MSRB seeks comments on revised draft guiding municipal adviser duties

By Toni Weeks

San Luis Obispo, Calif., July 25 – The Municipal Securities Rulemaking Board released for public comment a revised draft rule that will establish the core duties of municipal advisers when providing advice on municipal securities transactions and related products.

According to a press release, the revised draft MSRB Rule G-42 addresses a number of issues raised by commenters on the initial draft rule, which was published in January 2014.

Specifically, the initial draft prohibition on principal transactions was revised to apply only to transactions with municipal entity clients, not with obligated persons. Also, to clarify the narrow scope of the prohibition, the revised draft defines principal transactions as limited to those directly related to the subject of the municipal adviser’s engagement with the municipal entity client. The definition also specifies the types of transactions that are covered.

According to the release, the revised draft includes other key changes, such as the elimination of specified requirements that municipal advisers review the official statement in a new-issue transaction, disclose information about professional liability insurance and estimate in relationship documentation their expected total compensation in dollars.

These changes reflect feedback that the client primarily should control the scope of the engagement with its municipal adviser, the release said.

The revised draft also clarifies a municipal adviser’s suitability and related obligations when making recommendations to municipal entity and obligated person clients or reviewing the recommendations of others.

The revised draft rule provides relief from certain disclosure and documentation requirements for anyone who inadvertently provides advice that would be considered municipal advisory activity, the release stated. The new provision, however, does not offer a safe harbor from potential violations of Securities and Exchange Commission and MSRB registration requirements and other rules for providers of municipal advisory services.

According to the release, the MSRB had solicited input on the January 2014 draft as to whether the federal fiduciary duty should be extended to apply to municipal advisers that work with obligated persons. The revision does not extend the fiduciary duty.

“As the foundation of the MSRB’s regulatory framework for municipal advisors, MSRB Rule G-42 will play a central role in achieving the MSRB’s mandate to protect municipal entities that engage the services of a municipal advisor,” executive director Lynnette Kelly said in the release.

Comments on the revision are due no later than Aug. 25.

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