The Securities and Exchange Commission announced a new examination initiative directed at newly regulated municipal advisors. The examinations are designed to establish a “presence” with the newly regulated municipal advisors.
We’ve seen this blueprint before. It looks a lot like the presence exam initiative for newly registered private fund managers and the never before examined initiative for unexamined advisers. The SEC is trying to knock on as many doors as they can.
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. SEC’s 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.
Section 975 of Dodd-Frank added a new requirement that “municipal advisers” register with the SEC. Municipal Advisor is defined in 15 U.S.C. 78o-4(e)(4)(E)(4) as:
(A) means a person (who is not a municipal entity or an employee of a municipal entity) that—
(i) provides advice to or on behalf of a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities, including advice with respect to the structure, timing, terms, and other similar matters concerning such financial products or issues; or
(ii) undertakes a solicitation of a municipal entity;
(B) includes financial advisors, guaranteed investment contract brokers, third-party marketers, placement agents, solicitors, finders, and swap advisors, if such persons are described in any of clauses (i) through (iii) 5 of subparagraph (A); and
(C) does not include a broker, dealer, or municipal securities dealer serving as an underwriter (as defined in section 77b(a)(11) of this title), any investment adviser registered under the Investment Advisers Act of 1940 [15 U.S.C. 80b–1 et seq.], or persons associated with such investment advisers who are providing investment advice, any commodity trading advisor registered under the Commodity Exchange Act [7 U.S.C. 1 et seq.] or persons associated with a commodity trading advisor who are providing advice related to swaps, attorneys offering legal advice or providing services that are of a traditional legal nature, or engineers providing engineering advice;
Starting later this year, 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.
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