More On Legal & Compliancefrom The Advisor's Professional Library
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- Suitability and Fiduciary Duty Recommending suitable investments is more than just a regulatory obligation. Many investors bring cases claiming lack of suitability, so RIAs must continuously put the onus on clients to notify the advisor of changes in their financial situation.
The Securities and Exchange Commission announced Tuesday that it has launched examinations of newly regulated municipal advisors.
In a Tuesday letter to those advisors, the SEC’s Office of Compliance Inspections and Examinations said that it would conduct focused, risk-based examinations of municipal advisors that are registered with the SEC, but are not registered with FINRA.
OCIE says that its exam initiative will take place over the next two years and be conducted in three primary phases: engagement, examination and informing policy.
SEC rules that took effect on July 1 generally require municipal advisors to register with the SEC through its EDGAR system by Oct. 31. FINRA started its formal municipal advisor exam program on July 1, when the SEC rule went into effect, and determined, based on a number of risk characteristics, which firms would be examined first, according to a FINRA spokesperson.
OCIE says that the exams are designed to “establish a presence” with the newly regulated municipal advisors, and that over the next two years, OCIE plans to examine a “significant percentage of these advisors using an approach that focuses on identified risks.”
Areas targeted for scrutiny may include the municipal advisor’s compliance with its fiduciary duty to its municipal entity clients, books and recordkeeping obligations, disclosure, fair dealing, supervision, and 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,” said Kevin Goodman, national associate director of OCIE’s broker-dealer examination program, in a statement. “We also will promote compliance by engaging these new municipal advisor registrants through outreach.”
The SEC is working with the Municipal Securities Rulemaking Board (MSRB) and FINRA to facilitate “a coordinated approach” to oversight of municipal advisors.
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.
Later this year, the SEC said, 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.
See Dodd-Frank: Four Years Later on ThinkAdvisor.