MSRB Filed Proposed Municipal Advisor Core Conduct Rule with SEC

Thursday, April 23, 2015

The Municipal Securities Rulemaking Board filed a proposed rule with the SEC that would “govern the core conduct of municipal advisors, including their fiduciary duty to put the interests of state and local government clients ahead of their own,” the Bond Buyer reports. Rule G-42 on the conduct of non-solicitor municipal advisors was filed last week and is, subject to SEC approval, “a key piece of the MSRB's efforts to regulate MAs under the Dodd-Frank Act's requirement that MAs act as fiduciaries to their issuer clients.” The rule is expected to affect roughly 740 firms and 3,800 individuals.

The proposed rule states that MAs owe a fiduciary duty of loyalty to their municipal issuer clients, requiring "without limitation … to deal honestly and with the utmost good faith with a municipal entity client and act in the client's best interests without regard to the financial or other interests of the municipal advisor," and it spells out a less stringent "duty of care" owed to all clients, including obligated persons such as conduit borrowers.

GFOA has been actively engaged providing recommendations to the MSRB as they developed this proposed rule, issuing comments several comment letters in March and September 2014. GFOA’s Committee on Governmental Debt Management is currently reviewing the MSRB’s latest proposed version of the rule, and expects to issue comments to the SEC over the next several weeks.