SEC considers lifting two-year restrictions on political donations from advisers

The SEC's "paid political contributions" rule is proposed to be repealed

The U.S. Securities and Exchange Commission's Rule 206(4)-5, the so-called "paid political contributions" rule, prohibits investment advisers from receiving remuneration from any government client for two years if the adviser or any person covered by the rule has made political contributions to officials or candidates who can influence the adviser's selection. On September 3, the SEC proposed to abolish the above rules and related record-keeping requirements. If the proposal is passed, investment advisers and their employees will benefit the most. Their companies can continue to manage government funds and receive remuneration without complying with the two-year rule prohibiting any regulated political donations.

Who will benefit if the rules disappear?

According to SEC statistics, a total of 16,434 investment advisory companies are registered with the agency, with approximately 1.11 million employees. Under current rules, companies involved in regulated donations may not be able to collect fees from government agencies for two years.

Among the groups that may benefit from the regulation, the first to bear the brunt are managers competing for public sector business. Public pension funds, state pension systems, and public university endowments have huge investment mandates, and the original intention of the rule is to ensure that political donations do not affect the ownership of these businesses.

The proposal would repeal specific record-keeping provisions in the rules related to political donations. However, other protective provisions will still apply, such as anti-fraud provisions, fiduciary obligations, compliance requirements and ethical guidelines. In addition, anti-corruption and procurement regulations at the federal, state and local levels remain in effect.

Employees may face fewer restrictions within themselves. The SEC pointed out that some companies responded to the complexity of the regulation by simply banning any political donations to avoid the risk of possible violations.

The SEC calls the 15-year-old rule a "trap for the careless"

The term "paid political contributions" refers to political donations that affect public investment contracts. The proposal is also in line with a broader trend of deregulation-as Cryptopolitan reported in April, SEC Chairman Paul Atkins had said efforts were under way to eliminate unnecessary regulations.

The SEC said in a statement that the rule is complex, unclear and onerous and can be regarded as a "de facto strict standard of liability." Law firm WilmerHale noted in a client note issued on May 19 that a two-year suspension period may apply "even if donations are relatively small" and does not require any proof of improper intent.

The backdating clause of this rule may be retroactive to donations made before employees were identified as regulated affiliates. Even donating to federal campaigns can put donors at risk if the candidate currently holds a regulated position in state or local government. "People should not be forced to choose between the right to political speech and work in a specific industry," Atkins said in a September 3 statement.

What is this rule designed to prevent

Regulators do not act without background information. A study of approximately 22,000 SEC-registered consulting firms between 2001 and 2016 shows that donations to state governments and political action committees correspond to growth in public pension business. Researchers also noted that political donations from managers with large government operations dropped significantly after the regulation came into effect.

The Investment Advisor Association has been pushing for reform, but has not called for complete abolition. The association tends to limit campaign donations in a way that does not generate commercial transactions, while proposing "more targeted methods" over time to minimize compliance requirements.

The timing coincides with record year for political spending

The proposal comes at a time when corporate political spending is rising. According to a report released by Public Citizen on August 27, second-quarter disclosures showed that companies had spent $646 million in the 2026 midterm elections, 40% higher than the $461 million spent in the entire 2024 election cycle. Cryptocurrency companies contributed $206 million to total spending in 2026.

This created a politically sensitive moment as the SEC tried to lift penalties related to political donations from financial advisers, a move that coincided with unprecedented levels of corporate election spending.

There is no final decision yet. The comment period will end 60 days after the proposal is published in the Federal Register. The question remains whether public comment will have any impact on the committee's decision to adopt the repeal measure.