The Financial Industry Regulatory Authority is requesting public comment on its proposal to establish pay-to-play type rules for broker-dealers that closely mirror those the Securities and Exchange Commission has set forth for advisors.
In its Regulatory Notice 14-50, FINRA says that it is seeking comments by Dec. 15 on three proposed new rules.
FINRA’s proposed pay-to-play rules would restrict member firms (BDs) from engaging in solicitation activities on behalf of investment advisors if covered employees made a disqualifying political contribution.
Cipperman Compliance Services notes that most of the restrictions and definitions in FINRA’s proposal are similar to the SEC rule “except that violations of the rules would require full disgorgement of fees received.” Also, FINRA’s proposed rules would require “soliciting firms to provide extensive disclosure to the relevant government entity.”
The FINRA rules also require “a two-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,” Cipperman explains.
While the industry “may influence some of the definitions” that FINRA has put forth in its recommendations, “FINRA will most likely adopt the rule in short order,” Cipperman says. So firms “should start considering updates to their written supervisory procedures,” the compliance firm suggests.
The proposed rules are Rule 2271 (Disclosure Requirement for Government Distribution and Solicitation Activities); Rule 2390 (Engaging in Distribution and Solicitation Activities with Government Entities); and Rule 4580 (Books and Records Requirements for Government Distribution and Solicitation Activities).
The SEC imposed in June its first fine against an advisor for pay-to-play violations. Philadelphia-area private equity firm TL Ventures Inc. was charged for continuing to receive advisory fees from the city and state pension funds following campaign contributions made by an associate in 2011 to the governor of Pennsylvania and a candidate for mayor of Philadelphia.
The firm agreed to settle the charges by paying nearly $300,000.
— Check out SEC’s Enforcement Division ‘Here to Stay’ in Muni Bond Market on ThinkAdvisor.