Proposed changes could loosen restrictions on firms managing public pension funds after political contributions….
The US Securities and Exchange Commission (SEC) has proposed easing restrictions that can prevent investment advisers from managing public pension funds after political contributions are made to state and local officials.
The proposal was submitted to the White House for review on Wednesday, according to a posting on the Office of Management and Budget’s website, marking an early step in the regulator’s effort to revisit its long-standing “pay-to-play” rules.
The SEC said the proposed changes are intended to reduce compliance burdens placed on investment advisers while addressing concerns that have been raised about the existing regulations.
A spokesperson for the commission said the current rule places unnecessary restrictions on investment advisers and that the SEC was responding to complaints that have emerged across the political spectrum.
The proposal will still go through the regulatory process and is expected to receive public feedback before any final changes are adopted.
What the current rule requires
Under the SEC’s existing pay-to-play regulation, an investment adviser can be prohibited for two years from receiving compensation for managing public-sector assets if the firm, certain employees or an affiliated political action committee makes a contribution to a state or local political campaign.
The rule was introduced in 2010 as a safeguard against political contributions influencing the awarding of lucrative government investment contracts.
Although the regulation has been amended several times since its introduction, the two-year restriction has remained a central feature.
The rules also limit certain political fundraising activities by investment advisers and covered employees when a firm is seeking or conducting government investment advisory business in a particular jurisdiction.
SEC seeks to reduce compliance burden
The commission’s proposed changes reflect a broader effort to reconsider regulations that officials believe may impose excessive costs or restrictions on businesses.
The SEC said it had received complaints about the rule from people across the political spectrum and would consider reforms aimed at addressing those concerns.
The proposal does not immediately change the existing requirements, however. It remains subject to further review, public input and the SEC’s rulemaking process.
Democrats likely to challenge proposal
Any attempt to loosen the restrictions could generate a strong political response, particularly from Democrats who have historically defended the pay-to-play rule as an important protection against corruption in the management of public money.
Critics could argue that reducing restrictions on political contributions by investment advisers may create opportunities for firms to use campaign donations to gain access to state and local pension contracts.
Public pension funds represent billions of dollars in retirement assets for government employees, making oversight of the firms that manage the money a politically sensitive issue.
Supporters of reform, however, are likely to argue that the existing rules can punish firms and individual advisers for political activity that does not necessarily influence investment decisions or government contracting.
Move fits Trump’s deregulation agenda
The proposal comes as President Donald Trump’s administration continues to pursue a broader deregulation agenda across the US financial and business sectors.
Its timing could also give the issue additional political significance, coming less than three months before the November 3 midterm elections.
Republicans are defending narrow majorities in both chambers of Congress, meaning the election will play a major role in determining the balance of power in Washington for the remainder of Trump’s term.
For now, the SEC’s proposal remains at an early stage. But any eventual rollback of the pay-to-play restrictions could significantly change how investment advisers participate in political activity while competing for the management of state and local pension assets.
