As part of its broader mandate under the Dodd-Frank Wall Street Reform and Consumer Protection Act, this year the Municipal Securities Rulemaking Board will concentrate on implementing a regulatory framework for municipal advisors that will encompass professional qualification standards, rules, and education. Already, the MSRB has made a priority the development of five rules for muni advisors.
The rules are intended to protect municipal entities and investors.They have to do with fiduciary duty, fair dealing standards of conduct, municipal firm supervisory requirements, pay-to-play activities, solicitor duties, and gift and gratuity limits to municipal issuer employees. The board intends to provide outreach and education to municipal advisors to assist them in getting ready for regulatory oversight and participating in rulemaking and professional qualification standards.
Just last week, the MSRB put out a draft rule to govern municipal advisor conduct. Draft Rule G-42 codifies the Dodd-Frank Act’s language that places a fiduciary responsibility on municipal advisors to put the interest of their clients above their own—and that they them owe not just a duty of care but also a duty of loyalty. If the draft rule, also called the Duties of Non-Solicitor Municipal Advisors, passes, this would prevent municipal advisors and affiliates from taking part in a transaction other than in a principal role with a client. According to BondBuyer.com, some market participants are worried that this means municipal advisors won’t be allowed to take part in non-fiduciary business relationships concurrent with the municipal advisory agreement.
Securities Industry and Financial Markets Association co-head Leslie Norwood is quoted as saying that she believes the draft rule would push bank-affiliated municipal advisors out because that their banking arms might manage accounts for a municipal entity could prevent them from being the MA of that entity. Norwood believes this “limits issuer choice” and there is no need for this.
The draft rule also includes what is the equivalent of a suitability rule, mandating that advisors have reasonable grounds for determining when their recommendations to clients are suitable. This would entail that they use “reasonable due diligence” to find out essential information about clients. Also, fee-splitting deals between underwriters and municipal advisors wouldn’t be allowed—although advisors and other service providers of clients can still do this if it is disclosed from the start.
Meantime, the Securities and Exchange Commission’s municipal advisor registration rule just went into effect this past Monday.
The MSRB also just release its 2013 Annual Report, which includes updates on its initiatives to enhance municipal advisor financial disclosure practices, streamline its rulebook, and improve its Electronic Municipal Market Access (EMMA) website.
The SSEK Partners Group has represented thousands of investors in recouping their securities fraud losses. We represent clients in arbitration and litigation and we work with investors in the US, Puerto Rico, as well as those abroad with securities claims and lawsuits against a US-based firm. Contact our municipal advisor fraud lawyers today.
MSRB's First Draft Municipal Advisor Rule Alarms Dealers, BondBuyer.com, January 9, 2014
2013 Annual Report, MSRB (PDF)
More Blog Posts:
Securities Fraud Court Matters, Institutional Investor Securities Blog, January 14, 2014
SROs at Work: MSRB Prioritizes Fiduciary Duty When Setting Up New Muni Advisor Regime & FINRA Puts Out Closed-End Funds Alert to Investors, Stockbroker Fraud Blog, November 13, 2013
Puerto Rican Labor Groups Want the US Territory to Sue UBS over the Bond Debacle, Institutional Investor Securities Blog, October 28, 2013