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Regulation and Compliance > Federal Regulation > FINRA

FINRA Reminds BDs of Municipal Client Duties

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The Financial Industry Regulatory Authority is reminding broker-dealers that conduct investment-related activities with municipal clients to determine if they need to register as a municipal advisor.

FINRA’s Regulatory Notice 19-28, released Friday, states that recent FINRA exams have found that some broker-dealers are engaged in investment-related activities with municipal clients, but have not registered as municipal advisors and do not have reasonably designed supervisory systems and controls to determine whether they are required to do so.

Release of FINRA’s notice coincides with new Municipal Securities Rulemaking Board advertising rules that become effective on Aug. 23. MSRB’s rules concern when a broker-dealer or municipal advisor’s use of social media becomes an “advertisement” under MSRB Rules G-21 and G-40.

Comments were also due by Monday on MSRB Rule G-23, which sets the ethical standards and disclosure requirements for broker-dealers who act as financial advisors to issuers involving municipal securities.

The Dodd-Frank Act required persons acting as municipal advisors to register with the Securities and Exchange Commission and MSRB.

The new municipal advisor requirements were intended to mitigate problems involving financial intermediaries providing unregulated advice to or soliciting municipal clients, FINRA explained.

FINRA’s notice reminds BDs of their supervisory obligations under FINRA Rules 3110 (Supervision) and 3120 (Supervisory Control System) if they hold or transact in customer accounts owned by municipal entities or obligated persons. as defined in Section 15B of the Securities Exchange Act of 1934. The notice also applies to BDs that participate in investment-related activities with municipal clients, such as recommending or selling non-municipal securities products to such municipal clients.

“Under these circumstances, member firms are obligated to determine if such activities require registration as a municipal advisor,” FINRA states.


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