ICI opposes MSRB public board member changes

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A group representing investment funds opposes changes to a Municipal Securities Rulemaking Board rule that would require a longer "cooling off" period for prospective board members to be considered public representatives.

The Investment Company Institute made its position known this week in the first comment letter submitted to the MSRB in response to proposed changes to its Rule A-3 on membership of the board.

“This unnecessarily restrictive proposal runs the risk of impeding the MSRB’s ability to identify and select the best candidates for the board,” said Jane Heinrichs, ICI associate general counsel, in an email. “It could reduce opportunities to recruit former employees of investment advisers, including advisers to registered investment companies, to serve on the board.”

The five-year cooling-off period to become an MSRB public board member is too restrictive, said Jane Heinrichs, ICI associate general counsel.

The MSRB proposed a five-year "cooling-off” period for public board members leaving jobs at regulated firms among other changes to its governance rule, such as reducing the size of the board to 15 from 21 and considering allowing dealer-affiliated municipal advisors to count toward the MA board seat requirement.

The MSRB published a formal request for comment in January and the original deadline to respond was March 30. It was extended to April 29 because of the coronavirus.

“We believe the proposal is unnecessarily restrictive, inconsistent with the post-employment rules and restrictions for former federal government officials, and could severely decrease the opportunity for former employees of investment advisers, including advisers to registered investment companies to serve on the board,” ICI wrote.

The board’s current public membership requirements state that individuals may not be “associated” with a regulated firm for at least two years or “employed by” a regulated firm for at least three years.

ICI says the only justification for the MSRB’s proposed change for public board members has been some commentators’ questioning of whether a two-year period is long enough. The MSRB has offered no explanation for extending the period to five years, ICI said.

Sen. John Kennedy, R-La., introduced legislation last year to change the MSRB’s board composition, including increasing the cooling-off period for public board membership to five years. Other groups have voiced support for changes to the MSRB board’s composition.

ICI wants each board member to bring experience and expertise to serve the interests of their constituents, the group said. The group noted that there is only one required investor representative position on the board for retail and institutional investors.

“We maintain it is essential that institutional buy-side firms, such as fund advisers, be represented on the MSRB board and that the regulations that limit that participation be removed,” ICI said.

Extending the separation period to five years will make it more challenging to find qualified candidates, ICI added.

The proposed change is also inconsistent with post-employment rules and restrictions for former federal government officials, ICI argued. For example, former House members are prohibited from lobbying or making advocacy communications to either a member of Congress or any legislative branch employee for one year after they leave the House.

However, ICI is supportive of the MSRB’s proposed change to allow an MA associated with a dealer to sit on the board, as long as the same consideration is given to an investor representative.

Right now, Rule A-3 says that for an MA to be considered an MA board member, they cannot be associated with dealers.

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