Ever heard a parent say to a child “and this time I mean it”?
Last Friday, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations let the municipal securities underwriting community know that it has had enough with not being listened to and is “getting ready to pull this car over right now if you don’t straighten up in the back seat”.
This warning, in the form of a “Risk Alert” issued to brokers, dealers and municipal securities dealers, advises that the Commission’s examiners have observed continued failures by the regulated community to comply with MSRB Rule G-37. Specifically, the SEC expressed concern that its investigators repeatedly observe failures to comply with Rule G-37 in four main areas
compliance with a ban on doing business with an issuer within two years of a political contribution, possible record-keeping violations, failure to file accurate and complete political contribution information with regulators, and inadequate supervision.
On the other hand, the SEC also ensured that its Risk Alert served to praise those among us who have been eating our vegetables by pointing out that it has observed some institutions engaging in productive compliance practices. The productive practices singled out include the initiation of training programs for municipal finance professionals, self-certification of compliance with political contribution restrictions, internal auditing against unreported political contributions, and certain “preclearance” practices with respect to political contributions where such practices are permitted by law.
As this blog has reported years ago, this is not the first such warning the SEC has issued with respect to federal pay-to-play compliance. One must assume that this most recent warning, however, means that the SEC has . . . had . . . it . . . up . . . to . . .here with repeated failures among the municipal securities underwriting community to establish basic internal pay-to-play compliance protocols and is getting ready to act.
The wise among us would do well to heed this warning to straighten up and get formal compliance protocols in place along the lines of those singled out by the Commission for praise. Punishment is coming and this is our “don’t say we didn’t warn you” moment.