UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, D.C. 20549 

OFFICE OF COMPLIANCE 

INSPECTIONS AND 

EXAMINATIONS August 19, 2014 

Dear Senior Executive or Principal of a Newly Registered Municipal Advisor: 1 

We are sending you this letter to introduce you to the National Exam Program ("NEP''), which is 

administered by the Office of Compliance Inspections and Examinations ("OCIE") within the 

United States Securities and Exchange Commission ("SEC"), and to provide you with 

information about upcoming examinations of certain municipal advisors ("MAs") that arc newly 

registered under the SEC's final MA rules which went into effect on July l, 2014.2 The NEP 

staff will contact you separately !{your firm is se/ected.for an examination. 

I. Information about the NEP 

OCIE examines MAs to assess whether they are operating in a manner consistent with the 

federal securities laws. OCIE administers such examinations through the NEP, which is 

comprised of staff in the SEC's 11 regional offices and the home office in Washington, D.C. 

The NEP's mission is to protect investors and maintain market integrity through risk-focused 

examinations that promote compliance, prevent fraud, monitor risk, and inform policy. 

II. Examinations of Certain Newly Registered Municipal Advisors 

Consistent with OCIE's mission and objectives, the NEP is launching an initiative ("the MA 

Examination Initiative") to conduct focused, risk-based examinations of MAs that are registered 

with the SEC, but are not registered with FINRA.-

1 This initiative will take place over the next 

two years and has three primary phases: engagement; examination; and informing policy. Each 

phase is described further below. 

Engagement Phase 

The NEP is engaging in a nationwide outreach to inform newly registered firms about their 

obligations tmder the Dodd Frank Act and related rules, the MA Examination Initiative, and 

1 For purposes of this letter. OCir·: distinguishes a munit:ipa l advisor as "newly registered"" if it registered with tlu: SLC allcr 

the SEC's final MJ\ rules became effective (July I. 20 14 ). regardless or whether the entity registered with the SEC under 

Rule l5Ba2-6T of the Securities Exchange J\ct of 1934. 

2 The SEC, as a ma!ler of policy, disclaims responsibili ty for any publication or statement by any or it~ employees. l'hc 

views expressed herein are those or the stafrand do not necessarily reflect the views or the SEC or the other starr members or 

the SEC. 

3 Section 15A provides FINRA with authority to conduct examinations of its members· activities as registered municipal 

advisors in order to evaluate their compliance with the applicable laws and ru les. In addition. pursuant to Securities 

Exchange Act or 1934 Section 1513 (as amended by the Dodd-Frank Wall Street Rcrorm and Consunwr Protection Act. the 

"Dodd-Frank J\ct'"), the Commission designated FINRA to examine its members· activities as registered municipal 

advisors and evaluate compliance by such members with rcdcral securities law~. Commission rules an d regulations. and 

Municipal Securities Rulemaking Board ("MSRH"") rules applicable to municipal advisors. 
2

OCIE’s practice of engaging directly with firms’ senior management. The SEC’s website

(www.SEC.gov) currently contains information and links to relevant laws and rules, staff 

guidance, and interpretive letters. The MSRB’s website also contains resources and guidance for

MAs.4 Some of these resources and applicable reference links are provided at the end of this 

letter.5

In addition, the SEC’s staff is planning to engage newly registered MAs at a Compliance 

Outreach Program for MAs. This program will provide MA senior executives or principals with 

a forum to discuss compliance issues, to share experiences, to speak with the SEC, FINRA, and 

MSRB staff, to learn about effective compliance practices, and to understand what to expect 

from an MA examination. More information will be available at a later date on www.SEC.gov. 

Examination Phase

During the examination phase of the MA Examination Initiative, NEP staff will review one or 

more of the identified risk areas of the businesses and operations of MAs selected for 

examination. In part, OCIE will examine MAs for compliance with the SEC’s final MA rules, 

including the books and recordkeeping requirements.

6

 In addition, OCIE will examine MAs for 

compliance with applicable final MSRB rules as and when those rules have been approved by the 

SEC and go into effect. 

1. Registration

Examiners will evaluate whether the MA is in compliance with the SEC and the MSRB 

registration rules. This will include, but will not be limited to, the following as they apply to 

MAs:

• Exchange Act Rule 15Ba1-2 (Registration with the SEC using Form MA and Form 

MA-I), effective July 1, 2014;

• Exchange Act Rule 15Ba1-5 (Amendments to Form MA and MA-I) and Rule 15Ba1-6 

(Form MA-NR);

• MSRB Rule D-11 (Associated Persons); and

• MSRB Rule D-13 (Municipal Advisory Activities).

2. Fiduciary Duty

Examiners will evaluate whether the MA is in compliance with the statutory fiduciary duty 

requirements established under the Dodd Frank Act and SEC and MSRB rules. Pursuant to 

 4 Additional resources are available at FINRA’s website.

5 This letter does not provide a complete description of all of the legal obligations of SEC-registered MAs nor does it provide 

a comprehensive inventory of resources that may be available.

