MSRB Releases Draft of Rule G-44 On Supervising Municipal Advisers

The Municipal Securities Rulemaking Board released a draft of Rule G-44 Wednesday that would require municipal advisers to put in place supervisory systems to ensure they comply with Securities and Exchange Commission and MSRB rules.

The board is seeking public comments on the draft rule by June 24.

“As the MSRB puts in place rules for municipal advisers, it is essential that a corresponding supervisory structure be undertaken to ensure that these newly regulated market intermediaries are meeting their duties and obligations,” executive director Lynnette Hotchkiss said in the release.

The Dodd-Frank Wall Street Reform and Consumer Protection Act subjected non-dealer municipal advisers to federal oversight and regulation for the first time.

Under the act, muni advisers must register with the SEC and MSRB and comply with the board’s rules.

The MSRB has been developing new rules and amending existing ones to cover advisers.

Rule G-27 requires broker-dealers, including dealer-financial advisers engaged in certain activities, to have supervisory systems to ensure they comply with rules.

But in its release, the board said it “does not consider it necessary at this time to extend the more detailed supervisory structure required by Rule G-27 to other municipal advisory activities.”

For example, the creation of “offices of municipal supervisory jurisdiction” in the case of municipal advisers with multiple offices “is not recommended at this time.”

Dealer offices in which certain activities occur must have principals. The MSRB decided not to extend this requirement to muni advisers.

In addition, many of the provisions of Rule G-27 relate to specific dealer activities, such as their relationships with customers and customer complaints, which do not have a muni adviser counterpart, the board said.

Municipal advisers do not have customers. While they may have issuer clients, issuers are not defined as customers under MSRB rules.

At a minimum, a muni adviser’s supervisory system should include: establishing and maintaining written procedures; designating one or more muni advisory principal based on experience or training; recording the identity of the principal and his or her supervisory responsibilities; and conducting annual compliance interviews or meetings.

A municipal adviser also would have to develop certain supervisory procedures, including on how compliance is monitored and how books and records are to be preserved.

Additionally, the MSRB’s new release contains related draft amendments to Rules G-8 and G-9 on books and ­records.

It also includes a sample checklist, but makes clear it is for illustrative purposes only.

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