If you work for a bank, you may want to reconsider donating to a political campaign. Some regulations limit financial employees from doing so.
It all concerns the Securities and Exchange Commission’s “Pay-to-Play Rule” under the Investment Advisers Act of 1940. Adopted in 2010, the regulation prevents financial firms from influencing politicians by contributing to political campaigns in hopes of securing a government contract like a state pension fund. In the case of Vice President Kamala Harris and her running mate, Minnesota Gov. Tim Walz, Walz is a state official.
Major financial institutions are doubling down on ensuring their employees follow the rules.
On Aug. 6, Citigroup sent a memo to employees reminding them to seek approval for donations to the Harris-Walz campaign. This policy impacts employees working in investment banking, wealth management, and other divisions. According to Business Insider, there’s an exception for exempt employees in the consumer banking division.
Breaking the rules with even the smallest donation can cost financial institutions tens of thousands.
In 2017, for example, Pershing Square faced a $75,000 fine after an analyst contributed $500 to a Massachusetts gubernatorial candidate. In another instance, the nation’s largest bank, JPMorgan Chase & Co., has been advising a Tallahassee, Florida pension fund, free of charge, because of a $1,000 contribution a bank executive made toward the re-election campaign of the city’s mayor.
The regulations in place are not just implemented by the SEC. Other financial regulatory bodies have similar rules, including the Commodity
Futures Trading Commission and the Municipal Securities Rulemaking Board. According to Yahoo Finance, the rules generally prohibit financial firms from providing services to state and local governments for two years after employees make a political contribution to relevant officials.There are some exceptions. A de minimis exemption allows individual contributions under $350 under SEC, CFTC, and FINRA rules and $250 under MSRB Rule G-37. Other workarounds include donating to PACs or Super PACs, which are not directly tied to candidates.
SEC commissioner Hester
Peirce has criticized the pay-to-play rule following the SEC’s ruling to fine four investment advisors for one-time, small donations. She dissented from the verdict and wrote, “I urge the Commission to revisit the Pay-to-Play Rule to ensure that it does not hinder political engagement that is unconnected to an adviser’s quest for government clients.”