On October 24, 2014, the Securities and Exchange Commission (SEC) approved Municipal Securities Rulemaking Board’s (MSRB) Rule G-44, which is the MSRB’s first dedicated rule for municipal advisors. The new requirements take effect April 23, 2015, giving firms six months to implement the required policies and procedures.
Rule G-44, serves as a compliance supervisory rule, which requires the municipal advisor to: 1) have a named CCO; 2) have written supervisory policies and procedures; 3) conduct an annual review of supervisory structure, including its policies and procedures; 4) and obtain an annual written certification by the CEO that the firm has “processes to establish, maintain, review, test and modify written compliance policies and written supervisory procedures reasonably designed to achieve compliance with applicable rules” in place. The CEO certification, however, does not go into effect until April 23, 2016.
Under the new rule, a municipal advisor’s supervisory system must have written supervisory procedures that are designed to ensure compliance with applicable laws and regulations. Procedures should address nature of the advisor’s municipal advisory activities, including size and structure. The procedures must be updated and communicated to all relevant associated persons when necessary.
There must be a designated municipal advisor principal who is responsible for overseeing required supervision. Any designated principal must have sufficient knowledge, experience and training to understand their responsibilities. Pursuant to Rule G-44 municipal advisors are required to establish, maintain, review, test and modify written compliance policies and supervisory procedures, customized to the firm, which must be reviewed annually, and then certified by the CEO. The certification is attesting only as to having processes in place, and “the execution of this certification and any consultation rendered in connection with such certification does not by itself establish business line responsibility.”
Notably, a municipal advisor that is a bank or division of a bank is exempt from Rule G-44 and certain records requirements. The exemption exists only if the bank certifies in writing annually that it is subject to federal supervisory and compliance obligations, and to records requirements that correspond to the obligations of Rule G-44.
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