Supervision and Compliance of Municipal Fund Securities Activities
Supervisory framework
MSRB Rule G-27 requires a dealer to adopt written supervisory procedures (WSPs) reasonably designed to achieve compliance. A municipal securities principal must supervise municipal fund securities activities, review transactions, and conduct annual compliance reviews. Rules G-8 and G-9 require records of transactions, customer accounts, and complaints. Rule G-45 requires reporting of 529 plan and ABLE program information to the MSRB.
Key supervisory controls
Controls include pre-approval or review of marketing materials; training on 529 and ABLE features and state tax rules; review of representative recommendations for suitability; monitoring of switches and rollovers; and gift and political contribution limits under Rules G-20 and G-37. Political contributions to state officials with influence over 529 program selection can be a trap. G-37 applies to municipal securities dealers, and municipal fund securities are municipal securities.
Traps
Questions often confuse FINRA supervision with MSRB supervision. MSRB rules govern; FINRA rules may apply only where not inconsistent. Another trap is assuming advertising review is one-time; it must be ongoing. Supervisory procedures must be tailored to municipal fund securities, not generic.
Rule of thumb: if a representative recommends a 529 rollover, the principal should review the customer's state tax recapture, new fees, and surrender charges.
Worked example: A branch sells an out-of-state 529 to 30 in-state residents. The principal should review whether the state tax benefit was disclosed and whether compensation created a conflict.