“Finra looks forward to continuing to work with the SEC during its review of the pay-to-play proposal,” said Finra spokesman Ray Pellecchia in an email.
The SEC’s order is “big news because I believe that Finra expected [the rule] to be approved by the SEC” on Tuesday, said Jason Torchinsky, a partner at Holtzman Vogel Josefiak Torchinsky PLLC in Warrenton, Va., who represents the Republican state parties.
Separately in January, the parties filed a petition with the SEC seeking to overturn the play-to-pay rule for investment advisors. That action followed an unsuccessful court challenge thrown out on procedural grounds.
The state parties and the Center for Competitive Politics argue that a 1995 D.C. Circuit Court of Appeals decision, which upheld the first federal pay-to-play rule--MSRB Rule G-37—is no longer valid given subsequent Supreme Court decisions that have weakened limits on political spending. Those decisions include the 2010 Citizens United v. FEC ruling and McCutcheon v. FEC from 2014.
Both Finra and the SEC have cited the 1995 appeals court decision, Blount v. SEC, in proposing their pay-to-play rules.
In a December filing with the SEC, Finra argued that its rule would “not impose any restrictions on making independent expenditures, ban political contributions, or attempt to regulate state and local elections.”
But industry observers and critics say the expansiveness of the SEC’s rule has put a chill on political giving.
Lack of clarity over whom the SEC rule covers “has led some firms to adopt aggressive compliance programs that prohibit political contributions” by advisors and employees, the FSI said in its comment letter.