SEC Issues Risk Alert on BDs’ Due-Diligence Duties for Municipal Securities

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.