MSRB files proposed Rule G-36 with the SEC, governing the fiduciary duty owed by municipal advisors.

Today, the MSRB filed proposed Rule G-36 with the SEC, governing the fiduciary duty owed by municipal advisors to state and local government clients, and other municipal entity clients.

Under the Rule and its accompanying guidance, municipal advisors would owe a duty of loyalty and a duty of care that would require them to act in the municipal entity’s best interest.  This rule will apply to municipal advisors working at broker-dealer firms. The MSRB proposed that the effective date be either when the SEC defines a municipal advisor, or at a later date that the SEC determines.

Under the Duty of Loyalty, Rule G-36 would require the municipal advisor to:

  • Deal honestly and in good faith with the municipal entity and to act in the municipal entity’s best interests without regard to financial or other interests of the municipal advisor.

  • Receive the written, informed consent of officials of the municipal entity the municipal advisor reasonably believes have the authority to bind the municipal entity by contract with the municipal advisor.

  • Require a municipal advisor to make clear, written disclosure of all material conflicts of interest

Under the Duty of Care, Rule G-36 would require the municipal advisor to:

  • Act competently and provide advice to the municipal entity after inquiry into reasonably feasible alternatives to the financings or products proposed.
  • Make reasonable inquiries into facts necessary to determine the basis for the municipal entity’s chosen course of action, as well facts necessary to prepare certificates and to help ensure appropriate disclosures for official statements.

To view the full MSRB notice, click here.

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