• MSRB Proposes Rule on Supervision of Municipal Advisory Activities
  • June 28, 2011 | Authors: Henryka W. Gryc Craig; John R. Devine
  • Law Firm: Miles & Stockbridge P.C. - Baltimore Office
  • The Dodd-Frank Wall Street Reform and Consumer Protection Act expanded the mission of the Municipal Securities Rulemaking Board (“MSRB”) to include the regulation of municipal advisors. On May 25, 2011, MSRB proposed a new rule that would require municipal advisors to adopt a basic supervisory structure for their municipal advisory activities to ensure compliance with applicable MSRB and Securities and Exchange Commission rules.

    Under the proposed rule (“Rule G-44”), municipal advisors must supervise their municipal advisory activities as well as such activities of their associated persons to assure compliance with applicable rules.  With respect to municipal advisors’ own activities, Rule G-44 would require municipal advisors to adopt, maintain, and enforce written supervisory procedures documenting their supervisory system.  At a minimum, the procedures would need (1) to set forth the manner in which municipal advisors will monitor activities, (2) to provide for a periodic review of activities to detect and prevent violations and achieve compliance, (3) to require municipal advisors to maintain books and records regarding compliance with Rule G-44, and (4) to require municipal advisors to maintain written supervisory procedures, copies of which must be available in each office of municipal advisors and at each location where supervisory activities are conducted.  The procedures are to be amended as changes occur in the applicable rules.  In addition, municipal advisors would be required to develop procedures for a review of their correspondence relating to the municipal advisory activities.

    With respect to the municipal advisory activities of associated persons, under proposed Rule G-44 municipal advisors would have to maintain written procedures required with respect to municipal advisors’ own activities, as outlined above.  In addition, municipal advisors would be required, at a minimum, (1) to designate one or more municipal advisor principals with experience or training to be responsible for the supervision of the activities of the municipal advisors and their associated persons and (2) to maintain written records of these designations and of such principals’ responsibilities.  Municipal advisors are to conduct an annual compliance interview to discuss compliance matters relevant to associated persons, and keep records of the correspondence of associated persons.  The final responsibility for proper supervision would rest with the municipal advisor.

    MSRB has prepared a sample checklist for municipal advisors, based on pending MSRB rule proposals, to assist them in complying with proposed Rule G-44.  MSRB noted, however, that the checklist is illustrative only and is not intended as a substitute for a municipal advisor’s written supervisory procedures, which must provide more detail on how the municipal advisor and its associated persons are to comply with each applicable rule.

    Comments on proposed Rule G-44 should be submitted to MSRB via email by June 24, 2011.  MSRB’s notice of proposed Rule G-44 (including the sample checklist) and further details on submitting comments are available at http://www.msrb.org/Rules-and-Interpretations/Regulatory-Notices/2011/2011-28.aspx?n=1.

    For a complete list of MSRB’s rules regulating municipal advisors in effect as of the date of this Client Alert, visit MSRB’s website at http://www.msrb.org/MSRB-For/Municipal-Advisors/MSRB-Rules.aspx.