FINRA ready to act on pay-to-play rules

NEW YORK (Reuters) - The U.S. brokerage watchdog is ready to move on a proposal that would restrict brokers from helping investment funds win lucrative business with government pension funds, the regulator's chief executive said on Monday.

The move by the Financial Industry Regulatory Authority comes after an investigation of New York's $110 billion pension fund revealed millions of dollars in fees that investment firms had paid to placement agents.

Regulators are under pressure to clamp down on "pay to play" -- the practice of making political contributions to pension fund officials in order to win lucrative investment contracts.

"We have indicated a willingness to put pay-to-play rules in place," FINRA Chairman and Chief Executive Richard Ketchum said at the Reuters Global Exchanges & Trading Summit.

The Securities and Exchange Commission, which supervises investment advisers and brokers, has already proposed banning advisers from paying placement agents, or pension-fund middlemen, from soliciting government pension funds.

The proposal met with stiff resistance from the investment and pension industries, which have urged tighter rules as opposed to an outright ban.

Now the SEC is contemplating allowing registered broker-dealers to act as legitimate placement agents if FINRA implements strict pay-to-play rules.

Ketchum said FINRA was looking at brokers' activities. "We want pay-to-play requirements that are at least as restrictive as the SEC's," he said.

The pay-to-play probe by New York Attorney General Andrew Cuomo uncovered a web of connections between politically connected placement agents, investment firms and public retirement systems, notably ones in New Mexico and California. Five people have pleaded guilty in Cuomo's probe.

The nation's biggest pension fund, Calpers, said in January that investment firms paid placement agents more than $125 million in fees to win business at Calpers, including nearly $59 million to a firm led by a former board member of the pension fund.

Calpers said the data made the case for greater regulation of placement agents.

(Reporting by Rachelle Younglai, editing by Matthew Lewis)