SEC taking notice of unqualified municipal advisors
The Securities and Exchange Commission appears to be paying attention to municipal advisors not registering or qualifying properly, an issue MAs have complained about for years.
At a Financial Industry Regulatory Authority conference on Thursday, SEC and Municipal Securities Rulemaking Board Officials discussed the implications of a recent enforcement action against a municipal advisory firm that was operating without any of its professionals having passed the Series 50 exam as required by MSRB rules. In a case settled with the SEC last week, Clear Scope Advisors Inc. agreed to pay more than $25,000 to settle charges the firm violated the federal securities laws and MSRB Rules G-2 and G-3 by not having its advisors properly qualified.
“It shows that the SEC is paying attention,” said MSRB Chief Compliance Officer Gail Marshall.
Marshall said the MSRB sent reminders to firms to take the Series 50 exam, which became required on Sept. 12, 2017. All municipal advisors have to pass the test before engaging in municipal advisory activities on behalf of a municipal advisory firm.
Municipal advisors have complained for years about firms operating as unregistered MAs or otherwise attempting to skirt the requirements. Clear Scope provided municipal advisor services to two issuers without having any municipal advisor professionals who took and passed the Series 50, according to the SEC.
They went so far as to open up 120-day exam window and pay the exam fee, but they never actually sat for the test, said Rebecca Olsen, director of the SEC’s Office of Municipal Securities.
The principal for the firm then took the test in April 2018 and failed, but took it again in May and passed. However, during the period up until they took and passed the test, they didn’t amend or withdraw forms that need to be updated when a municipal advisor can’t engage in municipal advisor activities.
Clear Scope Advisors Inc. did not respond to a request for comment.
The MSRB is trying to direct issuers to its website to see if their municipal advisor is qualified.
“You can’t stop people who don't want to follow the rules,” Marshall said. “They will always be out there, but I’m trying to get issuers to start looking at our website because it’s listed there.”
Clear Scope Advisors was not listed on the site, Marshall said, because it didn’t have at least one qualified person.
Municipal advisor principals will soon have to take a new Series 54 test to be registered. Right now the MSRB is going through its pilot program and the permanent test will be available in fall 2019.