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.