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Rule Change Updates

New FINRA “Pay-to-Play” Political Contribution Rules are on the Way

In this already unforgettable season of political events, FINRA is making headlines with a new “Pay-to-Play” rule. New Rule FINRA 2030 specifically applies to member firms who act as “placement agents” or “solicitors” on behalf of investment advisors for the purpose of obtaining advisory business from government entities.  New recordkeeping requirements for political contributions have also been established in rule 4580.  The effective date of these new rules is August 20, 2017.

Rule 2030

The new rule establishes similar standards to those already imposed on investment advisors by the SEC.  It does not ban or limit the amount of political contributions a covered member or its covered associates can make. Instead, it imposes a two-year time out on business activities.  Subject to this ban are member firms that engage in distribution or solicitation activities for compensation with a government entity on behalf of an investment adviser after the covered member or its covered associates make a contribution to an official of the government entity.

De Minimis Exception

There are limited exceptions for contributions made by Individual associates of member firms that are subject to this rule. Individuals are permitted to make contributions to officials for whom they are entitled to vote as long as they do not exceed $350 to any one official, per election.  They may also make contributions to officials for whom they are not entitled to vote of up to $150 to any one official, per election.

Rule 4580

Firms will be required to maintain books and records regarding these activities. Similar to the SEC’s rules for investment advisors these firms must keep records that include:

  • The names, titles and business and residence addresses of all covered associates;
  • The name and business address of each investment adviser on behalf of which the covered member firm has engaged in distribution or solicitation activities with a government entity within the past five years;
  • The name and business address of all government entities with which the covered member has engaged in distribution or solicitation activities for compensation on behalf of an investment adviser within the past five years;
  • All direct or indirect contributions made by the covered member or any of its covered associates to an official of a government entity, or direct or indirect payments to a political party of a state or political subdivision thereof, or to a PAC. These contribution records must include:
    • The name and title of each contributor
    • The name and title (including any city/county/state or other political subdivision) of each recipient of a contribution or payment
    • The amount and date of each contribution or payment.

Further detail about these rules is included in FINRA Regulatory Notice 16-40

For Your Convenience

Knopman Marks Financial Training is committed to keeping you informed. Stay tuned to our blog for pertinent updates. As always, and contact us if we can be of help for your exam prep initiatives.

Marcia Larson is Vice President, Faculty, at Knopman Marks Financial Training, New York, NY. She has extensive experience in financial licensing and regulatory training, having authored, developed and presented courseware for numerous securities and insurance exam preparation and continuing education and compliance programs. Before joining Knopman Marks, Marcia was Director of Annuity Products and Business Development at CUNA Mutual Group, where she developed and marketed industry-leading annuity products and retirement solutions and implemented distribution relationships. She was previously VP, Securities Products for Kaplan Financial, managing securities training products and subsequently, international training and businesses development. Marcia has trained thousands of financial industry exam candidates throughout their careers, and also college students as an adjunct professor. Marcia was a summa cum laude graduate of Wartburg College with degrees in Business Administration and Piano Performance. Marcia also holds the designations of Chartered Financial Consultant® (ChFC®), Chartered Life Underwriter (CLU®), Certified Employee Benefit Specialist (CEBS), and Fellow Life Management Institute™ (FLMI®). She currently teaches the SIE, Series 6, 7, 24, 50, 52, 63, 65, and 66 exams.