More On Legal & Compliancefrom The Advisor's Professional Library
- Where Are We Headed? The ultimate compliance goal is to help ensure that everyone associated with an advisory firm acts ethically at all times. Advisors and RIAs should do the right thing, even when regulators are not looking over their shoulders.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
Citing a lack of due diligence by broker-dealers, the Securities and Exchange Commission on Monday issued a Risk Alert on compliance measures to help BDs fulfill their due-diligence duties when underwriting offerings of municipal securities.
“The Commission’s examination staff has observed that some broker-dealers have not maintained adequate written evidence that they complied with their responsibilities regarding due diligence and supervision,” said Carlo di Florio (left), director of the SEC’s Office of Compliance Inspections and Examinations, in a statement. “To protect investors, it is important that broker-dealers perform adequate due diligence to assess the financial and operational condition of states and municipalities before selling their securities to the public.”
The alert notes that in recent years there has been significant attention focused on the financial condition of some state and local governments, and cites concerns about the extent of written documentation by broker-dealers of due diligence efforts and supervision of municipal securities offerings.
The alert includes examples of practices used by broker-dealers that may help to demonstrate due diligence and supervisory reviews. These include the use of detailed written policies and procedures, the use of commitment committees, due diligence memoranda, outlines for due diligence calls, recordkeeping checklists, and on-site examination activities. “Practices such as these could help a firm show how it is meeting its obligation to perform due diligence, and to support that it has a reasonable belief as to the accuracy and completeness of the Official Statements describing the municipal bond offering,” the alert states.
The SEC’s Office of Investor Education and Advocacy (OIEA) also issued an Investor Bulletin describing the attributes of municipal bonds, including investment risks, and provides information on where investors may obtain additional data on particular bonds.