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New SEC Initiative Examines Municipal Advisor Compliance

Aug 21st 2014
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An examination initiative launched by the US Securities and Exchange Commission (SEC) earlier this week will enable the agency to evaluate whether municipal advisors are complying with new SEC rules that went into effect last month.

Over the next two years, the SEC Office of Compliance Inspections and Examinations (OCIE) will examine a large percentage of municipal advisors using an approach that focuses on identified risks.

Under the initiative, the SEC would likely scrutinize municipal advisors’ compliance in the following areas:

  • Fiduciary duty to its municipal entity clients
  • Books and recordkeeping obligations
  • Disclosure
  • Fair dealing
  • Supervision
  • Employee qualifications and training

“The municipal advisor examination initiative will focus on the areas that are most important to protecting issuers, investors, and municipal taxpayers,” Kevin Goodman, national associate director of the OCIE broker-dealer examination program, said in a written statement. “We also will promote compliance by engaging these new municipal advisor registrants through outreach.”

The SEC released a letter on August 19 that provides additional details about the examinations.

New rules that took effect on July 1 generally require municipal advisors to register with the SEC during a four-month phase-in period that concludes on October 31.

The rules require municipal advisors to register with the SEC if they provide advice to municipal entities or certain other persons on the issuance of municipal securities, or about certain investment strategies, or municipal derivatives.

However, accountants do not have to register as municipal advisors if they provide accounting services that include audit or other attest services, preparation of financial statements, or issuance of letters for underwriters, according to the rules.

The SEC is working with the Municipal Securities Rulemaking Board (MSRB) and the Financial Industry Regulatory Authority (FINRA) to facilitate a coordinated approach to oversight of municipal advisors. The OCIE will examine municipal advisors for compliance with applicable SEC rules and applicable final MSRB rules once the MSRB rules are approved by the SEC and become effective.

Starting later this year, the OCIE, in coordination with FINRA and the MSRB, will hold a compliance outreach program for newly regulated municipal advisors where they will learn more about the examination process and their obligations under the Dodd-Frank Wall Street Reform and Consumer Protection Act and related rules.

Related articles:

SEC Sets July 1 as Start of Municipal Advisor Registration
SEC Exempts Accountants from Municipal Advisor Registration


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