The Securities and Exchange Commission announced Tuesday that it will allow further comment on a pay-to-play rule proposed by the Financial Industry Regulatory Authority (FINRA).

As we discussed previously, if the SEC approves FINRA’s pay-to-play rule, it would clarify that investment advisers are allowed to hire third party solicitors if they are subject to FINRA or Municipal Securities Rulemaking Board (MSRB) pay-to-play rules.  The SEC has indicated that it will hold off on enforcement of the third party solicitor provision until both FINRA and the MSRB rules go into effect.  If the FINRA rule had simply been adopted, the reprieve on enforcement would have ended this fall.

What impact will this decision have?  Most likely, delay of the inevitable.  Unless the federal pay-to-play landscape is radically altered, we expect the SEC and FINRA to reach agreement on a pay-to-play rule.  The most likely impact of the SEC’s announcement is to delay resolution of the SEC’s rule regarding the hiring of third party solicitors until later in the fall this year or into next year.  The SEC’s reprieve on enforcement is likely to continue until the matter is resolved.

Why is the SEC allowing comment?  One reason may be to protect itself against a legal challenge through careful consideration of comments critiquing FINRA’s proposed rule on First Amendment and other grounds.  One reason to suspect this is so is that critiques of the FINRA proposed rule are similar to those raised in a recent law suit that sought to overturn the SEC’s pay-to-play rule, and in a petition asking for the SEC’s rule to be repealed.

As the SEC proceeds with consideration of the FINRA rule and the petition to repeal the SEC rule, we may see further development of important statutory and constitutional questions regarding the viability of pay-to-play laws, as discussed in the Wagner case.