MSRB Webinar: Draft Professional Qualification Requirements for Municipal Advisors Municipal Securities Rulemaking Board April 3, 2014
MSRB Webinar: Draft Professional
Qualification Requirements for
Municipal Advisors
Municipal Securities Rulemaking Board
April 3, 2014
MSRB Presenters
Lynnette Kelly
Executive Director
Ritta McLaughlin
Chief Education Officer
Lawrence Sandor
Deputy General Counsel
2 Municipal Securities Rulemaking Board
Today’s Webinar Topics
I. Overview
– Regulatory Framework
– Professional Qualification Framework
II. Key Areas of the Draft Amendments
– Registration Classifications for Municipal Advisors
– Municipal Advisor Representative Qualification Exam
– Timing
– Other Amendments
III. Professional Qualification Exam Development
IV. Participation in the Rulemaking Process
V. Audience Questions
3 Municipal Securities Rulemaking Board
Regulatory Framework
About the MSRB
• A self-regulatory organization created by Congress in 1975
• Protects investors and issuers of municipal securities
• Promotes a fair and efficient municipal market
5 Municipal Securities Rulemaking Board
Municipal Advisor
Regulatory Framework
• The 2010 Dodd-Frank Act expanded the MSRB’s
jurisdiction to include the regulation of municipal advisors
and municipal advisory activities
– Also broadly defined “municipal advisor”
• The September 2013 final registration rule (SEC Final
Rule), among other things, provided additional clarity and
guidance on who is a municipal advisor
– Effective on July 1, 2014
6 Municipal Securities Rulemaking Board
Municipal Advisor
Regulatory Framework (continued)
• With the adoption of the SEC Final Rule, the MSRB has
prioritized the development of municipal advisor rules in five
key areas:
– Standards of conduct including fiduciary duty (comment period closed)
– Supervision (comments due April 28, 2014)
– Pay-to-play
– Gifts and gratuities
– Duties of solicitors
• The MSRB has also prioritized the development of
professional qualification standards for municipal advisors – Comments due May 16, 2014
7 Municipal Securities Rulemaking Board
Professional Qualification
Framework
Overview of Municipal Advisor
Professional Qualification Framework
• The Dodd Frank Act charged the MSRB with setting
professional qualification standards and continuing
education requirements for municipal advisors
– Persons associated with dealers and municipal advisors must pass
examinations as the MSRB may establish
• Professional qualification exams measure a candidate’s
knowledge of business activities and applicable regulatory
requirements
• Professional qualification exam for municipal advisor
representatives is expected to be available in 2015
9 Municipal Securities Rulemaking Board
Existing Dealer Professional
Qualification Standards
• MSRB Rule G-2 requires that no dealer shall engage in
municipal securities activities unless that dealer and every
natural person associated with the dealer is qualified in
accordance with MSRB rules
10 Municipal Securities Rulemaking Board
Existing Dealer Professional
Qualification Standards (continued)
• MSRB Rule G-3 sets forth the specific requirements of
qualification for dealers and persons associated with
such dealers
• Classifications include (but are not limited to):
– Municipal securities representative
– Municipal securities principal
– Municipal securities sales principal
– Financial and operations principal
11 Municipal Securities Rulemaking Board
Existing Dealer Professional
Qualification Standards (continued)
• MSRB Rule G-3 requires municipal securities
representatives, municipal securities principals and
persons that fall within other dealer classifications to
take and pass an applicable professional qualifications
exam for that classification
12 Municipal Securities Rulemaking Board
Professional Qualification Framework
(continued)
• MSRB Rule G-3 also:
– Prescribes the minimum number of persons within a
dealer that must fall within certain classifications;
– Describes the continuing education requirements for
dealers; and
– Addresses other matters such as the confidentiality of
qualification exams.
13 Municipal Securities Rulemaking Board
Key Draft Amendments to MSRB
Rules G-1, G-2, G-3 and D-13
Standards of Professional Qualification
for Municipal Advisors
• Draft amendments to MSRB Rule G-2 add standards of
professional qualification for municipal advisors
– Draft amendments provide that no municipal advisor shall
engage in municipal advisor activities unless the municipal
advisor and every natural person associated with the advisor
are qualified under MSRB rules
15 Municipal Securities Rulemaking Board
Classifications for Municipal Advisors
• Draft amendments to MSRB Rule G-3 create two new
registration classifications:
– Municipal advisor representative
– Municipal advisor principal
16 Municipal Securities Rulemaking Board
Municipal Advisor Representative
Municipal Advisor Representative
A natural person who is an associated person of a
municipal advisor who engages in municipal advisor
activities on the firm’s behalf (other than a person
whose functions are solely clerical or ministerial)
17 Municipal Securities Rulemaking Board
Municipal Advisory Activities
• MSRB Rule D-13 defines municipal advisory activities as
those activities described in Section 15B(e)(4)(A)(i) and (ii)
of the Securities and Exchange Act of 1934
• Those activities include advice to or on behalf of a
municipal entity or obligated person with respect to
municipal financial products or the issuance of municipal
securities, including advice with respect to:
– Structure
– Timing
– Terms
– Other similar matters concerning such financial products or issues
18 Municipal Securities Rulemaking Board
Municipal Advisor Principal
Municipal Advisor Principal
A natural person who is an associated person of a
municipal advisor who is directly engaged in the
management, direction or supervision of the municipal
advisory activities of the municipal advisor
19 Municipal Securities Rulemaking Board
Municipal Advisor Representative
Qualification Exam
• Draft amendments to MSRB Rule G-3 require each