6 Pursuant to Exchange Act Rule 15Ba1-8, an MA is required to make and keep true, accurate and current certain books and 

records relating to its municipal advisory activities. An MA is required to maintain and preserve all books and records that 

are required to be made for a period of not less than five years, the first two years in an easily accessible place. If your firm 

is examined, you are required to provide examiners with access to all requested advisory records that are maintained by 

your firm (under certain conditions, documents may remain private under the attorney-client privilege).
3

Section 15B(c)(1) of the Securities Exchange Act of 1934, the MA owes a fiduciary duty to its 

client (i.e., the municipality or governmental entity).

7

 The duties of a fiduciary generally require 

the fiduciary to act honestly and in the best interest of its client without regard to its own financial 

or other interests, and to provide full and fair disclosure of material facts and conflicts of interest.

Examiners’ review will include, but will not be limited to, the following as applicable:

• MSRB Rule G-20 (Gifts, Gratuities and Non-Cash Compensation);

• MSRB Rule G-42 (Duties of Non-Solicitor MAs), currently being developed and not 

yet finalized;

8

• MSRB Rule G-24 (Use of Ownership Information Obtained in Fiduciary or Agency 

Capacity); 

• MSRB Rule G-23 (Activities of Financial Advisors); and 

• MSRB Rule G-3 (Classification of Principals and Representatives; Numerical 

Requirements; Testing; Continuing Education Requirements).

3. Disclosure

Examiners will assess the accuracy of disclosures made by the MA to their client municipalities. 

This will include, but will not be limited to, the following as applicable:

• MSRB Rule G-32 (Disclosures in Connection with Primary Offerings); and 

• MSRB Rule G-42 (Duties of Non-Solicitor MAs), currently being developed and not 

yet finalized. 9

4. Fair Dealing

Examiners will evaluate whether the MA is dealing fairly (and not engaging in any

deceptive, dishonest, or unfair practices) with any person or entity that may be harmed by an 

MA (e.g., an investor, conduit borrower, obligated person, issuer, or any other market 

participant). This will include, but will not be limited to, the following as applicable:

• MSRB Rule G-37 (Political Contributions and Prohibitions on Municipal Securities 

Business) currently being developed and not yet finalized;

• MSRB Rule G-38 (Solicitation of Municipal Securities Business);

• MSRB Rule G-17 (Conduct of Municipal Securities and Municipal Advisory 

Activities); 

• MSRB Rule G-19 (Suitability of Recommendations and Transactions; Discretionary 

Accounts); and

 7 Section 15B(c)(1) of the Exchange Act provides: A municipal advisor and any person associated with such municipal 

advisor shall be deemed to have a fiduciary duty to any municipal entity for whom such municipal advisor acts as a 

municipal advisor, and no municipal advisor may engage in any act, practice, or course of business which is not consistent 

with a municipal advisor’s fiduciary duty or that is in contravention of any rule of the Board. See Registration of 

Municipal Advisors, Release No. 34-70462 (Sept. 20, 2013), available at http://www.sec.gov/rules/final/2013/34-

70462.pdf.

8

 “Request for Comment on Revised Draft MSRB Rule G-42, on Duties of Non-Solicitor Municipal Advisors,” (July 23, 

2014), available at: http://msrb.org/~/media/Files/Regulatory-Notices/RFCs/2014-12.ashx?n=1.

9

 See Id.
4

• MSRB Rule G-38 (Solicitation of Municipal Securities Business).

5. Supervision

Examiners will evaluate whether the MA has policies, procedures, and controls in place to 

supervise its MA business. The examinations will include, but will not be limited to, the 

following as applicable:

• MSRB Rule G-44 (Supervision and Compliance Obligations of MAs), currently being 

developed and not yet finalized.

10

6. Books and Records

Examiners will evaluate whether the MA has created and maintained the books and records 

required under SEC and MSRB rules. The examinations will include, but will not be 

limited to, the following as applicable:

• Exchange Act Rules 17a-3 and 17a-4 (Creation and Maintenance of Books and 

Records);

• Exchange Act Rule 15Ba1-8 (Books and Records to be Made and Maintained by 

MAs), effective July 1, 2014; 

• MSRB Rule G-8 (Books and Records to be Made by Brokers, Dealers and Municipal 

Securities Dealers); and

• MSRB Rule G-9 (Preservation of Records). 

7. Training/Qualifications 

Examiners will assess the knowledge base of the MA staff as well as the training that an MA 

provides to its staff. This will include, but will not be limited to, the following as applicable:

• MSRB Rule G-3 (Classification of Principals and Representatives; Numerical 

Requirements; Testing; Continuing Education Requirements).

Informing Policy Phase

At the conclusion of the Examination Phase, the NEP intends to report its observations to the 

SEC. These observations may include common practices identified in high-risk focus areas, 

industry trends, and significant issues.

