FINRA and Placement Agents

Will FINRA step in to prevent a ban on placement agents working with government investors?

You may remember that last August, the SEC published a proposed rule that would create a prohibition on paying a third party, such as a placement agent, to solicit a government client on behalf of the investment adviser: IA-2910. The rule has generated lots of comments. The intent of the proposed rule is to prevent “pay-to-play” scandals. A noble and worthy goal.

The SEC seems to be softening its position on the placement agent ban. In a December 18 letter, the SEC asked FINRA if they would interested in crafting some rules for registered broker-dealers in dealing with government investors. Legitimate placement agents (such as FINRA-registered broker-dealers) “could be subject to separate regulations that might restrict their ability to engage in pay to play activities on behalf of their investment adviser clients.”

It took three months, but FINRA responded to the SEC with a “yes“.

“I am delighted to state that we are in a position to promulgate such a rule. We believe that the FINRA proposal should impose regulatory requirements on member broker-dealer placement agents as rigorous and as expansive as would be imposed by the SEC on investment advisers. We believe that a regulatory scheme targeting improper pay to play practices by broker-dealers acting on behalf of investment advisers is both a viable solution to a ban on certain private placement agents serving a legitimate function.”

It sounds like SEC is getting closer on making a decision about its pay to play rule. Perhaps the FINRA rule will make it easier to deal with.

In the interest of disclosure, my company uses placement agents in its dealings with investors, including government investors.


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  1. SEC’s Rule on Pay to Play is Coming | Compliance Building - June 25, 2010

    […] in April, the SEC engaged FINRA to craft rules for registered broker-dealers when acting as a placement agent soliciting investments from […]

  2. SEC Votes on Pay to Play | Compliance Building - June 30, 2010

    […] be a one year period before the placement agent limitations are effective. This is designed to give FINRA time to enact its new regulations on pay-to-play.  It’s not clear if the one-year period is applicable for the other parts of Rule 206 […]

  3. No More Delay? SEC to Discuss Pay to Play on June 30 | Pay to Play Law Blog - April 2, 2014

    […] has indicated that the rule may be revised to reflect public comment. To that end, in April 2010, the SEC engaged FINRA to craft rules for registered broker-dealers when acting as a placement agent soliciting investments from government investors. Please click […]