SEC Proposes Rescinding the Pay-to-Play Rule
On September 3, the SEC proposed rescinding Advisers Act Rule 206(4)-5, the investment adviser pay-to-play rule.
The current rule generally prohibits an investment adviser from receiving compensation for providing advisory services to a government entity for two years following certain political contributions by the adviser or its covered associates. The proposal would rescind Rule 206(4)-5 and eliminate the corresponding Advisers Act recordkeeping provisions.
The SEC cites implementation complexity and unintended consequences in support of the proposal. The proposing materials also state that the Advisers Act’s antifraud, fiduciary, compliance, and Code of Ethics requirements would continue to apply.
No Change Yet
Rule 206(4)-5 remains in effect. Firms should continue their existing political contribution preclearance, monitoring, and recordkeeping processes unless and until the SEC adopts a final rescission. Comments are due November 9, 2026.
Takeaways
- The SEC is proposing to eliminate Rule 206(4)-5, not simply amend it.
- The existing rule remains effective today.
- Do not change existing political contribution controls based on the proposal alone.
- Advisers with government clients or public pension investors should continue monitoring the proposal and other potentially applicable restrictions, including state and local rules that would not be affected by a rescission.