WASHINGTON – The Securities and Exchange Commission has approved the Municipal Securities Rulemaking Board’s proposal to create continuing education requirements for municipal advisors.
The MSRB's changes to its Rules G-3 on professional qualifications and G-8 on books and records are designed to be flexible by allowing municipal advisors to develop tailored regulatory training based on firm size, organizational structure, and scope of business activities, according to the MSRB.
The SEC said it believes the rule changes “will provide for minimum levels of training for persons engaged in municipal advisor activities, which is in the public interest and for the protection of investors, municipal entities and obligated persons.”
Lynnette Kelly, the MSRB’s executive director said “ensuring that municipal advisor professionals are regularly receiving training on current regulations and market activities is in the best interests of the state and local government issuers relying on their advice.” She added that “the new CE requirements are an important piece of the MSRB’s comprehensive regulatory framework for municipal advisors.”
The MSRB's requirements for MAs take a "single-pronged approach" to continuing education similar to one of the two prongs that dealers are currently required to satisfy. All associated persons of MAs who engage in municipal advisory activities as well as those who manage, direct, or supervise the firm's municipal advisor activities and its associated persons are required to participate.
MAs have to: annually complete a needs analysis that evaluates and prioritizes their applicable training needs; develop a written training plan; and document that the firm provided the training to the covered individuals. A plan should be developed in a way that is appropriate for the MA’s business and, at a minimum, would have to cover training on applicable regulatory requirements as well as on MA fiduciary duty obligations.
Dealer-MAs are allowed to meet their training requirements for both dealers and MAs through a single training plan but they still have to do separate needs analyses for the MA and dealer components of their firms.
“Requiring municipal advisors to establish a formal continuing education program for covered persons will ensure that individuals qualified as either a municipal advisor representative or as a municipal advisor principal are kept informed of issues that affect their job responsibilities and of regulatory developments, which is in furtherance of the protection of investors against fraud and misconduct,” the SEC said in its approval of the proposal.
The National Association of Municipal Advisors said in a comment letter to the SEC on the MSRB’s proposal that it supports continuing education for MAs but that municipal advisors will need more guidance on certain aspects of the rule changes, particularly the needs analysis requirement. It also suggested the MSRB conduct an analysis of the impact that its regulatory regime has had on MAs, particularly small firms and sole practitioners.
The MSRB has said it plans to give MAs more guidance on the changes, including on the needs analyses, to help their understanding of the new obligations before the proposed rule changes’ implementation date of Jan. 1, 2018. MAs would have until Dec. 31, 2018 to conduct their first required annual trainings and comply with the rule. The MSRB will also be holding a webinar on the requirements for municipal advisors on Thursday, Oct. 5, 2017 from 3:00 to 4:00 p.m. Eastern Standard Time.
Susan Gaffney, NAMA’s executive director, said the group “continues to support continuing education requirements for municipal advisors” and looks forward “to the MSRB’s guidance to help municipal advisory firms, especially small firms, develop appropriate needs analysis and CE programs to comply with the rules. “
The SEC found that the changes will not impose a regulatory burden on small MAs that is not necessary or appropriate in the public interest and for the protection of investors, municipal entities, and obligated person, provided that there is robust protection of investors against fraud.
The MSRB changes to Rule G-8 will be made to reflect the recordkeeping requirements the MA continuing education changes would incorporate. There are also a number of technical amendments like renumbering of certain sections in the rules being changed.