Remarks at the 2026 Joint Compliance Outreach Program for Municipal Market Participants

Good afternoon, everyone. As we draw the 2026 Joint Compliance Outreach Program ("JCOP") to a close, I would like to extend a sincere thank you to everyone who has joined us and to all the panelists and speakers who have given of their time and expertise.

And as is customary, I must remind you that these remarks are provided in my official capacity as the U.S. Securities and Exchange Commission's Director of the Office of Municipal Securities ("OMS") but do not necessarily reflect the views of the Commission, the Commissioners, or other members of the staff.

The municipal securities market has long been viewed as the quiet, steady engine of our nation's infrastructure. We are a market governed by precedent and built on relationships that often span decades. But, as we draw this incredibly insightful two-day conference to a close, one resounding reality has dominated our discussions: we are on the precipice of major changes in how the municipal securities market operates.

On one hand, we are witnessing a technological revolution that could arguably be viewed as more disruptive than prior shifts toward enhanced disclosure requirements and electronic trading.[1] Concepts like tokenization, digital collateral, and atomic settlement are no longer just theories; in some cases, they are operational realities that are rewriting how the municipal securities market could function.[2]

On the other hand, the fundamental legal mandates of our profession remain steadfast. Technology may change how we do business, but it does not change why we do business or the fundamental regulatory concerns that exist in this market. So, to conclude JCOP, and informed by the discussions this week, I am going to briefly comment on technological shifts and what it means for the regulation of our market.

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The municipal securities market is defined by stability, and frankly, processes that have remained largely static for over fifty years.[3] However, from the first blockchain-based issuance to the legislative exploration of bonds collateralized by digital assets,[4] the architecture of our market, like other markets, is being reimagined. With the integration of artificial intelligence ("AI"), automated compliance, and Agentic AI, we are being confronted with promises of unprecedented efficiency.

It is tempting to focus on flashy headlines, like the arrival of Bitcoin-backed bonds or tokenized debt. But if we look closer, the real pressure on our regulatory framework isn't just coming from these new vehicles and the type of data they create, but on how enhanced technology can be used in all facets of our market, including even the seemingly most rote or mundane compliance tasks.

Two years ago, the market was marveling at chatbots that could summarize a 200-page bond indenture. However, today we are dealing with Agentic AI - agents that don't just answer questions but can also execute workflows. These agents can purportedly draft preliminary official statements, reconcile fund flows, and monitor compliance alerts. The risk associated with these agents is not just a tech glitch. As noted by the Financial Industry Regulatory Authority ("FINRA") in their 2026 Regulatory Oversight Report,[5] the danger can be viewed as the silent erosion of human oversight: supervisory substitution risk.[6] The risk isn't merely that the AI makes a mistake. The risk is that supervisors may begin to lose the human in the loop visibility.[7] When an AI agent executes a multi-step workflow (e.g., pulling data, interpreting a rule, and then triggering a filing) how do you reconstruct why it made that specific choice? These are all regulatory challenges that must be considered by both market participants and regulators.

That brings me to another well-known risk that can overshadow the significant potential and progress of AI: hallucinations. Imagine an Agentic AI tasked with drafting a preliminary official statement. It pulls data from three different sources, but in the process, it invents some pending litigation or hallucinates incorrect revenue or expense numbers. This may be viewed as making a materially false or misleading statement in a disclosure document, and could violate the antifraud provisions.[8] If you are using or plan to use AI in drafting official statements or other investor-facing documents, you should be thinking about what you are doing to ensure that the AI-drafted disclosures are accurate.

Innovation - of any sort - does not alter regulatory obligations but it will cause us all to rethink how those regulatory obligations are met in actual practice. For the municipal advisors among us, your duty of care to your clients,[9] remains paramount. However, I will suggest that the application of the duty of loyalty and duty of care may become more complex when considering innovative financings. Let's break that down a bit. The Commission recognizes that providing advice with respect to the issuance of municipal securities may include, but is not limited to, assisting municipal entities in developing a financing plan, assisting municipal entities in evaluating different financing options and structures, and/or evaluating and negotiating financing terms.[10] For example, if a client asks you about tokenizing debt, you may be required to evaluate and negotiate aspects of the smart contracts governing the security and the digital custody of the token. You may need to evaluate claims about increased liquidity and other benefits as well as any novel risks. Therefore, I believe that you will need to have a functional understanding of blockchain platforms and the legal responsibilities regarding digital asset failures. Because of the novelty of these structures, claims about increased liquidity, for example, should likely be tempered, at least in the near term. Additionally, the duty of loyalty will continue to require municipal advisors to examine their motivations for advising clients to ensure that recommendations are in the client's best interest and not by a desire to be associated with a groundbreaking financing structure or because of an undisclosed relationship with a technology company.

