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Persons Registered as Municipal Advisers Face SEC Examination Program

Peter D. Fetzer
Jason M. Hille
Foley & Lardner LLP - Milwaukee Office

Terry D. Nelson
Foley & Lardner LLP - Madison Office

September 2, 2014

Previously published on August 29, 2014

The SEC recently announced that its Office of Compliance Inspections and Examinations (“OCIE”) will shortly commence an examination program of registered municipal advisers. The examination program will be phased in over the next few years. The focus of the examinations will be certain risk areas, including the municipal adviser’s compliance with its fiduciary duty to clients, maintenance of the required books and records and overall fair dealing with clients. Because the regulatory scheme for municipal advisers is new and most of the regulations governing same are still in the development phase, the OCIE staff will use the examination program, in part, to assist registrants on getting up-to-speed on the regulatory requirements.

Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act required those persons who are municipal advisers, unless exempt, to register as municipal advisers with the SEC and the Municipal Securities Rulemaking Board (“MSRB”). Registration phase in of municipal advisers commenced July 1 and is to be concluded by October 31, 2014.

The OCIE’s examination program will reportedly be conducted in phases; engagement of the registrants (currently taking place), the examination program, and informing registrants of SEC policy. An annual outreach program will be conducted by the SEC to provide registrants with an overview of best practices compliance programs to address the regulatory requirements for municipal advisers. It is expected that the Financial Industrial Regulatory Authority (FINRA) will examine those registered municipal advisers who are also registered broker-dealers and members of FINRA. The SEC will examine those municipal advisers that are not members of FINRA.

Part of the difficulty for newly registered municipal advisers is that many of them have not been part of an SEC examination program in the past and that the regulations have not been finalized and in some cases, not even in the proposal stage. The MSRB’s proposed Rule G-42 to establish core duties including the adviser’s fiduciary obligations to its clients, is currently out for public comment (ended August 25, 2014).

What will be necessary for the SEC while conducting its examination program is to provide patience with a largely new regulatory class that will not have a final set of regulations starting out.


The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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