SEC Aims for Stronger Compliance With Pay-to-Play Ban

The Securities and Exchange Commission is seeking to strengthen compliance with a Municipal Securities Rulemaking Board rule that limits political contributions by municipal securities professionals.

(September 4, 2012) — The US Securities and Exchange Commission has issued a risk alert saying it is aiming for improved compliance with a rule that calls for a ban on “pay-to-play” practices among underwriters and other professionals in the municipal bond market.

The Municipal Securities Rulemaking Board’s rule, known as MSRB Rule G-37, is focused on prohibiting muni firms from doing business with muni bond issuers alongside certain political contributions to officials of the issuing entity. The alert issued by the agency’s Office of Compliance Inspections and Examinations notes that SEC examiners have observed practices that raise concerns about firms’ compliance with their obligations under MSRB Rule G-37. As outlined by the SEC, these concerns include:

1) Compliance with the rule’s ban on doing business with a municipal issuer within two years of a political contribution to officials of the issuer by any of the firm’s municipal finance professionals

2) Possible record-keeping violations

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3) Failure to file accurate and complete required forms with regulators regarding political contributions

4) Inadequate supervision

According to the agency, the risk alert identifies practices that examiners have seen some firms use to comply with federal, state, and local rules on contributions. “These include training programs for municipal finance professionals, self-certification of compliance with restrictions on political contributions, surveillance for unreported political contributions, and preclearance or restrictions on political contributions when permitted by state or local law,” the statement by the SEC asserted.

“This Risk Alert is intended to help firms to strengthen their compliance and risk management efforts with regard to political contributions,” said OCIE Director Carlo di Florio in a statement. “We hope that by describing practices that our examiners have observed, we will promote compliance by helping firms to consider how each of them can most effectively meet their obligations under MSRB rules.”