PORTLAND, ORE. - Examinations of municipal advisors will be low-stress and MAs will be notified in advance before any Securities and Exchange Commission examiners show up at their doors, members of the SEC's Office of Compliance Inspections and Examinations told non-dealer advisors.
OCIE assistant director Suzanne McGovern and staff attorney Robert Miller explained what previously unregulated non-dealer MAs can expect under the SEC's municipal advisor examination initiative during a panel discussion at the National Association of Municipal Advisors' conference here on Oct. 10.
The SEC in August announced a two-year exam program focusing on MAs who are not members of the Financial Industry Regulatory Authority, prompting some concern from a community not accustomed to the kind of periodic exams that broker-dealers undergo.
McGovern and Miller moved to put them at ease. "What you'll get from us is usually a letter asking you to provide certain documents or information," Miller said, assuring the NAMA attendees that OCIE examiners do not kick down doors or wear body armor. "We don't come in with guns blazing."
The exams will be conducted by the 11 regional SEC offices spread around the country. McGovern said it will focus on those registered MAs who have never been registered with any federal agency before. OCIE does not have the resources to carry out many random surprise examinations, she said.
"Unless we think there's a giant fraud going on, you will not have a surprise exam," she told the group.
The biggest question among MAs has been how they will document compliance with their obligations under the SEC's registration rule, as well as Municipal Securities Rulemaking Board regulations still under development or under review that must be approved by the SEC. McGovern said documentation of compliance will depend on the policies and procedures set by the MA firms. Registrants will probably be safe if their policies and procedures are reasonable and they can provide evidence that they adhere to those policies and review them as necessary, she said.
While any enforcement actions the commission approves against an MA would be public, Miller said the exams themselves will not be.
MAs at the conference wanted examiners to be sensitive to the nuances of their businesses. One advisor, for example, said his clients are almost all obligated persons to whom he does not owe fiduciary duties. Some are not even obligated persons yet because they are in the process of putting the deals together. McGovern said that part of the exam initiative's goal is to help the SEC get smarter about how MAs operate.
"Our hope in this exam initiative is to work with you, to learn together. It's going to be a work in progress," she said.
The OCIE representatives said that at the end of the two years, the office will report its findings and may issue a risk alert highlighting areas of concern.
