NAMA stated its positions in a letter signed by its president, Terri Heaton, and submitted to the SEC Jan. 27. The commission is considering whether to approve the Municipal Securities Rulemaking Board's proposal to create baseline standards of professional qualification for MAs and require them to pass a test.

The proposal, which the MSRB released last March and filed with the SEC on Dec. 1, would establish two classifications of MAs: representative and principal. It would require firms to designate at least one principal to oversee the firm's MA activities and ensure that each MA representative and principal take and pass a qualifications test that the MSRB is currently developing.

Heaton told the SEC that everyone deemed a municipal advisor under the commission's MA registration rule should be required to pass the exam, without being exempted via any "grandfather" clause. She also countered an idea advanced by the Securities Industry and Financial Markets Association, which argued that MA representatives who have passed muni dealer exams administered by the Financial Industry Regulatory Authority shouldn't have to take another test. Congress intended a very high level of protection for clients of municipal advisors when it passed the Dodd-Frank Act, Heaton said, supporting the case for a separate MA competency test. Under the law, MAs owe their state and local government clients a fiduciary duty to put clients' interests ahead of their own.

"As an example, one of the most important elements of that protection of municipal entities is the fiduciary duty that municipal advisors have to their municipal entity clients and that duty is not a topic that is covered in either the Series 52 or Series 7 examinations," Heaton wrote. "As a further example, in its adopting release with respect to the definition of a municipal advisor the commission identified a laundry list of activities engaged in by municipal advisors that are 'outside the scope of an underwriting.'"

Therefore, NAMA supports the MSRB's proposal because a separate exam is necessary to fulfill the intent of the law, she said.

While Heaton's letter is supportive of the MSRB proposal, it also lends some support to the Investment Company Institute's position that separate exams targeting different types of MA activity should be developed.

"NAMA believes that the MSRB should continue to analyze the feasibility and wisdom of the supplemental exams or targeted subject area exams that were proposed by other commenters," Heaton wrote.

The SEC could require changes to the MSRB proposal, or could approve it as is. -

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