SEC Approves Amendments to MSRB Rule G-16 to Facilitate Risk-Based Compliance Examinations and Amendments to MSRB Rule G-9, on Preservation of Records
On December 16, 2011, the Securities and Exchange Commission (“SEC”) approved rule changes consisting of amendments to MSRB Rule G-16, on periodic compliance examination, and to MSRB Rule G-9, on preservation of records, in order to facilitate the establishment of a risk-based compliance examination program for brokers, dealers, and municipal securities dealers (“dealers”) that are members of the Financial Industry Regulatory Authority (“FINRA”).
The rule changes will facilitate the modernization of the examination process for dealers and permit greater flexibility in the administration of periodic compliance examinations in order to focus more closely on those dealers that, by virtue of various risk factors, pose the greatest risk to investors and other market participants, as well as to the municipal securities market on a systemic basis.
Rule G-16 has been amended to provide that, at least once every four calendar years, dealers that are FINRA members will be examined by FINRA to determine whether they are in compliance with applicable MSRB rules and federal securities laws. This change will enable FINRA to examine certain dealers more frequently and other dealers less frequently, depending on their risk and impact to the market. As a result of the rule change, dealers that are FINRA members must retain certain records for four years, rather than for three years, under Rule G-9, in order to ensure that the records are available at those firms that are examined every four calendar years.
The amendments to Rule G-16 are effective as of December 16, 2011, and the amendments to Rule G-9 are effective on June 16, 2012, in order to provide dealers with sufficient time to modify their policies and systems to comply with the new record retention period.
Questions about the rule changes should be directed to Lawrence P. Sandor, Senior Associate General Counsel at (703) 797-6600.
December 19, 2011
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TEXT OF RULE AMENDMENTS
Rule G-16: Periodic Compliance Examination
At least once each
two four calendar years, each broker, dealer and municipal securities dealer that is a member of a registered securities association, and at least once each two calendar years, each municipal securities dealer that is a bank or subsidiary or department or division of a bank, shall be examined in accordance with Section 15B(c)(7) of the Act to determine, at a minimum, whether such broker, dealer or municipal securities dealer and its associated persons are in compliance with all applicable rules of the Board and all applicable provisions of the Act and rules and regulations of the Commission thereunder.
Rule G-9: Preservation of Records
(a) No change.
(b) Records to be Preserved for
Three Four Years. Every broker, dealer and municipal securities dealer shall preserve the following records for a period of not less than three four years; provided, however, that each municipal securities dealer that is a bank or subsidiary or department or division of a bank shall preserve the following records for a period of not less than three years:
(i) - (xvii) No change.
(c) – (f) No change.
(g) Compliance with Rules 17a-3 and 17a-4. Brokers, dealers and municipal securities dealers other than bank dealers that
which are in compliance with rules 17a-3 and 17a-4 under the Act will be deemed to be in compliance with the requirements of this rule, provided that the records enumerated in section (f) of rRule G-8 of the Board and section (b) of this rule shall in any event be preserved for the applicable time periods specified in this rule.
 See SEC Release No. 34-65992, File No. SR-MSRB-2011-19 (December 16, 2011).
 Underlining indicates additions; strikethrough denotes deletions.