The U.S. Securities and Exchange Commission (SEC) is proposing to scrap a rule that aims to curb political payola involving investment advisors.
Back in 2010, the SEC issued a rule that prohibits advisors from providing advisory services to government clients for two years after making a political contribution to certain elected officials.
The rule was designed to address concerns about government contracts being awarded to investment advisors based on their political donations, rather than on the advisors’ merits.
At the time, the regulator said that the rule aimed to “reduce the occurrence of fraudulent conduct resulting from these practices and to protect public pension plans, beneficiaries and other investors from the resulting harms.”
On Thursday, the regulator proposed to rescind that rule, arguing that it has had negative unintended consequences, including preventing advisors from making political donations — and, citing complaints that the rule is difficult to adhere to, and can have outsized consequences for small donations.
“Beyond operational implementation challenges, it has imposed serious penalties for small, often impulsive donations to candidates in both parties, and routinely punishes and handicaps advisory firms for an employee making a donation even before joining the business,” said SEC chairman, Paul Atkins, in a statement.
“Furthermore, advisors’ implementation of the rule has effectively resulted in the suppression of political speech,” he added — arguing that these kinds of conflicts should be addressed by local and state laws instead.
The proposal will be open for public comment for 60 days after it’s published in the Federal Register.