Municipal Advisors to be Subject to New Pay-to-Play Regulations

Date: February 17, 2016

Contact: Jennifer A. Galloway, Chief Communications Officer


Washington, DC – The Municipal Securities Rulemaking Board (MSRB) today announced that new regulations to safeguard the $3.7 trillion municipal securities market against pay-to-play practices—and the appearance of them—when state and local governments hire outside financial professionals go into effect later this year.

The new regulations extend the MSRB’s well-established municipal securities dealer pay-to-play rule to municipal advisors, including those acting as third-party solicitors, beginning August 17, 2016. The MSRB’s proposed amendments to its longstanding Rule G-37, on political contributions and prohibitions on municipal securities business, were deemed approved on February 13, 2016 under provisions of the Securities Exchange Act of 1934.

“The integrity of the municipal market will be well-served by regulations to help ensure that all municipal advisors that do business with state and local governments do so based on the merits of their work and not on financial influence,” said MSRB Executive Director Lynnette Kelly. 

The new regulations will curb, at a minimum, the appearance of quid pro quo corruption in the awarding of municipal advisory business and provide greater transparency regarding municipal advisors’ political contributions. Consistent with the existing MSRB rule for dealers, the new regulations generally prohibit municipal advisors from engaging in municipal advisory business with municipal entities for two years if certain political contributions have been made to officials of those entities who can influence the award of business.

The MSRB will host an educational webinar about the rule on Thursday, July 7, 2016 at 3:00 p.m. Eastern Time. Webinar participants are eligible to receive continuing professional education credit. Register for the webinar.

The establishment of pay-to-pay regulations for municipal advisors completes the core set of regulations the MSRB prioritized for development in 2013 as a result of its mandate from the Dodd-Frank Wall Street Reform and Consumer Protection Act. The act expanded the MSRB’s mission to protect municipal entities and required it to establish regulations for municipal advisors.

Municipal advisors are now subject to supervisory and compliance obligations (MSRB Rule G-44) and will be subject to new MSRB rule provisions on core standards of conduct (Rule G-42) and limitations on gift-giving (Rule G-20) that go into effect this year. In addition, the MSRB launched a pilot professional qualification exam for municipal advisors, in advance of putting a final exam in place this year.

“The MSRB has conducted its municipal advisor rulemaking in the most transparent and rigorous manner,” said Kelly. “We have incorporated significant public and industry input and are pleased to have created balanced rules that protect the interests of state and local governments.”

The MSRB protects investors, state and local governments and other municipal entities, and the public interest by promoting a fair and efficient municipal securities market. The MSRB fulfills this mission by regulating the municipal securities firms, banks and municipal advisors that engage in municipal securities and advisory activities. To further protect market participants, the MSRB provides market transparency through its Electronic Municipal Market Access (EMMA®) website, the official repository for information on all municipal bonds. The MSRB also serves as an objective resource on the municipal market, conducts extensive education and outreach to market stakeholders, and provides market leadership on key issues. The MSRB is a Congressionally-chartered, self-regulatory organization governed by a 21-member board of directors that has a majority of public members, in addition to representatives of regulated entities. The MSRB is subject to oversight by the Securities and Exchange Commission.