The SEC has provided a Risk Alert to remind municipal advisors of their obligations and to raise awareness among Municipal Advisors (“MAs”) of the most often cited deficiencies and weaknesses observed in recent MA examinations. Many of the same areas were covered in its 2017 Risk Alert, indicating that the SEC continues to note similar deficiencies as it did 5 years ago.
Inaccurate or Incomplete Registrations and Filings
The SEC found significant overlap in registration and filing deficiencies when compared to those identified in its 2017 Risk Alert. Among the inaccurate or incomplete information filed on SEC Forms MA and MA-I, the SEC noted that there were MAs that did not include accurate or complete information about their associated persons’ other business and required disclosures such as customer complaints and tax liens.
Failure to Amend and Untimely Amendments
Similar to the first area, the SEC observed MAs that did not file amendments to Forms MA and MA-I when information become inaccurate or material events occurred. This observation included failure to reflect changes on form MA-I (and Form A-12) in an associated person’s employment or other business, or to add new disclosures involving civil judicial actions or judgment or liens.
Recordkeeping
The SEC continues to observe deficiencies and weaknesses related to books and records requirements similar to its 2017 Risk Alert. This includes a failure to maintain written communications relating to municipal advisory activities, including emails, texts, and instant messages.
Supervision
MSRB Rule G-44 requires Mas to establish, implement and maintain a system to supervise the municipal advisor activities, including the establishment, implementation, maintenance, and enforcement of written supervisory procedures (“WSPs”). An MA’s CEO or equivalent must certify annually in writing that the MA has in place processes to establish, maintain, review, text and modify written compliance policies and WSPS.
The SEC observed MA that did not have any WSPs, others that did not promptly amend their WSPS to reflect rule changes, and others that did not conduct required at-least-annual reviews of their WSPS or obtain annual CEO certifications.
Client Disclosures
The SEC observed MAs that did not disclose in writing to their clients all material conflicts, such as the nature of relationships between the MA and other MAs or other relevant parties such as underwriters; fee-splitting arrangements; compensation arrangements for activities that was contingent on the closing or size of the transaction.
RegEd offers several solutions that can assist Municipal Advisors in addressing the observations and issues raised by the SEC:
- RegEd’s Outside Business Activities solution facilitates the collection, analysis and reporting of critical compliance information required by FINRA and the MSRB. Hallmarked by robust automation, end-to-end workflow management and FINRA-filing capabilities, this solutions enables centralized, systematized management of OBA disclosures, attestations and amendments, reducing review time and facilitating communication on specific requests to speed the decision process.
- RegEd’s Policies & Procedures Management solution enables firms to manage the lifecycle of policies and procedures throughout their entire organization. This includes the policy approval process, policy distribution, attestation management, testing program management and deficiency and case management.
- RegEd’s Compliance Questionnaires solution provides a robust set of integrated, workflow-driven, enterprise tools that enables firms to initiate, distribute and track questionnaires to gather information on potential conflicts, activities, and other arrangements, as well as obtain confirmation of reps’ understanding and compliance with other firm policies.
Through the effective use of technology, Municipal Advisors can implement policies and procedures, workflows, and data-gathering tools to address and enhance their practices related to the SEC’s concerns.
About RegEd
RegEd is the market-leading provider of RegTech enterprise solutions with relationships with more than 200 enterprise clients, including 80% of the top 25 financial services firms.
Established in 2000 by former regulators, the company is recognized for continuous regulatory technology innovation with solutions hallmarked by workflow-directed processes, data integration, regulatory intelligence, automated validations, business process automation and compliance dashboards. The aggregate drives the highest levels of operational efficiency and enables our clients to cost-effectively comply with regulations and continuously mitigate risk.
Trusted by the nation’s top financial services firms, RegEd’s proven, holistic approach to RegTech meets firms where they are on the compliance and risk management continuum, scaling as their needs evolve and amplifying the value proposition delivered to clients. For more information, please visit www.reged.com.