The MSRB filed its Municipal-Advisor conduct rule proposal with the SEC on April 15. The Rule G-42 proposal has been around the block twice, since the Board first floated it in January last year (Reg. Notice 2014-01). The Revised Draft was issued last July (Reg. Notice 2014-12). I discussed them in our July 30, 2014 and January 23, 2014 blogs.
As proposed for adoption by the SEC, the Rule broadly imposes:
- A fiduciary duty to Municipal Entities, but only of care to Obligated Persons;
- An “engagement letter” disclosure regime requiring conflicts and disciplinary disclosures, fee-basis, scope and termination of engagement provisions;
- Suitability and Know-Your-Customer requirements; and
- Prohibitions on certain conduct, including excessive compensation, misrepresentations or false claims, certain and undisclosed fee-splitting, most paid solicitation, and principal transactions with Municipal Entity clients.
Notable changes from the Revised Draft include:
- Revision of Rule G-42(e)(i)(E) for more specific description of allowable solicitor payments to affiliates, other MA’s or otherwise permissible under Rule G-20;
- Revision of Supplementary Material .06 to clarify that the Inadvertent Advice safe-harbor relieves compliance only with required engagement letter and conflicts disclosures;
- Deletion of former Supplementary Material .08 requiring direct disclosures to municipal-securities investors; and
- Addition of Supplementary Material .11 including bank loans within prohibited principal transactions if they are $1 million or more and economically equivalent to a municipal-securities purchase.
The Rule filing, SR-MSRB-2014-03, is here.