MAs Need To Work on Com­pli­ance

The Bond Buyer - - Front Page - BY KYLE GLAZIER

PHOENIX – Mu­nic­i­pal ad­vi­sors can ex­pect the num­ber of ex­am­i­na­tions by the Se­cu­ri­ties and Ex­change Com­mis­sion to rise, and many need to work on im­prov­ing their com­pli­ance pro­ce­dures, mem­bers of the SEC’s Of­fice of Com­pli­ance Inspections and Ex­am­i­na­tions said.

Two OCIE at­tor­neys re­layed that in­for­ma­tion to MAs gath­ered at the Na­tional As­so­ci­a­tion of Mu­nic­i­pal Ad­vi­sors conference in Scotts­dale, Ariz., Thurs­day. The two lawyers, su­per­vi­sory at­tor­ney and ex­am­i­na­tion man­ager Robert Miller and se­nior spe­cial coun­sel Na­dine Sophia Evans, dis­cussed the OCIE agenda for MA ex­am­i­na­tions as well as some of the more com­mon prob­lems they’ve en­coun­tered in three years of ex­am­i­na­tions of muni ad­vi­sory firms.

OCIE per­formed about 82 MA ex­am­i­na­tions last year, Miller said, the most yet. A show of hands around the room in­di­cated that most present had expe-

ri­enced an OCIE ex­am­i­na­tion. Al­though bud­getary re­stric­tions have scaled back the num­ber of of ex­am­in­ers do­ing MA ex­ams to about 130, from more than 200, Miller said, ad­vi­sors can still ex­pect the num­ber of OCIE vis­its to con­tinue ris­ing. While OCIE has seen MAs do­ing a num­ber of things cor­rectly and mak­ing com­pli­ance progress, both at­tor­neys said they have seen a con­sid­er­able amount of fail­ures with re­spect to writ­ten su­per­vi­sory pro­ce­dures and record keep­ing.

Mu­nic­i­pal Se­cu­ri­ties Rule­mak­ing Board Rule G-44 on su­per­vi­sory and com­pli­ance obli­ga­tions of mu­nic­i­pal ad­vi­sors re­quires MAs to es­tab­lish su­per­vi­sory sys­tems for their firms and to have writ­ten su­per­vi­sory pro­ce­dures (WSPs) “rea­son­ably de­signed to en­sure” com­pli­ance with all ap­pli­ca­ble rules. They also have to cer­tify an­nu­ally that they have those su­per­vi­sory and com­pli­ance sys­tems in place.

“We’ve no­ticed that most firms have writ­ten poli­cies and pro­ce­dures,” Miller said, but added that it has not been un­usual to find that some mem­bers of the firm were not aware of or fa­mil­iar with those pro­ce­dures. Some firms, Miller said, have hired third-party con­sul­tants to de­sign their com­pli­ance sys­tems. While that isn’t a prob­lem, Miller said, firms need to un­der­stand that they still have re­spon­si­bil­ity for those pro­ce­dures. He shared an anec­dote of one firm whose third-party-de­signed WSPs didn’t seem to match the ac­tiv­i­ties of its busi­ness, and when ques­tioned about that by OCIE ad­mit­ted that they found it a bit odd but trusted in the ex­per­tise of their con­sul­tant.

“Need­less to say, they got writ­ten up,” Miller said.

Some firms have even just copied Rule G-42 on the du­ties on non-so­lic­i­tor mu­nic­i­pal ad­vi­sors into their WSPs, but can’t ex­plain how they plan to com­ply, said Miller. “That’s not good enough,” he said. Evans said she has also ob­served some record-keep­ing prob­lems, with firms co-min­gling their busi­ness and per­sonal fi­nan­cials, mean­ing that they have to turn over their per­sonal records to OCIE ex­am­in­ers.

The SEC lawyers told the au­di­ence that the most com­mon out­come of an ex­am­i­na­tion is that the firm will re­ceive a deficiency letter out­lin­ing the prob­lems the


SEC found, and it is com­mon for firms to re­ply by ex­plain­ing how they will cor­rect those is­sues. Firms who dis­agree with OCIE’s find­ings can ap­peal them higher up the chain, Miller said, but ex­am­in­ers will also have vet­ted their find­ings through their su­pe­ri­ors.

The NAMA conference con­cluded Friday af­ter­noon. ◽

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