FINRA Proposes Pay-to-Play Rules Similar to SEC Rules
FINRA has proposed pay-to-play rules that would restrict member firms from engaging in solicitation activities on behalf of investment advisers if covered employees made a disqualifying political contribution. FINRA has proposed the rules as a companion to the SEC’s pay-to-play rule (206(4)-5), which limits political contributions by investment advisers to public officials that can influence investment management mandates. Most of the restrictions and definitions are similar to the SEC rule except that violations of the rules would require full disgorgement of fees received. Also, the proposed rules would require soliciting firms to provide extensive disclosure to the relevant government entity. The rules require a 2-year time-out from political contributions to officials with the power to effect a mandate, broadly define a contribution as “anything of value,” and includes private funds. FINRA acknowledges the significant costs associated with implementation and ongoing compliance. Comments are due by December 15.
OUR TAKE: The industry may influence some of the definitions, but FINRA will most likely adopt the rule in short order. Firms should start considering updates to their Written Supervisory Procedures.