SEC approves advertising rules over dealer, muni advisor objections

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ST. LOUIS - The Securities and Exchange Commission has approved the Municipal Securities Rulemaking Board's proposals to both create a new municipal advisor advertising rule and amend its existing dealer rule, despite fierce opposition from market groups complaining the rules are not clear.

The MSRB got the SEC’s go-ahead just days after three market groups representing dealers and muni advisors filed a joint comment letter to the commission asking it to disapprove amendments to Rule G-21 for dealers and new Rule G-40 for MAs.

The rules would both establish standards for municipal advisor advertising as part of the MA regulatory framework mandated by Dodd-Frank as well as tweak longstanding the longstanding dealer rules, but Bond Dealers of America, the Securities Industry and Financial Markets Association, and the National Association of Municipal Advisors all thought the proposals came up short.

The new and amended rules become effective on Feb. 7, 2019, following a series of back-and-forth comment letters.

BDA, SIFMA, and NAMA told the SEC in late February that the SEC should reject the MSRB’s proposals, with the dealers saying that G-21 needs to be changed to more closely resemble Financial Industry Regulatory Authority rules, and muni advisors questioning the need for a new MA advertising rule at all.

But the MSRB filed its own comments on April 30, disagreeing with the groups and telling the commission that it should approve the proposals without requiring any changes. The MSRB said in that letter that if it got approval, it would provide guidance on some of the areas of concern such as the use of social media by MAs.

MSRB president Lynnette Kelly touted the importance of the newly-approved rules.

“Preventing misleading advertisements is an important component of a comprehensive regulatory framework for financial services professionals,” Kelly said. “The implementation of the new advertising rule is an important piece of the MSRB’s foundational work to create standards of fair practice for municipal advisors. We took this opportunity to revisit and enhance our long-standing dealer advertising rules to build on our fair practice provisions and to align more closely our advertising rules with rules of other financial regulators.”

But in a comment letter filed just days ago on May 4, BDA, SIFMA, and NAMA had again urged that the proposals not be approved, saying that they were “disappointed” with the MSRB’s response on April 30.

“The MSRB noted that it would develop guidance in a few areas which demonstrates that the proposed rules are not clear, and therefore further maturation of the rulemaking in the short-term rather than future guidance should be explored,” the groups wrote. “Greater harmonization and clarity of advertising content and application is needed not only to assist regulated entities to implement and comply with these new requirements but are also needed to ensure that FINRA and SEC examiners understand how to review firm’s policies and procedures related to advertisements.”

The MSRB has said its new guidance would be available prior to the effective date. The board is hosting a virtual compliance workshop in a question-and-answer format to discuss “key provisions” of the advertising rules on Nov. 8.

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MSRB rules Securities law Dodd-Frank Municipal advisors Munis SEC MSRB NAMA BDA SIFMA Washington DC