WASHINGTON - The Municipal Securities Rulemaking Board has published a sample template and checklist to assist municipal advisors in understanding their supervisory obligations, an area plagued with failures, according to Securities and Exchange Commission examiners.
The new compliance resource, released Tuesday, takes the form of a list of requirements imposed under MSRB Rule G-44 on supervisory and compliance obligations of municipal advisors. The guidance provides examples, as well as a sample checklist for firms to use in putting together written supervisory procedures (WSPs) which are required by the rule.
Supervision failures have been especially troublesome for municipal advisors, as non-dealer MAs have in many cases been slow to adjust to being regulated by the MSRB and SEC. Rule G-44 was approved in 2014, and the entire MA regulatory regime only dates to 2010.
An SEC risk alert issued late last year detailed regulatory failures encountered among MA firms, and SEC staff who have spoken publicly have described encountering supervisory systems that were woefully inadequate or even virtually nonexistent, particularly among smaller firms.
Some firms failed to designate anyone as being in charge of supervision, for example, even though G-44 requires that. In other cases firms failed to tailor their supervisory systems to their business practices, resulting in WSPs that either failed to hit all the necessary points or included information that was irrelevant to the firm.
Gail Marshall, the MSRB’s chief compliance officer, said that the board published this latest resource mindful that some firms are still adjusting to the new reality of regulation.
"A major driver of the MSRB's focus on compliance support is our recognition that municipal advisors, particularly small firms, are still adjusting to operating under a regulatory framework,” Marshall said. “Because of the diversity in size and scope of services provided by municipal advisor firms, MSRB rules intentionally allow for flexibility. Our compliance resources are designed to illustrate one possible way to comply."
The sample WSP checklist outlines topics and summarizes MSRB rules and certain SEC rules that are “generally applicable” to municipal advisors, such as registration requirements, amending form filings, fees, recordkeeping, qualifications, and more. But the document also warns that the checklist is not meant to be exhaustive and that firms are still responsible for developing supervisory systems appropriate to their own businesses.
“The outline of topics in this checklist is not all-inclusive and the rules identified are not described in their entirety,” the new documents say. “A municipal advisor that opts to incorporate this checklist into its supervisory system should review the applicable rules in their entirety to ensure that their WSPs address all obligations applicable to the firm’s municipal advisory business.”
The MSRB has made it a point to bring a renewed focus on supporting compliance of its existing rules, and it plans to issue more such resources soon. The MSRB will be hosting a virtual compliance workshop about supervision for small municipal advisor firms on May 24 which will feature SEC staff.
Another forthcoming publication for small municipal advisors and will cover considerations when deciding whether to outsource the chief compliance officer position.