municipal advisor representative to take and pass the
municipal advisor representative qualification exam
• At a later date, the MSRB will consider a qualification
exam for municipal advisor principals
20 Municipal Securities Rulemaking Board
Timing of Municipal Advisor
Representative Qualification Exam
• The MSRB proposes to give municipal advisor
representatives a one-year time period from the
effective date of the qualification exam to pass the
exam
• The MSRB will announce the effective date of the
municipal advisor representative qualification exam
21 Municipal Securities Rulemaking Board
Timing of Municipal Advisor
Representative Qualification Exam
(continued)
• Individuals who do not pass the municipal advisor
representative exam would be permitted to re-take the
exam after 30 days
• Any person who fails the exam three or more times in
succession would be prohibited from taking the exam
for six months
22 Municipal Securities Rulemaking Board
Grandfathering
• The draft amendments require that all municipal
advisor representatives take and pass the qualification
exam
– There are no exceptions for municipal advisors that have
passed other qualification exams or municipal advisors with
extensive industry experience
23 Municipal Securities Rulemaking Board
Certain Financial Advisory Activities
• Draft amendments to MSRB Rules G-1 and G-3
remove a category of permissible activities that
currently constitute municipal securities dealer
activities or municipal securities representative
activities, respectively
– Draft amendments remove the provision of “financial advisory
or consultant services for issuers in connection with an
issuance of municipal securities” as a category of activities
24 Municipal Securities Rulemaking Board
Apprenticeship
• Draft amendments to MSRB Rule G-3 remove the
requirement for municipal securities representatives to
serve an apprenticeship period of 90 days before
transacting business with any member of the public or
receiving compensation for such activities
– The MSRB does not propose an apprenticeship requirement for
municipal advisors
25 Municipal Securities Rulemaking Board
Professional Qualification
Exam Development
Professional Qualification
Exam Development
• The MSRB has extensive experience creating and
maintaining professional qualification exams for municipal
securities market professionals
– The MSRB has three exams to evaluate the basic competency
professional qualifications of municipal securities professionals
– The MSRB also partners with the Financial Industry Regulatory
Authority in maintaining other professional qualification exams
27 Municipal Securities Rulemaking Board
Professional Qualification
Exam Development (continued)
• Municipal advisor industry professionals develop content for
the Municipal Advisor Representative Qualification Exam
– Engagement of a psychometrician to advise on the exam
– Creation of a draft content outline for the exam
– Survey of municipal advisors on their core activities
– Drafting of test questions for the exam
– Implementation of a pilot exam
• The Municipal Advisor Representative Qualification Exam is
expected to be available in 2015
28 Municipal Securities Rulemaking Board
Participation in the Rulemaking
Process
Specific Questions for Public Comment
• Should all individuals engaged in municipal advisory
activities demonstrate a minimum level of competence by
taking and passing a general qualification exam?
• Is the one-year grace period sufficient time for municipal
advisor representatives to study and take (and, if necessary
re-take) the municipal advisor representative qualification
exam?
• Do dealers believe the current 90-day apprenticeship
requirement for municipal securities representatives is
beneficial?
30 Municipal Securities Rulemaking Board
Economic Analysis
• The MSRB recently adopted a policy on economic analysis
that requires it to consider:
– The need for the draft rule or amendments
– Relevant baselines against which the likely economic impact of
elements of the draft rule or amendments can be considered
– Reasonable alternative regulatory approaches
– The potential benefits and costs of the draft rule and of the main
alternative regulatory approaches
31 Municipal Securities Rulemaking Board
MSRB Rulemaking Process
Identify an Issue
•Monitor market
•Engage with market stakeholders
•Does this issue warrant rulemaking?
•Economic analysis
•Reasonable alternatives
Draft Rule and/or
Amendments Are Published for Comment
• Rule for stakeholders to evaluate
• Incorporates preliminary economic analysis
• May be preceded by concept proposal
• Comment letters published on MSRB’s website
Review of Comments
•All comment letters considered
•Draft may be amended in response to comments
Draft Rule Filed with SEC for
Approval
•All significant issues raised by commenters addressed in filing
SEC Publishes Proposed
Rule in Federal
Register for Comment
•Additional comment period
•MSRB responds to comments received
SEC Approval
Order
• If approved, rule has the force and effect of federal law
•Goes into effect on specific date
32 Municipal Securities Rulemaking Board
Submitting Comment Letters
• Comment period ends
May 16, 2014
• Submit comments electronically
or by mail
• All comment letters received are
published on the MSRB website
33 Municipal Securities Rulemaking Board
Audience Questions
Submit your questions using GoToWebinar Control
Panel
MSRB Webinar: Draft Professional
Qualification Requirements for Municipal
Advisors
35 Municipal Securities Rulemaking Board
• Review MSRB resources
for municipal advisors
• View previous comment
letters on the Request for
Comment page
• Submit comments no later
than May 16, 2014
Contact the MSRB
MSRB Online
msrb.org
emma.msrb.org
MSRB Support
703-797-6668
Hours of Operation:
7:30 a.m. - 6:30 p.m. ET
MSRB Email Updates
– Subscribe at msrb.org
Follow the MSRB on Twitter
@MSRB_News
36 Municipal Securities Rulemaking Board
MSRB Webinar: Draft Professional
Qualification Requirements for
Municipal Advisors
Municipal Securities Rulemaking Board
April 3, 2014