 10 “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,” (August 5, 2014), available at:

https://www.federalregister.gov/articles/2014/08/05/2014-18381/self-regulatory-organizations-municipal-securitiesrulemaking-board-notice-of-filing-of-a-proposed.
We hope that this letter was useful in introducing you to the MA Examination Initiative and the 

examination program generally, and will better acquaint you and your personnel with compliance 

resources. Should you have any questions regarding this letter, please identify the SEC's regional 

office that is assigned to your advisory finn and contact any member ofNEP management in that 

office.8 

Sincerely, 

Kevin 

\C...-

W

-w

. Goodman 

~ 

National Associate Director, OCIE's 

Broker-Dealer Examination Program 

8 Instructions regarding identifying the SEC's office applicable to your firm are provided in the attached 

"Additional Information: Reference Materials" guide in the section titled "Information Regarding the NEP and 

Examinations." 

5 
6

Additional Information: Reference Materials

You may find the following non-exclusive list of informational sources to be helpful. 

Information Regarding the MA Rule

• The Press Release Regarding the SEC’s Approval of Registration Rules for MAs is 

available at 

http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539817759.

• The Final MA Rule is available at http://www.sec.gov/rules/final/2013/34-70462.pdf.

• SEC’s Registration of MAs Frequently Asked Questions (May 19, 2014), available at 

http://www.sec.gov/info/municipal/mun-advisors-faqs.shtml.

Information Regarding the NEP and Examinations

• Overview of Examinations by the Securities and Exchange SEC's Office of 

Compliance Inspections and Examinations (February 2012), available at 

http://www.sec.gov/about/offices/ocie/ocieoverview.pdf

• Examination Brochure, available at http://www.sec. gov/about/offices/ocie/ocie 

exambrochure.pdf.

• NEP website, available at http://www.sec.gov/about/of5ces/ocie.shtml.

• Listing of the local SEC office (contact information for senior examination staff) is 

available at http://www.sec.gov/about/offices/ocie/ocie org.htm. The SEC's regional 

office designated for an advisor can be found by first identifying the advisor's Principal 

Office and Place of Business on its Form ADV (as used in: Form ADV, Part 1 A, 

Instructions, Items 1 and 2; Schedule D; Form ADV-W, Item 1) and then identifying the 

SEC’s regional office assigned to that state jurisdiction (which can be found at 

http://www.sec.gov/contact/addresses.htm).

Information Regarding the Role of Senior Management in Compliance and Ethics

• Speech by SEC Staff Carlo di Florio, “The Role of Compliance and Ethics in Risk 

Management” (October 17, 2011), available at http://www.sec.gov/news/speech/201

l/spch!0171 lcvd.htm.

• Speech by SEC Staff Stephen M. Cutler, “Second Annual General Counsel 

Roundtable: Tone at the Top: Getting it Right” (December 4, 2004), available at 

http.7/www.sec.gov/news/speech/spch 120304smc.htm.

Information Regarding the Compliance Outreach Program

• Information about the Compliance Outreach Program for MAs and any

scheduled events is available at www.SEC.gov.
7

Municipal Securities Rulemaking Board (“MSRB”) Information Regarding MAs

• MSRB Rules for MAs, available at http://www.msrb.org/Rules-andInterpretations/MSRB-Rules.aspx?category=all&role=3&tab=4.

• MSRB News and Resources for MAs, available at http://www.msrb.org/MSRBFor/Municipal-Advisors/News-and-Resources.aspx.

• MSRB’s Registration of MAs, available at http://www.msrb.org/Rules-andInterpretations/MSRB-Registration.aspx.

Historical Observations by SEC Commissioners Regarding the Municipal Securities 

Market

• Commissioner Piwowar, Remarks at the 2014 Municipal Finance Conference 

presented by The Bond Buyer and Brandeis International Business School (August 1, 

2014), available at http://www.sec.gov/News/Speech/Detail/Speech/1370542588006.

• Chair Mary Jo White, Intermediation in the Modern Securities Markets: Putting 

Technology and Competition to Work for Investors (June 20, 2014), available at 

http://www.sec.gov/News/Speech/Detail/Speech/1370542122012.

• Commissioner Gallagher, Remarks at the Municipal Securities Rulemaking Board’s 

1st Annual Municipal Securities Regulator Summit (May 29, 2014), available at 

http://www.sec.gov/News/Speech/Detail/Speech/1370541936387.

• Commissioner Elisse B. Walter, Remarks on News Conference Call About the SEC’s 

Report on the Municipal Securities Market (July 31, 2012), available 

at http://www.sec.gov/News/Speech/Detail/Speech/1365171490820.

• Chairman Mary Schapiro, Remarks at Investment Company Institute 2010 General 

Membership Meeting (May 7, 2010), available at 

http://www.sec.gov/news/speech/2010/spch050710mls.htm.

• Commissioner Elisse Walter, Remarks before the 43rd Annual Securities Regulation 

Seminar (October 29, 2010), available at 

http://www.sec.gov/news/speech/2010/spch102910ebw.htm.

• Commissioner Elisse Walter, Key Note Address before the National Association of 

Bond Lawyers (NABL) 35th Bond Attorneys’ Workshop (October 28, 2010), 

available at http://www.sec.gov/news/speech/2010/spch102810ebw.htm.

• Commissioner Elisse Walter, Regulation of the Municipal Securities Market: 

Investors Are Not Second-Class Citizens (October 28, 2009), available at 

http://www.sec.gov/news/speech/2009/spch102809ebw.htm.