MSRB files final proposal for municipal advisers’ standards of conduct

By Tali Rackner

Norfolk, Va., April 15 – The Municipal Securities Rulemaking Board filed a proposal for the MSRB Rule G-42 with the Securities and Exchange Commission to address concerns that a regulatory gap had allowed unaccountable and unqualified individuals to advise state and local governments on multibillion-dollar municipal finance deals, according to a press release.

The rule “would establish core standards of conduct for municipal advisers, provide guidance on the obligations and prohibitions that accompany their federal fiduciary duty to state and local governments and clarify their duties of care and fair dealing to all clients,” the release said.

“The MSRB believes this rule will further Congress’ intent to build a framework of federal oversight for the advice state and local governments count on when considering municipal securities transactions and financial products,” executive director Lynnette Kelly said in the release.

The Dodd-Frank Wall Street Reform and Consumer Protection Act previously charged the MSRB with developing a comprehensive package of rules and professional qualification standards for municipal advisers, many of whom were previously unregulated at the federal level.

According to the release, the rule “addresses the specific duties of care and loyalty that are components of the federal fiduciary duty established under the Dodd-Frank Act for municipal advisers when dealing with municipal entity clients. The rule includes a ban on engaging in principal transactions with a municipal entity client that are directly related to the transaction for which the municipal adviser is providing advice.”

MSRB sought industry and public feedback on draft versions of the rule twice last year. Wednesday’s SEC filing describes the regulatory justification for each provision of the final proposal and includes detailed written responses to all of the substantive issues raised by commenters.

The SEC is expected to publish the MSRB’s proposal in the Federal Register and invite additional public comment before considering whether to approve the new rule, the MSRB said.

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