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.
Sources:
- March 15, 2010 letter from FINRA to the SEC
- December 18, 2009 Letter from Andrew J. Dononhue, Director, Division of Investment Management, to Richard G. Ketchum, Chairman & Chief Executive Officer, FINRA
- FINRA Rulemaking Addressing Placement Agent Pay-to-Play Activities May Forestall Proposed SEC Ban on Adviser Use of Placement Agents to Solicit Government Entity Clients in Goodwin Procter’s Financial Crisis Recovery blog
- SEC Proposed Pay to Play Rule IA-2910
- New SEC Rule on Political Contributions by Certain Investment Advisers – prior post
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[…] 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 […]
[…] 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 […]