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Question

Difficulty: MediumRegulatory Entities and Self-Regulatory Organizations (SROs)

A compliance officer at a securities firm is reviewing potential sales practice violations involving municipal bond transactions executed by an associated person. While the Municipal Securities Rulemaking Board (MSRB) creates the governing rules for municipal securities transactions, which regulatory entity has the statutory authority to inspect the broker-dealer and enforce compliance with MSRB rules?

  1. The Financial Industry Regulatory Authority (FINRA)Answer
  2. B
    The Municipal Securities Rulemaking Board (MSRB)
  3. C
    The Depository Trust & Clearing Corporation (DTCC)
  4. D
    The Federal Reserve Board (FRB)

Answer

The Financial Industry Regulatory Authority (FINRA)
The Municipal Securities Rulemaking Board (MSRB) explicitly lacks enforcement and examination authority. Instead, statutory authority to inspect broker-dealers and enforce compliance with MSRB rules rests with FINRA for member firms and the SEC for the broader industry.

Step-by-Step Solution

1
Identify the regulatory body responsible for establishing municipal securities regulations.
The Municipal Securities Rulemaking Board (MSRB) creates rules to protect municipal securities investors and municipal entities.
Understanding the legislative scope of the MSRB clarifies its authority boundaries.
2
Determine which entity enforces MSRB rules for securities firms and registered representatives.
Because the MSRB is explicitly prohibited from conducting compliance examinations or enforcing its own rules, statutory enforcement authority for broker-dealers is delegated to FINRA and the SEC.
FINRA acts as the primary self-regulatory organization enforcing compliance across member broker-dealers.

Key Concept

Division of Authority Between MSRB Rulemaking and SRO Enforcement
Estimated Time:1m 0s
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Topics

Regulatory Entities and Self-Regulatory Organizations (SROs)

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