WASHINGTON – The Municipal Securities Rulemaking Board is requesting comment on draft guidance for its not-yet effective advertising rule for muni advisors, having vowed earlier this year that it would release multiple rounds of guidance in advance of the rule’s Feb. 7, 2019, effective date.

The MSRB released the 13-page draft guidance, presented in “frequently asked questions” format, on Wednesday. The document comes after the Securities and Exchange Commission approved of the rule in May, establishing standards for municipal advisor advertising as part of the MA regulatory framework mandated by Dodd-Frank. This guidance focuses on the interplay between those standards and the use of client lists and case studies in municipal advisor materials, and is the first of a planned three installments of guidance.

MSRB president and executive director Lynnette Kelly.
MSRB president and executive director Lynnette Kelly.

The municipal advisor industry varies from single-person shops to large operations, sometimes affiliated with prominent broker-dealers. MSRB president and chief executive officer Lynnette Kelly said the MSRB is looking for input from an array of stakeholders on new rule G-40.

“Recognizing the diversity of the municipal advisor industry, the MSRB welcomes insight from a variety of perspectives to help ensure that the FAQs provide practical compliance assistance and speak to relevant scenarios,” she said.

The guidance discusses G-40’s requirements and includes some scenarios to highlight certain points, such as that a muni advisor publishing a list of its clients on a website or in some other place accessible to the general public would qualify that communication as an advertisement. Whereas, another hypothetical illustrates, a muni advisor providing a client list to a potential client in response to a request for proposal would not fall under the rule because of its non-public nature.

Whether material released by a municipal advisor qualifies as an advertisement is a significant issue because communications deemed to be advertisements are subject to restrictions, including a ban on the use of testimonials and a requirement that they not be misleading.

Groups representing both dealer and non-dealer affiliated muni advisors had urged against the SEC’s approval of G-40 and simultaneous changes to its existing Rule G-21 governing dealer advertising, citing concerns about clarity and harmony with Financial Industry Regulatory Authority rules. But those groups largely welcomed the latest guidance and urged the MSRB to release the additional rounds of it quickly.

Leslie Norwood, managing director, associate general counsel and co-head of munis at the Securities Industry and Financial Markets Association, especially urged the MSRB to respond to some additional concerns.

“With the effective date of MSRB Rule G-40 set for February 7, 2019, we urge the MSRB to release the requests for comment on social media and Rule G-40’s content standards as soon as possible,” Norwood wrote. “We have also requested the MSRB release guidance offering further clarification of the definition of advertising and exemptions thereof, especially related to RFP responses and correspondence with clients, and the expectations for dually registered broker dealer and municipal advisor firms to conform to both MSRB Rules G-21 and G-40; and meeting both FINRA 2210 standards and G-40 rulemaking when they are incompatible. SIFMA will be submitting a comment letter to the MSRB on this guidance.”

Bond Dealers of America president and CEO Mike Nicholas said he appreciated that the MSRB was releasing formal guidance and allowing comments.

“The formal interpretative guidance will allow our members to interact with the MSRB to better implement the rule changes in their operations,” Nicholas said.

“The formal interpretative guidance will allow our members to interact with the MSRB to better implement the rule changes in their operations,” Nicholas said.

National Association of Municipal Advisors executive director Susan Gaffney said the group will be reviewing the guidance with an eye on what it will mean for members’ websites.

“NAMA will be talking with our members to discuss this proposed guidance on client lists and case studies and offering comments to the MSRB on how to make it useful to municipal advisors so that they can comply with the new rule,” Gaffney said. “A key area of focus in our approach to reviewing this guidance, will be how it impacts information on MA firm websites and other types of disseminated materials.”

The MSRB said it is allowing 30 days for comment in hopes of getting subsequent guidance done before the effective date. Comments are due July 27.

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