Catenaa, Friday, August 14, 2026- The US SEC is proposing to ease a rule that restricts investment advisers from working for public pension funds if they’ve made political donations.
The regulator sent proposed changes to the SEC’s so-called “pay to play” rule to the White House for review on Wednesday, according to a post on the Office of Management and Budget’s website.
The SEC said the changes were meant to address “identified compliance burdens.”
Though the SEC rule doesn’t apply to federal elections and any change probably wouldn’t take place until next year at the earliest, the proposal comes as the Trump administration has erased lines between business and politics.
Democrats are likely to attack the proposal as a gift to Wall Street firms.
SEC Chairman Paul Atkins has previously criticized the rule as punishing people who are unaware they are violating it. The two-year prohibition can include political donations made before an employee even joined an investment adviser.
“The current ‘pay-to-play’ rule creates unnecessary compliance burdens and overly restricts investment advisors,” a spokesperson for the agency said in an emailed comment to Bloomberg News. “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.”
It’s unclear whether the proposal would modify the rule’s current strictures or do away with it altogether. The rule currently prohibits firms from offering investment services to state and local funds for two years if certain employees give between $150 to $350 to public officials, per election.
While it doesn’t apply to donations to federal officials, the rule does apply to state or local officials who are running for federal office. It also applies to campaigns for state or local office by current federal officials.
The rule was put in place in the wake of a series of pay-to-play scandals years ago involving public pension funds.
Some pension fund trustees were investigated or charged by the SEC for engaging in alleged kickback schemes to manage funds for local governments.
In 2016, State Street Bank and Trust Co. agreed to pay $12 million to resolve SEC allegations that it used political donations to win business from Ohio pension funds.
Four years earlier, Goldman Sachs Group paid $12 million in a case involving alleged donations to a Massachusetts gubernatorial candidate.
In 2022, Highland Capital Partners paid $95,000 to resolve an SEC case alleging an associate made a $1,000 political donation to an unsuccessful gubernatorial candidate.
Once the White House finishes its review, the commission, currently down to three Republican members and soon slated to have just two as Commissioner Hester Peirce prepares to depart for academia, would have to vote on the proposal before it will be made public.
The agency then takes public feedback and incorporates it into a final rule, which will also have to be voted on before it could take effect. The whole process typically takes between 18 to 24 months.
