For two decades, municipal securities dealers have been subject to Municipal Securities Rulemaking Board (“MSRB”) rule G-37 which bars them from receiving state and local business for two years after certain political contributions are made by the dealers and individuals affiliated with them.  Earlier this week, the MSRB advanced amendments to rule G-37 that would expand its reach beyond dealers to include municipal advisors and those associated with municipal advisors.

When Congress passed the Dodd-Frank Act in 2010, it granted the MSRB broad authority to regulate “municipal advisors,” individuals and companies that provide advice to municipalities regarding municipal securities and products.  In connection with that authority, the MSRB this spring proposed, and submitted for comment in August, new regulations that would extend its pay-to-play laws to include municipal advisors.  The proposed regulations, which the MSRB has now advanced to the SEC for approval, make municipal advisors and individuals associated with them subject to the same pay-to-play restrictions applicable to municipal securities dealers.  Under the proposed amendments to G-37, municipal advisors may not engage in municipal advisory business with a municipality within two years after a political contribution to certain municipal officials is made by the municipal advisor, certain employees and individuals associated with the municipal advisor, or their political action committees.  Similar provisions restrict the ability of these individuals and entities to solicit others to make political contributions to municipal candidates and state or local party committees.

The proposed rule now goes to the SEC, where the SEC will decide whether to publish the proposal for additional public comment.  In the meantime, municipal advisors would be well-advised to begin the process of preparing pay-to-play compliance policies consistent with these proposed rules.