August 26, 2014
RE: SR-MSRB-2014-06 "Self-Regulatory Organizations Municipal Securities Rulemaking Board Notice of Filing of a Proposed Rule Change Consisting of Proposed New Rule G-44, on Supervisory and Compliance Obligations of Municipal Advisors Proposed Amendments to Rule G-8, on Books and Records To Be Made by Brokers, Dealers and Municipal Securities Dealers and Proposed Amendments to Rule G-9, on Preservation of Records"
I am an attorney who represents a Municipal Advisor that is also an Investment Advisor ("MA/IA"). My client wishes to remain anonymous. MA/IA seeks clarification of proposed MSRB rule G-44 and the resulting amendments to Rules G-8 and G-9. See 79 Fed. Reg. 45546 (Aug. 5, 2014).
As an IA, 17 C.F.R. 275.206(4)-7 requires MA/IA to have in place a comprehensive compliance program including: written policies and procedures, an annual review of those policies and procedures, and a Chief Compliance Officer (CCO) responsible for administering the policies and procedures.
MA/IA seeks clarification and offers comment on the following components of proposed Rule G-44:
(a) Written supervisory procedures.
(i) MA/IA seeks clarification about whether an IA may modify its written procedures to also encompass MA activities or if an entirely new set of written procedures is required. The proposed rule implies that an entirely new set of written procedures is required. As required by IA rules, MA/IA currently records its IA procedures in a compliance manual. MA/IA seeks clarification about:
(1) whether it would be permissible to draft a separate MA manual that addresses only MA requirements, but incorporates by reference the applicable portions of the IA manual or
(2) whether would it be acceptable to insert into the existing IA manual sections, paragraphs, or statements that specifically address MA activities.
MA/IA believes that these alternatives would promote efficient MA operations so as to deliver maximum value to MA clients, as well as facilitate compliance for individuals who may perform both MA and IA functions within MA/IA. MA/IA suggests that the final rule should explicitly include these or similar alternatives, if the MSRB intends for them to be sufficient to satisfy an MA's compliance obligations.
If the MSRB intends for to require an entirely new and separate set of written MA procedures for MAs that are also IAs, MA/IA believes that this would reduce efficiency and would detract from the value delivered to MA clients. However, if the MSRB does intend to require a separate set of written procedures for MAs that are also IAs, MA/IA suggests that the final rule explicitly indicate this, along with an explanation of the reasoning behind this requirement, so that MA/IA and similar entities can appropriately prepare themselves and their clients for the increased workload.
(ii) "Appropriate Principal." Must the Appropriate Principal be specifically designated as a particular individual in the written procedures, or do the procedures only need to include information about how to identify the Appropriate Principal, e.g., by title or position within the organization? Alternatively, would it be acceptable to identify the Appropriate Principal by a reference in the written procedures to a separate document or record identifying a particular individual, assuming the written procedures and the applicable records meet applicable recording and retention requirements? To reduce uncertainty, MA/IA suggests that the MSRB clarify in the final rule text or associated comments whether these possibilities would be acceptable.
(b) Annual review of compliance processes. May this review be conducted as part of the required annual review of IA compliance processes and supervisory procedures? It appears that many of the proposed MA requirements are substantially similar to IA requirements, so an annual review that encompasses both MA and IA activities would allow MA/IA to use staff resources as efficiently as possible. MA/IA suggests that the final rule should explicitly state whether an entirely separate review is required or if it may be conducted simultaneously with other required compliance reviews.
(c) Designation of a CCO. Comments .05 and .07 address MA/IA#146s potential questions about the designation of a CCO.
(d) Annual Certification. MA/IA supports the exception to this requirement allowing FINRA compliance certification to stand in for a separate MSRB compliance certification.
Technical corrections suggested:
MA/IA suggests amending proposed Rule G-9(k) to refer to Rule 15Ba1-8(d) rather than Rule 15a1-8(d).