Published on Aug 25th, 2022 |

Brief Introduction

On August 22, 2022, the SEC Division of Examinations (“Division”) released a Risk Alert following up from a prior Risk Alert in 2017 related to a series of examinations of newly registered Municipal Advisors.  The new Risk Alert, is titled “Recent Observations from Municipal Advisor Examinations.”

4 Key Staff Observations from the Division

  1. Registration and Filings
    • Filings with Inaccurate, Incomplete, or Inconsistent Information
    • Failure to Amend and Untimely Amendments
      • Certain Municipal Advisors examined did not file amendments to SEC Forms MA and MA-I and MSRB Form A-12 when information became inaccurate or when material events occurred, or did not file amendments in a timely manner.
      • Certain Municipal Advisors examined did not amend their Form A-12 to reflect changes in items such as contact information
        and business activities.
    • Annual Filing Requirements
      • There were instances of failure to file annual updates to their SEC Form MA and/or did not review, update, and affirm the information in MSRB Form A-12 on an annual basis.
    • MSRB Fees
      • Certain Municipal Advisors did not pay the required MSRB initial and annual registration fees.
  2. Recordkeeping
    • The following below was found as not true or accurate relating to some books and records required by the rules:
      • Accounting or Financial Documents.
      • Records concerning compliance with the MSRB’s MA supervision and compliance rule (MSRB Rule G-44), including records of annual certifications and designations of chief
        compliance officers.
      • Copies of documents created by the MA that were material to making a recommendation to a municipal entity or obligated person.
      • Written agreements entered into by the MA with municipal entities and their employees, obligated persons, or otherwise relating to the MA’s business.
  3. Supervision
    • Failure to Establish, Amend, or Design WSPs.
    • Annual Reviews and Certifications.
      • Municipal Advisors that did not conduct required at-least-annual reviews of their WSPs.
  4. Disclosure to Clients (MSRB Rule G-42)
    • Most Common Deficiencies and Weaknesses found under MSRB Rule G-42:
      • No Disclosure of Conflicts.
      • No Statement of Lack of Known Conflicts.
      • Inadequate Documentation of Relationship.
      • Untimely Documentation or Disclosure.

Vigilant’s Final Conclusion and Insights

The Division encourages Municipal Advisors (“MA”) to review their practices, policies, and procedures in these areas. They also recommend MAs to consider improvements in their compliance programs as well.

Vigilant’s Director, Deane Armstrong, had the following thoughts relating to the observations by the SEC, “While the SEC focuses in the first section of its “Observations” on the more rudimentary regulatory requirements of an MA, it’s the section regarding Disclosures of Conflict that MAs will need to pay close attention to. Anyone who doubts the SEC’s intention to require MAs to strictly adhere to these conflict disclosure requirements has only to look at the recent case brought against an MA involved in a Rochester, NY bond issue.  The MA was charged not only with allegedly failing to disclose financial information regarding the City, thereby misleading investors, but also with failing to disclose its conflict of interest in having compensation agreements with nearly 200 other municipal clients, while stating that they had no undisclosed conflicts of interest. Conflicts that may have appeared so obvious as to need no disclosure must now be evaluated, documented, and disclosed.”

Contact Us Here For Assistance