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FINRA Issues Guidance on Member Firms’ Supervisory Obligations When Participating in Investment-Related Activities With Municipal Clients

On August 16, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 19-28 (Notice) reminding member firms of their supervisory obligations under FINRA Rules 3110 (Supervision) and 3120 (Supervisory Control System) if they 1) hold or transact in customer accounts owned by municipal entities or obligated persons (i.e., municipal clients), as defined in Section 15B of the Securities Exchange Act of 1934, as amended; and 2) participate in investment-related activities with municipal clients (e.g., recommending or selling non-municipal securities products to such municipal clients).

The Notice advises that member firms with municipal clients should evaluate whether such firms must register with the Securities and Exchange Commission and the Municipal Securities Rulemaking Board (MSRB) as “municipal advisors” or if they can rely upon an applicable exclusion from registration and/or a registration exemption.

The Notice also reminds member firms engaging in investment-related activities with municipal clients that they must establish, maintain and enforce supervisory systems and controls pursuant to FINRA Rules 3110 (Supervision) and 3120 (Supervisory Control System) that are reasonably designed to prevent and detect unregistered municipal advisory activity and non-compliance with its attendant obligations. In establishing and maintaining a supervisory system and controls that account for the municipal advisor registration requirements, member firms are advised to consider the unique risks of their business activities with municipal clients.

The Notice does not create any new requirements or expectations. Rather, the Notice is intended to assist member firms in complying with their existing obligations under FINRA, SEC and MSRB rules.

The Notice is available here.

©2020 Katten Muchin Rosenman LLPNational Law Review, Volume IX, Number 242



About this Author

Susan Light, Katten Law Firm, Finance Law Attorney, New York

Susan Light focuses her practice on financial services regulatory matters. She counsels broker-dealers, hedge funds, investment banks and financial services clients on enforcement issues involving the Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), other self-regulatory organizations (SROs) and state and federal regulatory authorities. She has particular experience related to sales practice issues, financial and operational issues, anti-money laundering, crowdfunding, cybersecurity, and cryptocurrencies.

Michael T. Foley, Katten, Lawyer, Finance, FINRA, Chicago
Special Counsel

Michael Foley represents broker-dealers, investment advisers and other financial services industry participants with respect to a broad spectrum of legal and regulatory matters arising under the federal securities laws.

Michael has nearly 20 years of experience in private practice and in-house at both a large, full-service broker-dealer and at an online discount broker-dealer, advising broker-dealers and other financial institutions regarding compliance with the federal securities and commodities laws, and with the regulations of the US Securities and Exchange...

Stanley V. Polit, Katten Muchin, Financial Services lawyer, Corporate Regulatory Matters Attorney

Stanley Polit concentrates his practice in transactional, corporate and regulatory aspects of financial services matters. Stan is able to provide legal services to a wide variety of clients including proprietary trading firms, hedge funds, broker-dealers, registered investment advisers, commodity trading advisers, financial institutions and general corporate clients.

Prior to joining Katten, Stan served as a council member for a national crisis management firm, where he specialized in crisis communication and merged media strategies. He has...