WASHINGTON – The Municipal Securities Rulemaking Board released guidance on Thursday designed to explain how its regulatory framework applies to solicitor municipal advisors.
The guidance represents a promised follow up to both its Rule G-42 on duties of non-solicitor MAs as well as to questions from solicitor MAs that have come up in the board’s conversations with market participants.
Solicitor MAs, according to the MSRB’s release, are municipal advisors that solicit municipal entities, including public pension plans, or obligated persons on behalf of an unaffiliated dealer, municipal advisor, or investment adviser for direct or indirect compensation. The guidance summarizes the MSRB’s MA framework and includes links to MSRB and Securities and Exchange Commission resources that can enhance participants' understanding of the requirements.
“One component of creating a comprehensive regulatory framework for municipal advisors is addressing the activities of solicitor municipal advisors in their interactions with public pension plans, municipal bond issuers and other municipal entities,” said MSRB executive director Lynnette Kelly. “Today’s guidance furthers the MSRB’s efforts to ensure all municipal advisors understand their regulatory obligations.”
Kelly added that “while the guidance is directly responsive to requests for information from solicitor municipal advisors, [the MSRB believes] all municipal advisors can benefit from the rule summaries and resources provided.”
The 30-page notice starts with explanations of key terms or phrases in municipal advisor-related rules, including “associated person” and “municipal advisory activities. The board encourages both solicitor MAs and non-solicitor MAs to review those definitions to ensure they are aware when an entity may be considered an associated person or when actions may qualify as MA activities.
Many of the rules included in the guidance explain that solicitor MAs are covered in much the same way that non-solicitor MAs are covered. For example, all MAs must register with the SEC and MSRB, including submitting relevant information about the firm to the SEC through Form MA. The MSRB alerts solicitor MAs to some differences they may see with Form MA though, like sections that require an estimate of the number of entities or obligated persons the firm solicited and the type of entities the firm solicits. In addition, the board reminds MA firms to keep the information updated and accurate.
Other rules the guidance touches on include professional qualification standards, continuing education requirements, and supervisory obligations. The board explains that it has separate qualification classifications for municipal advisor representatives – those individuals who engage in MA activities – as well as municipal advisor principals – those individuals who engage in the management, direction or supervision of the MA activities of the municipal advisor and its associated persons. It additionally reminds issuers that there is a qualification exam currently out and one in the works for principals.
There is a unique difference between solicitor MAs and non-solicitor MAs when it comes to conduct requirements, the MSRB notes, as solicitor MAs don't have the same fiduciary duty to their clients as non-solicitor MAs do. That is because solicitor MAs’ clients aren't the municipal entities they solicit but rather the third parties that have retained them to do the soliciting. However, the MSRB reminds solicitors MAs in the guidance that they are still subject to the fair dealing requirements under Rule G-17.
The MSRB’s Rule G-37 on political contributions already has a breakdown of the differences between solicitor and non-solicitor MAs, the MSRB said. Firms that are classified as municipal advisor third-party solicitors must be careful with their contributions because those contributions can potentially lead to temporary prohibitions on engaging in muni business for the solicitors’ clients, the MSRB said.
The MSRB includes a full list of the rules covered at the back of the document, as well as a list of links to additional resources like MSRB webinars and its online course list.