A New Bipartisan Bill Could Ban Members of Congress From Trading Stocks. Here's Why That's Important

A bill is in the works that could restore faith in American politicians. Members across the aisle have proposed a bill that would place common-sense restrictions on members of Congress. It's a simple bill that supports the interests of ordinary Americans.

It's called the Bipartisan Restoring Faith in Government Act. If passed -- and there's a good chance it will be -- the bill would ban Congresspeople from trading stocks. Here's why that's important.

The bill could prevent insider trading

Members of Congress are well connected (for good reason). They sometimes have special access to information that could sway the stock market, such as the state of a pandemic or the likelihood of a bill passing. This gives them an unfair advantage over everyday investors.

For example, a member may hear through a congressional committee that Company A is about to release a promising RNA vaccine. They could purchase stock in Company A before the public becomes aware. That's considered insider trading.

Laws like the STOCK Act ban insider trading. But according to Insider data, Democrats and Republicans alike have repeatedly broken transparency laws.

The Bipartisan Restoring Faith in Government Act would make insider trading much more difficult. Here are some changes the bill proposes in its current state:

• Congress members would be banned from trading individual stocks. Members who own individual stocks would have 90 days to place those within a blind trust.
• The same restrictions would apply to spouses and dependents of Congress members, closing large loopholes in the bill.
• Members may be required to submit proof of compliance to an ethics committee. Failure to follow the law would result in fines of up to $50,000.

Potential downsides do exist. Congress members may think the restrictions are too severe. Even if the bill passes, it may be ineffective. And the bill would need to pass both chambers to become law. But because it has bipartisan support from lawmakers like Matt Gaetz (R) and Alexandria Ocasio-Cortez (D), the bill just might pass.

Here's how insider trading works

Currently, Congress members face conflicts of interest. On the one hand, they want to make money from their stock trades. On the other hand, Congress members may be called upon to pass or block bills that would affect their investments.

For example, a Congress member with a stake in Company B, an oil and gas company, might want to pass a bill that funds an oil pipeline, despite a majority opposition from constituents. That's a conflict of interest, and it's not good for the American public.

If passed, the Bipartisan Restoring Faith in Government Act could reduce conflicts of interest by forcing Congress members to place investments in a blind trust (or another broad-basket holding, like a mutual fund). It would also set trading limits on close family members.

Does insider trading actually happen?

Many current legislators were accused of insider trading in 2020. None were convicted, though the DOJ-led investigation probably shook some Americans' faith in politicians across the aisle.

Right now, the STOCK Act allows Congress members to own shares of individual companies, which could lead Congress members to prioritize private over public welfare. Plus, penalties for disclosure violations are often small or end up being dismissed by House or Senate ethics officials.

The new bill could make legal violations more visible, and therefore punishable in court.

Though insider trading is hard to prove, it's evident that some Congress members do make unusually good trades. The popular Twitter account @Unusual_Whales tracks these.

Should the bill pass, it could restore a measure of trust in politicians and lead to better laws. Note that the bill does not affect the stock trades of investors outside of Congress. If you're curious, you can see the trades of your favorite politicians in office via sites like Capitol Trades.