If loyalty is the northstar for municipal advisors, transparency is paramount for underwriters. Unlike your colleagues on the municipal advisory side, who act as fiduciaries and must affirmatively manage or eliminate conflicts to serve their client's best interest, your role as underwriters is distinct. You serve as an arm's length counterparty, so by definition your interests differ from the issuer's.[11] Your investor customers may want to maximize their returns; but your issuer clients want the lowest cost of issuance. This is a structural conflict that cannot be eliminated.

Transparency, therefore, serves as a primary mitigation tool. Let's think about the specific conflicts you, as an underwriter, are required to disclose in the letter required under MSRB's Rule G-17 ("G-17 letter").[12] In addition to the standard disclosure, disclosures about affiliate and third-party payment arrangements, securitizations, and post-pricing trading arrangements ("flipping") are required, as payments, values, or credits received by the underwriter from parties other than the issuer[13] may also create hidden cost pressures in a transaction. A risk of not disclosing these arrangements in a G-17 letter is that the issuer is acting without complete information. They may not have sufficient information to examine the true cost of their policy decisions including the decision to use a negotiated sale. Disclosing these arrangements, on the other hand, allows the issuer to ask the questions: Is this arrangement impacting my pricing? Is this why you are recommending this particular transaction structure? Is the true cost of my policy decision worth the expected benefits of that policy decision? Disclosure, in my mind, neutralizes hidden cost pressures, which may mitigate the potential for abuses that raises issuer costs and, by extension taxpayer and ratepayer costs. And these disclosures may need to be reevaluated in light of new structures and new technologies.

Perhaps most importantly is how you are recommending complex [14] structures - be it a swap, variable rate demand obligation ("VRDO"), or blockchain-based issuance. To reiterate, MSRB Rule G-17 requires that you disclose material characteristics and risks, which, with technological shifts, may now include a responsibility to ensure that the issuer fully grasps the risks literally coded into the transaction. Further, if the issuer is not made aware of the downside risks of a structure, it is my view that you may have failed in your duty of fair dealing under Rule G-17.[15] Compliance with MSRB Rule G-17 is about acknowledging that conflicts and risks exist, by providing issuers with the clarity they need to be an equal partner in the negotiation, and you can do this by providing disclosures that are clear, timely, and not buried in boilerplate, so that issuers can make the best decisions for their constituents.

As the financing then moves into the due diligence phase, the underwriter's gatekeeper responsibilities, including under Rule 15c2-12, take on a bit of a digital dimension. Now, instead of simply verifying items such as historical revenue, I am of the view that the underwriter may now also need to establish a reasonable basis for the technical claims made in the offering documents that are material to investors. What does this mean? Well, it could mean that the underwriter must ensure that the logic (e.g., the if/then statements made governing interest payments in a smart contract, for instance), matches the legal promises made in the indenture.

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Over the last two days, we have traversed a landscape that has stretched from technological shifts to the bedrock of our regulatory obligations under the Exchange Act as well as MSRB and FINRA rules. We have seen that technology is not a refuge; rather it can highlight and magnify regulatory challenges while also potentially offering opportunities for greatly easing compliance burdens through simplified rules or compliance processes. Innovation offers tremendous promise in helping municipal entities and obligors achieve more efficient capital formation but may also demand renewed attention to our existing standards of care and other regulatory requirements. So, while innovation moves fast, regulation must move smart. Our goal: to ensure that our oversight evolves alongside the market we serve, removing and not creating unnecessary burdens but also not sacrificing long-standing safeguards that issuers and investors rely on for a healthy, functioning municipal market.

With that, I want to thank the Commission staff at Exams, Enforcement, and OMS, as well as our partners at FINRA and the MSRB. And thank you to all the municipal market participants who helped execute this event. We appreciate you watching and look forward to seeing you all again next year.