[ by Howard Haykin ] The SEC on Friday issued an alert to strengthen compliance with a MSRB rule that limits political contributions by municipal securities professionals to campaigns of public officials of issuers with whom they are doing or seek to do business. The Risk Alert issued by OCIE (SEC'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, which clamped down on so-called “pay to play” practices.  These concerns include:

• Compliance with the rule’s ban on doing business with a municipal issuer within 2 years of a political contribution to officials of the issuer by any of the firm’s municipal finance professionals.
• Possible record-keeping violations.
• Failure to file accurate and complete required forms with regulators regarding political contributions.
• Inadequate supervision.

The Risk Alert identifies practices that examiners have seen some firms use to comply with applicable 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 pre-clearance or restrictions on political contributions when permitted by state or local law. The Risk Alert stresses that the practices are described only to inform firms about approaches being used to strengthen compliance efforts; these practices may not be applicable to a particular firm, and other practices may be appropriate to consider instead.

“This Risk Alert is intended to help firms to strengthen their compliance and risk management efforts with regard to political contributions. 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.” -- Carlo di Florio, OCIE Director.

This is the 4th alert for 2012 and the 6th in a continuing series of Risk Alerts that the SEC’s examination staff began issuing in 2011.  It's intended to assist senior management, risk management, and legal and compliance staff as they review compliance with Rule G-37 by brokers, dealers, and municipal securities dealers. FINRA Staff Credits. Substantial contributions to this Risk Alert provided by: Robert Miller, Suzanne McGovern, Julius Leiman-Carbia, and George Kramer. Note to Readers: Continue reading below for some introductory material that C-I took from the Risk Alert.  There also is a link to the Risk Alert - as well as one provided above. For further details on the SEC announcement, go to:  [SEC PR 12-173, 8/31/12]. -------------------------------------------------------------------------------- The following introductory material is taken from the RISK ALERT:  National Examination Risk Alert. In this Alert, OCIE focuses on regulatory concerns related to “Pay‐to‐Play” practices under MSRB rules.  OCIE's objective is to provide a summary of observations by National Examination Program (“NEP”) examiners, with respect to firms engaged in municipal securities business, and their “Pay‐to‐Play” practices. Key Takeaways. Exams have revealed a number of potential weaknesses regarding supervision of MSRB “Pay‐to‐Play” prohibitions.  Factors that firms might consider when evaluating their compliance and supervision pols and procedures in this area include strategies for improving surveillance and certification procedures. The Alert further identifies areas of concern stemming from recent exams and sets forth a number of practices that some firms have elected to use. The SEC hopes that, by sharing this information, senior management, risk managers, and legal and compliance personnel will:

• will be alerted to these issues,
• will be encouraged to review compliance in these areas at their respective firms, and
• will be encouraged to make improvements in compliance, if applicable.

The practices and issues described in the Risk Alert document (see above links) are for informational purposes only.  Their presentation is not intended as an endorsement of any particular practice as the staff recognizes that each firm must design its compliance structure based on a risk analysis that takes into account many factors. The practices described do not represent legal opinions or advice and may not necessarily represent legal or regulatory requirements. Depending on the characteristics of an organization, the described practices may not be applicable to a particular firm given its business or operations. I. MSRB Rules Regarding Prohibitions on “Pay-to-Play” Practices. MSRB Rule G-37 generally prohibits firms from engaging in “municipal securities business” with an issuer for 2 years after any contributions have been made to an official of such issuer by the firm, a “municipal finance professional” (“MFP”) associated with the firm, or a political action committee controlled by the firm or MFP (a “controlled PAC”).  There is an exception from this prohibition for a contribution of $250 or less.  Additionally, firms are reminded of their obligation to keep WSP's current, and to provide regular training to Municipal Finance Professionals. Note to C-I readers. This is where we leave you.  To continue reading the publication, click on one of the above links.