Municipal Securities Rulemaking Board Tag Archives

FINRA Invites Member Firms to Self-Report Potential Share Class Selection Violations

February 15, 2019 | Parker MacIntyre

FINRA has announced a new self-reporting initiative covering potential violations by its Member Firms of various rules governing share class recommendations relating to 529 Plans. See FINRA Regulatory Notice 19-04 (Jan. 28, 2019). Similar to the SEC’s recent self-reporting initiative regarding mutual fund share class selection in connection with 12b-1 marketing fees (which we have blogged about last month and in May of 2018), this new FINRA initiative (the “Initiative”) offers potential leniency in return for Member Firms coming forward to self-report likely violations pursuant to the terms of the Initiative.

529 Plans are tax-advantaged municipal securities that are structured to facilitate saving for the future educational needs of a designated beneficiary. While the sale of 529 Plans is governed by the rules of the Municipal Securities Rulemaking Board (“MSRB”), FINRA is responsible for enforcing the MSRB’s rules. These rules, in turn, require that recommendations of 529 Plans be suitable in light of the customer’s investment profile, and that Member Firms selling 529 Plans have a supervisory system in place to achieve compliance with the MSRB’s rules.

SEC Continues to Pursue Municipal Advisor Examinations

April 11, 2018 | Elizabeth Dalziel

Following its publication of a Risk Alert in late 2017 detailing findings from examinations of municipal advisers, the SEC’s Office of Compliance Inspections and Examinations (OCIE) continues to examine municipal advisers in 2018. In 2014, OCIE established the Municipal Advisor Examination Initiative to perform an examination on municipal advisers who recently registered for the first time. OCIE performed over 110 examinations in the course of the Initiative and found that many municipal advisers did not have adequate knowledge of regulatory requirements for municipal advisers. As a result, many municipal advisers were found not to be in adequate compliance with regulatory requirements pertaining to registration, recordkeeping, and supervision. OCIE hoped that in publishing the 2017 Risk Alert, municipal advisers will be compelled to evaluate their policies and procedures to find possible areas for improvement.

Municipal advisers are obligated to register with the SEC pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). The SEC established its municipal adviser registration rules in September 2013, and the rules became effective in July 2014. The Dodd-Frank Act also established the Municipal Securities Rulemaking Board (“MSRB”), which exercises regulatory authority over municipal advisers. OCIE’s examinations of municipal advisers covered “compliance with regulatory obligations including registration, statutory fiduciary standard of care, fair dealing, recordkeeping, and supervision, among other things.” OCIE discovered that the most common deficiencies among municipal advisers related to registration, books and records, and supervision requirements. Continue reading ›

FINRA Sanctions Personnel for Compliance Failures

May 4, 2016 | Steve Parker

A compliance advisor working for City Securities Corporation (“City Securities”) has agreed to a Letter of Acceptance, Waiver and Consent (AWC) in a FINRA enforcement case alleging deficiencies in the way the advisor performed his compliance duties at the broker-dealer. John Walter Ruggles, who first became registered in 1993 and became associated with City Securities in May 2014, was charged with failing to generate monthly Municipal Continuing Disclosure Reports (MCDs), which are required in order to comply with the Municipal Securities Rule Making Board’s (MSRB) disclosure requirements. More specifically, among Ruggles’ tasks were to populate the MCDs with transaction data on behalf of City Securities’ customers and to email the data to the private client group, who would then routinely use the information contained in Ruggles’ emails to prepare customer satisfaction letters to City Securities’ clients regarding recent municipal bond trading activity.

The AWC alleges that Ruggles’ supervisor confronted Ruggles with the fact that he had not received the MCDs due for February 2015, and asked Ruggles to produce documentation showing that Ruggles had performed the tasks going back to June 2014. Ruggles provided six printed emails to his supervisor in response to the supervisor’s request. Those emails contain the trade details that were supposed to have been included in the MCDs. The supervisor, however, attempted to verify the data contained in Ruggles’ printed emails, but in investigating the situation found (1) that City Securities’ email backup files did not contain any of the emails that Ruggles provided, (2) that several of the execution dates referenced on the bond trades in the emails were different from the actual execution dates as reflected in the transaction data, (3) that for a period of approximately five months, the firm’s compliance system showed that Ruggles had not opened and viewed the MCDs from which he was supposed to have taken the data, and (4) that the falsified emails contained erroneous dates in the subject lines.

FINRA Files Revised Pay-to-Play Rule Proposal with SEC

February 15, 2016 | Patricia Klusmeyer

The Financial Industry Regulatory Authority (“FINRA”) recently filed its revised pay-to-play rules proposal with the Securities Exchange Commission (“SEC”). Investment advisers have been awaiting FINRA’s pay-to-play rules ever since the SEC announced last year that it would not recommend enforcement action against an investment adviser or its associated persons for the payment to a third party for the solicitation of a government entity for investment advisory services until either FINRA or the Municipal Securities Rulemaking Board (“MSRB”) had adopted its own pay-to-pay rules for broker-dealers.

Pay-to-play activities involve the practice of making cash or in kind contributions, or soliciting others to make those contributions, to state or local officials or other government entities as an incentive for the receipt of government contracts. Pursuant to Rule 206(4)-5, investment advisers are prohibited from providing a government entity with investment advisory services for compensation within two years of contributing monetarily to that government entity. In addition, and of particular interest here, under Rule 206(4)-5 investment advisers may not provide payment to any third party to solicit a government entity for investment advisory services on behalf of the investment adviser unless that third party is a registered investment adviser, a registered broker-dealer, or a registered municipal adviser.