The Securities and Exchange Commission has put forward a proposal aimed at loosening a long-standing restriction that can prevent investment advisers from managing public pension funds after certain political contributions. The agency on Wednesday sent the proposal to the White House for review, according to a posting on the Office of Management and Budget website.
The measure targets the SEC's so-called "pay-to-play" rule for investment advisers. Officials described the effort as intended to reduce identified compliance burdens that advisers face under the current framework. The proposal is at an initial stage and regulators are soliciting feedback on the suggested changes.
In an emailed statement, a spokesperson for the SEC said, "The current 'pay-to-play' rule creates unnecessary compliance burdens and overly restricts investment advisors. The Commission is heeding years of complaints from across the political spectrum and will consider a proposal to address these issues and reform the rule."
Under the existing pay-to-play regulation, investment advisory firms face a two-year prohibition on collecting fees for managing public assets if the firm, key personnel, or an affiliated political action committee makes donations to state or local political campaigns. While the rule has been adjusted several times since it was first adopted in 2010, that two-year bar has remained intact.
The rule also bars investment advisers and covered employees from engaging in fundraising for candidates and for state and local political parties in jurisdictions where the adviser is seeking or performing government investment advisory work.
Observers note the proposal aligns with President Donald Trump's broader deregulatory agenda. At the same time, the suggested easing of restrictions is expected to meet strong resistance from Democrats, who argue loosening the rule could open the door to political corruption and place billions of dollars in state and local public pension funds at risk.
The timing of the proposal comes in the run-up to the November 3 midterm elections, which will determine control of Congress. Republicans are defending narrow majorities in both the House and the Senate, making the election's outcome potentially pivotal for the remainder of President Trump's term.
Process and next steps
The SEC's proposal is now undergoing review at the White House. Because it is at an early stage, the regulator is seeking comment and feedback on the proposed revisions before any final rule change is adopted. The posting on the Office of Management and Budget website characterized the reform as aimed at reducing compliance burdens identified under the current rule.
Stakeholders on both sides of the issue are likely to weigh in as the public-comment period progresses, with the debate expected to focus on balancing regulatory relief for advisers against protections for public retirement assets.