SEC exams in FY 2024 to look at solicitor municipal advisors

The Securities and Exchange Commission’s Examination Division will begin targeting solicitor municipal advisors in FY 2024, following the establishment of their own core standards through new MSRB Rule G-46.

“The Division of Examinations plays a critical role in protecting investors and facilitating capital formation,” SEC chair Gary Gensler said in a statement. “In examining for compliance with our time-tested rules, the division helps registrants understand the rules as well as ensures that markets work for investors and issuers alike. The division’s efforts, as laid out in the 2024 priorities, enhance trust in our ever evolving markets.”

Solicitor municipal advisors typically solicit for pension funds and have little to do with traditional municipal advisors, but they both fall under the MSRB’s jurisdiction following Dodd-Frank. This marks the first time solicitor municipal advisors fall under the purview of the commission.

“The division’s efforts, as laid out in the 2024 priorities, enhance trust in our ever evolving markets.”

Bloomberg News

“New MSRB Rule G-46, which becomes effective on March 1, 2024, is designed to establish the core standards of conduct for solicitor municipal advisors, which include disclosure of conflicts of interest and documentation of client relationships, among other things,” the SEC said in its 28-page report on its 2024 exam priorities. “Examinations of solicitor municipal advisors during the second half of fiscal year 2024 will focus on compliance with new MSRB Rule G-46.”

But the commission will also continue its usual focus on municipal advisors and whether they’ve fulfilled their fiduciary duty to clients, “particularly when providing advice regarding the pricing, method of sale and structure of municipal securities,” the SEC report said. “Examiners will review whether municipal advisors are complying with their obligations to document municipal advisory relationships and disclose conflicts of interest and requirements related to registration, professional qualification, continuing education, recordkeeping and supervision.”

Regulation Best Interest, after being finalized in 2019, has been a hot button issue for the commission, and was a point of contention during Gensler’s recent hearing in front of the House Committee on Financial Services.

The SEC will look at recommendations with regards to products, investment strategies and account types; disclosures made to investors regarding conflicts of interest; conflict mitigation practices; processes for reviewing reasonably available alternatives, as well as factors considered in light of the investor’s investment profile, such as investment goals and account characteristics.

Examinations around Reg BI will determine whether the broker-dealer has established, maintained, and enforced written policies and procedures reasonably designed to achieve compliance with Reg BI, whether those policies are reasonably designed with respect to costs, risks and rewards, and center around conflicts of interest, account allocation practices and account selection practices.

The commission’s efforts to shorten the standard settlement cycle from two days to one day mirror those taken by the MSRB in shortening its trade reporting time from fifteen minutes to one minute, a major part of the MSRB’s own agenda for FY 2024. The SEC’s Examination Division will assess registrant preparations for the change, which has a compliance date of May 28, 2024.

But absent from the 28-page document outlining the exam priorities in the new fiscal year is ESG, which has been a priority for the Division of Examinations in 2021, 2022 and 2023. That doesn’t necessarily mean that environmental, social and governance issues are completely off the SEC agenda.

“The published priorities are not exhaustive and will not be the only issues addressed in FY 2024 examinations,” the SEC said.

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