Municipal Advisors Prepare for SEC Examinations

The Securities and Exchange Commission (SEC) has announced a new examination program for municipal advisors (MAs), which will look closely at how this type of advisor follows rules under the Dodd-Frank Act.

Prior to 2010, the municipal securities market was subject to less supervision than corporate securities markets, and investors had less information available to make informed decisions. In response to the 2008 financial crisis, the SEC proposed a regime to govern MA registration with the SEC, allowing for increased oversight of MA practices.

If you’re an MA now regulated by the SEC, a new examination program provides more specific guidance about your compliance obligations, and gives you some time to ease into the process. The SEC is also working with the Municipal Securities Rulemaking Board (MSRB) and FINRA to provide education and resources related to compliance—there will even be a forum to discuss compliance issues, share experiences with peers, and speak with the regulators to learn more about best practices and expectations for exams.

More details are included in a letter from the SEC, outlining the most significant compliance areas designed to protect investors and municipal taxpayers. Among these are:

• Fiduciary duty (act honestly and in the best interest of a client)
• Fair dealing (not engaging in deceptive, dishonest or unfair practices)
• Books and records (creation, maintenance and preservation of records).

For the books and records part of examinations, the SEC will evaluate whether you have created and maintained the books and records required under SEC and MSRB rules. The exam will include (but won’t be limited to) adherence to the following:

• Exchange Act Rules 17a-3 and 17a-4 (Creation and Maintenance of Books and Records)
• Exchange Act Rule 15Ba1-8 (Books and Records to be Made and Maintained by MAs), effective July 1, 2014
• MSRB Rule G-8 (Books and Records to be Made by Brokers, Dealers and Municipal Securities Dealers)
• MSRB Rule G-9 (Preservation of Records)

While there are many types of records you’ll need to maintain under the examination program, your electronic communications records will be under the spotlight. This will include internal and external messages across email, social media, instant messaging, websites, and text messaging.

Regulators will also ask for supporting compliance program documentation, so now is the time to start preparing for those exams!