Bonds

The Municipal Securities Rulemaking Board has filed its proposed Rule G-46 on the duties and standards of conduct of solicitor municipal advisors with the Securities and Exchange Commission, which provides definitions for certain terms, adds disclosures for solicitor MAs to provide to their clients and creates rules prohibiting those solicitors from providing misleading statements.

Solicitor MAs are municipal advisors that, for compensation, solicit municipal entities and obligated persons for business on behalf of certain other finance professionals. The proposed changes won’t affect a large portion of municipal advisors, as around 80% of MA firms engage in both solicitation and non-solicitation MA activities. But the updates to the rule are still welcomed as a step in the right direction.

“Having the rule in sync with other MSRB rulemaking and allowing these professionals to understand their responsibilities are key to moving forward with this rule,” said Susan Gaffney, executive director of the National Association of Municipal Advisors.

Since the passage of Dodd-Frank, MAs have generally been divided into solicitor and non-solicitor buckets and upon the original drafting of Rule G-46, the MSRB said the rule was necessary due to a lack of standards for solicitor MAs concerning standards of engagement and disclosure of their conflicts of interest.

The MSRB requested comment on draft Rule G-46 in March 2021 which sought to 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 proposed rule sets out definitions for “compensation,” “excluded communications,” “solicitation,” “solicited entity,” “solicitor client,” “solicitor municipal advisor,” and “solicitor relationship.”

The proposed rule would also “require solicitor municipal advisors to provide to their solicitor clients full and fair disclosure in writing of all of their material conflicts of interest and material legal or disciplinary events,” the filed rule change said, in addition to requiring “solicitor municipal advisors to document their relationships in writing(s), deliver such writing(s) to their solicitor clients, and set forth certain minimum content that must be included in such writing(s).”

It would also require solicitor municipal advisors to disclose matters such as information about the solicitor municipal advisor’s role and compensation, their material conflicts of interest, and information on their solicitor client such as that provided on Form MA or Form ADV.

Disclosures would be required to be made in writing and delivered at the time of first communication with a solicited entity and again if the solicitation results in a solicited entity engaging a solicitor client for investment advisory or municipal advisory services.

The proposed rule expressly prohibits solicitor municipal advisors from delivering an inaccurate invoice for fees and expenses and also prohibits solicitor municipal advisors from making any representation they know or should know to be false or misleading concerning the capacity, resources or knowledge of the solicitor client.

The creation of MSRB Rule G-46 would also amend Rule G-8 on recordkeeping obligations, requiring solicitor municipal advisors to keep records of the disclosures made, including a copy, documentation substantiating the solicitor municipal advisor’s reasonable basis for believing its representations, and evidence showing the disclosures were made as required.

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