SEC Begins Exams of Municipal Advisors; Focus on "Identified Risks"

Exams will take place over the next two years and be conducted in three phases

The SEC plans to examine a "significant percentage" of newly registered muni advisors. The SEC plans to examine a "significant percentage" of newly registered muni advisors.

More On Legal & Compliance

from The Advisor's Professional Library
  • RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients’ privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
  • Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.

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.

Reprints Discuss this story
This is where the comments go.