New Municipal Securities Rulemaking Board Rule Focuses on Good Conduct

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The Securities and Exchange Commission (SEC) has approved a new Municipal Securities Rulemaking Board (MSRB) Rule G-42 establishing “core standards of conduct for municipal advisors that engage in municipal advisory activities other than solicitation. It also approved related amendments to MSRB Rule G-8 which establishes recordkeeping requirements. The move is seen as “a significant milestone” in the Board’s development of a “comprehensive regulatory framework for municipal advisors.” And it means more compliance paperwork for you.

The new rules will become effective this summer — June 23, 2016. Will you be ready?

What do the new MSRB rules mean for you?

More compliance. More recordkeeping. More stuff.

Rule G-42 prohibits you from:

  • Receiving excessive compensation;
  • Delivering inaccurate invoices for fees or expenses;
  • Making false or misleading representation of your resources, capacity or knowledge;
  • Participating in certain fee-splitting arrangements with underwriters; or
  • Participating in any undisclosed fee-splitting arrangements with providers of investments or services to a municipal entity or obligated person client of the municipal advisor;
  • Making payments for the purpose of obtaining or retaining an engagement to perform municipal advisory activities (with a few exceptions); or
  • Engaging in certain principal transactions with its municipal entity clients, subject to a narrow exception for fixed income securities transactions…

Among the demands Rule G-42 makes of municipal advisors are that you:

  • Establish an appropriate standard of conduct which includes a duty of care and a duty of loyalty;
  • Exercise due care when performing advisory activities;
  • Fully disclose in writing all “material conflicts of interest and all legal or disciplinary events material to a client’s evaluation” of your ability as a municipal advisor;
  • Document your municipal advisory relationship; and
  • Make appropriate recommendations in good faith.

So…how will you be spending your summer vacation?

In the compliance dungeon? The new rules aren’t meant to be onerous, but…filings and documentation of compliance will matter. Will you be ready?

You better be because the amended Rule G-8(h)(iv) has added an additional requirement that every municipal advisor make and keep a copy of any document created by the municipal advisor that was material to its review of a recommendation by another party or which  memorializes the basis for a determination of suitability. So more paper, more files, more data.

There’s no question, regulatory compliance requirements are getting more all-consuming. Complying is an undertaking without end and now, the MSRB wants you to do more of it. When will you find the time to do your real work? Let’s talk. Ask about Patrina’s comprehensive compliance solutions specifically designed for the financial services community.

Let’s talk (212- 233-1155).

 

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