The SEC determined that the FINRA and MSRB "Pay to Play" rules relating to political contributions (i) impose "substantially equivalent or more stringent restrictions" on broker-dealers and municipal advisors, and (ii) are consistent with the objectives expressed in the SEC "Pay to Play" Rule (collectively, the "Equivalency Determination"). FINRA Rule 2030, which was approved by the SEC on August 25, 2016, will regulate firms that "engage in distribution or solicitation activities for compensation with government entities on behalf" of investment advisers. MSRB Rule G-37 will impose similar requirements on municipal advisors.
The SEC "Pay to Play" Rule (SEC Rule 206(4)-5):
- prohibits an investment adviser from providing advisory services to a government client for compensation during the two-year period after the adviser or certain of its executives or employees (''covered associates'') have made contributions to relevant elected officials or candidates; and
- prohibits an adviser and its covered associates from providing or promising, directly or indirectly, payment to any third party for the solicitation of advisory business from any government entity on behalf of such adviser unless the third party is a "regulated person."
Rule 206(4)-5 defines a ''regulated person'' as (i) an SEC-registered investment adviser, or (ii) a registered broker-dealer or registered municipal advisor that is subject to pay-to-play restrictions adopted by FINRA or the MSRB (as applicable) for which the SEC has made an Equivalency Determination.
Once issued, the SEC Equivalency Determination will allow an investment adviser and its covered associates (along with other SEC-registered investment advisors) to use FINRA member broker-dealers, and registered municipal advisors subject to MSRB rules, as third-party solicitors for government clients.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.