According to FINRA, Wells Fargo Clearing Services, LLC was censured and fined $275,000 for failing to establish adequate supervisory systems related to municipal advisor registration requirements.

The firm had hundreds of municipal entity customers who transacted in both municipal and non-municipal securities in their accounts. However, the firm was not registered as a municipal advisor. While the firm's procedures prohibited associated persons from advising municipal entities about investing proceeds from municipal securities issuances, the firm did not provide guidance about what constituted such advice or what other activities might require municipal advisor registration.

Critically, the firm had no process for identifying whether deposits in municipal entities' accounts came from municipal securities issuances. There were no controls to detect or prevent associated persons from providing advice about investing such proceeds.

The firm relied on provisions in client account agreements and year-end statement disclosures to help ensure municipal entities were not depositing municipal securities proceeds, but these provisions were not prominent. The firm did not otherwise take reasonable steps to ensure its services did not constitute municipal advisory activity.

Municipal advisor registration requirements were created to protect municipal entities, which include state and local governments, pension funds, and other public entities. These requirements ensure that those advising on the investment of public funds meet specific standards and have fiduciary obligations.

The firm has since modified its supervisory system and procedures relating to municipal advisory activity.

For investors and municipal entities, this case demonstrates the importance of understanding when financial services firms are subject to municipal advisor regulations. Municipal entities should verify that any firm providing investment advice on proceeds from bond issuances is properly registered.