MSRB offers guidance, effective date for muni advisor advertising rule
WASHINGTON — New guidance from the Municipal Securities Rulemaking Board Tuesday addressed social use by municipal advisors and dealers and set Aug. 23, 2019 as the effective date for the new rule governing MA advertisements.
The guidance addressed questions in an FAQ format, clarifying social media guidelines under Rule G-40 and amendments to Rule G-21, which governs broker-dealer advertising. Rule G-40 is very significant for non-dealer municipal advisors because it will formally regulate their advertising for the first time, requiring among other things that advertisements not be misleading and prohibiting muni advisors from using client testimonials in an advertisement.
The FAQ is broken into four categories; social media, third party posts, record-keeping and supervision.
“Today is the culmination of several years of diligent rulemaking to ensure that our advertising rules are up-to-date and appropriately tailored to achieve their intended purpose of protecting municipal securities investors and municipal entities,” said MSRB President and CEO Lynnette Kelly. “Advertising has rapidly evolved to digital platforms and our rules support dealers’ and municipal advisors’ ability to operate appropriately and effectively in this space.”
The MSRB notice says that interactive advertising content is any advertising content that is posted or disseminated for direct, real-time interaction with an audience, such as chats and messaging in the guidance. A dealer has to supervise and review interactive content and municipal advisors should establish a system to supervise muni advisory activities related to the use of interactive advertising content.
The rule as approved previously said anything that was an advertisement for municipal securities services had to be approved by a principal before first use. Now, if there is interactive advertising content, a principal doesn’t have to approve that beforehand, but it must have supervisory policies and procedures in place, according to the board.
“It was very important to commenters that we address the topic of interactive advertising content,” Kelly said. “This feedback led us to amend our advertising rules and getting this issue right for the market was a priority.”
The FAQ’s addressed issues such as if a client posts a positive comment on a municipal advisor’s social media page, whether that would be considered a testimonial and therefore not allowed under G-40.
In two cases, the new guidance said, such a post could be a testimonial — if the entity pays for or solicits that third-party to post — or if the muni advisor likes or shares it.
The guidance also noted that the social media use of a person associated with a regulated firm could deemed advertising if it relates to the products and services of the firm. The MSRB also clarified the rules would not apply to posts made by a customer, municipal entity client or other third party unless the post were paid for solicited by, or endorsed by the regulated firm..
The effective dates for G-40 and G-21 on were originally slated for Feb.7, but were pushed back to a later date.
The MSRB planned to push back the date since late last year, but had to wait for the government to reopen to ask the Securities and Exchange Commission for a new effective date.
In letters sent to the board in the fall, muni advisors and broker dealers told the board it needed to improve the quality of the mock advertisements draft ‘compliance resource.’ In the past, commenters also asked for more guidance relating to interactive content.