How muni market groups view MSRB's compliance guidance

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PHOENIX - While municipal market groups are broadly supportive of the Municipal Securities Rulemaking Board's efforts to provide more compliance support, there is some concern that informal compliance advisories could cause confusion for firms seeking to follow the rules.

The comments were submitted in response to the MSRB’s request for feedback on its compliance support initiative. The request was originally filed back in November of last year but was extended until this month.

Groups representing dealers and municipal advisors who are governed by MSRB rules have long encouraged the board to provide guidance when questions arise in the industry. But the Bond Dealers of America urged the MSRB to stick to formal interpretive guidance so as to avoid creating confusion.

BDA chief executive officer Mike Nicholas cited the June 2017 compliance advisory the MSRB posted for municipal advisors as an illustration of his group’s concerns. That document, among the first to follow the MSRB’s announcement that it would be placing an increased focus on compliance support, detailed rules applicable to MAs and provided examples of potential violations.

Nicholas said that the advisory, which was not formal interpretive guidance, was harmful in seeming to impose requirements beyond what was in the rules. It also confused dealers as to whether or not the guidance had the force of law and whether or not it was retroactive in application.

“The BDA encourages the MSRB to avoid advisories to address compliance concerns relating to long-standing rules,” Nicholas wrote. “If the MSRB learns of concerns relating to dealer or municipal advisory compliance with long-standing MSRB rules, the BDA strongly encourages the MSRB to use formal rule-making procedures to address those concerns –- as the informal advisory process is not appropriate to address regulatory concerns relating to long-standing rules.”

Nicholas added that the MSRB should carefully consider whether its advisories overstep the ground covered by its rules, and provided the example of the MSRB’s September 2017 notice warning issuers against selectively disclosing information to only some investors. BDA and other groups said they thought the comments were beyond the scope of the MSRB’s role.

Other groups were generally supportive of the MSRB’s goal of improving compliance support.

Susan Gaffney, executive director of the National Association of Municipal Advisors, lauded the MSRB’s effort. She suggested the board develop and implement internal policies that would make clear why certain types of guidance are issued under what circumstances and which would allow guidance materials to be ready ahead of a rule’s implementation date.

Gaffney also mentioned some MA compliance advisories being less clear than they might have been, but urged the MSRB to continue providing guidance at no cost and to update guidance issued before the MA regulatory regime that was put in place over the last few years.

Emily Brock, director of the federal liaison center for the Government Finance Officers Association also expressed support for MSRB guidance within the scope of the board’s authority.

“The GFOA supports frequent and effective communication between market participants,” Brock wrote. “The GFOA also supports useful, comprehensive and accessible education efforts from the MSRB that are within the scope of their statutory mandate so that the issuer is fully prepared to comply with federal/state and local laws. This includes materials that help issuers understand MSRB rules for broker-dealers and municipal advisors that are in place to protect issuers."

The comment period for the compliance initiative closed Feb. 9, and the MSRB has since issued a new request for comment on guidance related to its core muni advisor conduct rule.

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Securities law Financial regulations BDA GFOA MSRB NAMA Washington DC