The SEC is not wasting any time making sure that newly registered municipal advisors are introduced to their regulator. On August 19, 2014, the SEC announced a two-year examination initiative for municipal advisors that registered with the SEC in accordance with final municipal advisor rules that became effective on July 1, 2014. OCIE’s National Examination Program (NEP) stated that the initiative will include “focused, risk-based” examinations of municipal advisors registered with the SEC but not with FINRA.
The examinations will address municipal advisors’ compliance with both the final SEC municipal advisor rules and Municipal Securities Rulemaking Board rules as they become final.
The examination initiative will proceed in three phases: (1) an “engagement” phase, during which the NEP will reach out to newly registered municipal advisors to inform them of their obligations under the Dodd-Frank Act and related rules, (2) an “examination” phase, during which the NEP staff will review selected municipal advisors’ compliance programs in one or more identified risk areas, and (3) an “informing policy” phase during which the NEP will report its observations to the SEC. OCIE said that the particular risk areas that may be included in its examinations will include registration, fiduciary duty, disclosure, fair dealing, supervision, books and records, and training/qualifications.
The NEP noted that the results of OCIE’s examinations are typically used by the SEC “to inform rule-making initiatives, to identify and monitor risks, to improve industry practices and to pursue misconduct.” In other words, municipal advisors should expect that these examinations will result in additional SEC guidance to municipal advisors regarding how they conduct their businesses.
At this time, there is no indication of how examination participants will be selected, but OCIE has announced that it plans to examine a “significant percentage” of new municipal advisors. Newly registered municipal advisors should plan to participate in OCIE’s compliance outreach program, which will take place later this year, to learn about compliance issues and practices, and to understand what to expect from an OCIE examination.