Stay up-to-date with the latest developments in securities law through access to both news and all statutes and regulations. Find relevant corporate filings through a searchable EDGAR database. And...
Feb. 3 — “Templated” supervisory procedures and inconsistent documentation are among the top deficiencies being seen in municipal advisor examinations, Securities and Exchange Commission and Financial Industry Regulatory Authority examiners said.
Written supervisory procedures (WSP) are often not tailored to the firms' business model, and supporting documentation is often missing analysis on pricing and deal comparables, SEC examiner Robert Hartman said Feb. 3 at the 2016 Compliance Outreach Program for Municipal Advisors. There needs to be a paper trail to support pricing and also an analysis of how the ultimate outcome was reached, he said.
The SEC's municipal advisor exam initiative, launched in 2014, comprises three phases: engagement; examination; and informing policy. During the examination phase, FINRA and the SEC focus on seven target areas: registration, fiduciary duties, disclosures, fair dealing, supervision, training and qualifications, books and records..
The outreach program—hosted by the SEC, FINRA and the Municipal Securities Rulemaking Board—came just a few weeks after the SEC approved new MSRB Rule G-42, which clarifies the fiduciary duty that municipal advisors owe to their clients and imposes core standards for the industry .
WSP deficiencies tend to occur with smaller shops that hire third parties. Some firms use voluminous templated procedures and don't tailor them to their business activities and size, SEC staff accountant Cesar Davis said. Other firms just use the rule language, which makes it much more difficult to review during examination, Davis said.
Steve Kach, examination manager for FINRA's Philadelphia district office, added that faulty retention of e-mail and other electronic communications is still a relatively common finding on exams. Some firms don't have adequate procedures to identify a municipal entity client and in some cases aren't aware that it needs to be done, Kach said.
FINRA panelists also said that some firms don't adequately document their advice and recommendations. Kach reminded the gathering that a little less than 150 FINRA members are municipal advisors, leaving about 97 percent that aren't. As a consequence, firms that aren't municipal underwriters but offer investment advice to institutional clients that also happen to be municipal entities, may be less aware of the new requirements.
Other deficiencies include co-mingling business bank accounts with personal use. Such practices make it challenging to track business activities, Hartman said. Having an audit trail is crucial, he added.
In the future, municipal advisors should be paying more attention to cybersecurity and how it's implemented relative to their business model, Hartman said. They also should be aware that new rules on gifts and gratuities are coming into play.
To contact the reporter on this story: Antoinette Gartrell in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Phyllis Diamond at email@example.com
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)