The Municipal Securities Rulemaking Board is proposing a new rule that would require solicitor municipal advisors to disclose more information in writing, streamlining existing guidance in the process.
The MSRB requested comment for draft MSRB Rule G-46 Wednesday evening. The rule would codify interpretive guidance from 2017 on its MSRB Rule G-17 on fair dealing and align obligations under MSRB Rule G-42, on the duties of non-solicitor MAs. The National Association of Municipal Advisors called the proposal a positive step forward.
“MSRB’s efforts to apply rulemaking equitably across the MA community will help solicitor MAs better identify areas where MSRB rules applies to them, thus facilitating better compliance,” said Susan Gaffney, NAMA executive director.
Solicitor MAs are municipal advisors that, for compensation, solicit municipal entities and obligated persons for business on behalf of certain other finance professionals. There are not many exclusively solicitor MA firms — just 20 of 105 MA firms registered with the MSRB indicated they engage exclusively in solicitation business activities. Over 80% of total MA firms engage in both solicitation and non-solicitation MA activities.
The MSRB is currently undertaking a retrospective rule review and said specific review of G-17 presents an opportunity to promote more regulatory consistency between solicitor MAs and other regulated entities.
“Draft Rule G-46 would help prevent derelictions of a solicitor municipal advisor’s fair dealing obligations by promoting clearer regulatory requirements and expectations,” the MSRB said. “Thus, the benefit provided by draft Rule G-46 is that it will remove uncertainty and potential ‘gray areas’ of regulations that would hinder a potential solicitor municipal advisor from completing its obligations as intended.”
Specifically, the draft rule adds a new requirement for solicitor MAs to document their relationships in writing, describes standards of their representation to solicited entities, adds compensation and conflict of interest disclosures and sets standards for the timing and manner of those disclosures.
This would mean that solicitor MAs would need in writing each of its solicitor relationships and give that to their clients before establishing that solicitor relationship.
“The writing(s) would be required to be dated and include, at a minimum: a description of the solicitation activities to be engaged in by the solicitor municipal advisor on behalf of such client (including the scope of the agreedupon activities); the compensation to be received by the solicitor municipal advisor; and the term of the engagement,” the MSRB wrote in its notice.
This is consistent with the MSRB Rule G-42, besides the need to disclose legal and disciplinary events. The MSRB is asking stakeholders if that should be included.
IThe rule would also mean solicitor MAs would have to have a reasonable basis for their representations and not be inaccurate or misleading in their representations.
The MSRB said Rule G-46 is needed since solicitor MAs do not have standards regarding documentation of a solicitor MA’s engagement or standards regarding their disclosures of conflicts of interest.
Before the passage of the Dodd-Frank Act in 2010, MAs were mostly unregulated. Since then the MSRB established a regulatory framework for MAs and divided them into solicitor and non-solicitor. The MSRB amended Rule G-17 to include all MAs and the duties of non-solicitor MAs were outlined specifically in 2016 with Rule G-42.
Solicitor MAs would likely incur costs to meet Rule G-46, such as one-time upfront costs to set up policies and procedures and ongoing compliance and record-keeping costs.
The MSRB is also asking stakeholders if disclosures should be made orally instead of in writing and asked for burdens solicitor MAs may face.
Comments are due June 17, 2021.