WASHINGTON - Unregistered municipal advisers will be referred to regulators for investigation and possible disciplinary action, the Municipal Securities Rulemaking Board warned Tuesday.
In a one-page public statement expressing concern, the MSRB said it had become aware of firms acting as municipal advisers without registering with the MSRB and the Securities and Exchange Commission, “in apparent violation” of SEC and MSRB rules and the federal securities laws.
“If the MSRB receives information indicating violations of these requirements,” the statement said, “it intends to refer the matter to the appropriate regulatory authority for investigation and possible enforcement action.”
As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, municipal advisers are required to register with the SEC and the MSRB. Any such advisers have been required to register with the SEC since Oct. 1, 2010 and with the MSRB by Dec. 31, 2010.
In its notice, the MSRB said some firms are acting as municipal advisers without registering with either the SEC or the MSRB. Some firms are acting as muni advisers while only registered with one of the regulators.
Any municipal advisor that has engaged in muni-adviser activities after Dec. 31 without registering with both the SEC and the MSRB “is subject to possible discipline,” the MSRB said, adding that such municipal advisors “must register with both regulatory authorities at the earliest opportunity.”
They should also inform the MSRB of the circumstances surrounding their registration delay, the MSRB said.
In particular, the MSRB noted, it was concerned that an unregistered municipal adviser “may not be aware of, or may not be giving sufficient consideration to the importance of, the federal fiduciary obligation” owed by muni advisers to municipal entities under Dodd-Frank.
In general, the fiduciary duty imposed by Dodd-Frank requires municipal advisers to place their clients’ interests ahead of their own.
The MSRB also encouraged municipal entities, such as state and local governments or public pension funds, to verify the registration status of their municipal advisers with the MSRB and the SEC.
If a municipal government or public pension plan has retained an unregistered advisory firm, the MSRB said, the issuer client should “discuss with the firm’s representatives their understanding of the obligations” owed to the municipal entity under federal and state laws, and the basis for the firm’s decision not to register.
“Failures by such firms and individuals to fully appreciate or fulfill their legal obligations may adversely affect the interests of the municipal entities or obligated persons, which the MSRB has a statutory duty to protect,” the MSRB said.
