The US Securities and Exchange Commission has published a proposal to rescind Rule 206(4)-5 under the Investment Advisers Act, commonly known as the pay-to-play rule, alongside related recordkeeping obligations.
Scope of the Rescission Proposal
On 3 September 2026, the Securities and Exchange Commission issued a proposal to eliminate its pay-to-play rule. The existing regulation prohibits investment advisers from offering compensated advisory services to a government client for two years after contributing to certain elected officials or political candidates.
The proposed regulatory action specifically seeks to rescind Advisers Act Rule 206(4)-5 and amend the Advisers Act recordkeeping rule to remove corresponding requirements.
Other statutory duties under the Advisers Act will remain active, including fiduciary duty requirements, anti-fraud provisions, the compliance rule, and code of ethics obligations.
Regulatory Rationale and Operational Impact
First adopted in 2010, the political contribution rule has created substantial unintended operational challenges, according to the Commission. The framework operated as a de facto strict liability standard where small donations or minor technical oversights could trigger severe service prohibitions and financial penalties.
In response to these compliance hurdles, several advisory firms established complete prohibitions on state and local political contributions.
SEC Chairman Paul S. Atkins noted that more than 15 years of enforcement demonstrated that the rule was overly prescriptive and suppressed political speech. He stated that the rule penalized advisory firms for small donations, including contributions made by individuals before joining an advisory business, concluding that political contributions are more appropriately governed by federal election regulations, state laws, and local ordinances.
Public Comment Timeline
The public comment period regarding the proposed rescission will remain open for 60 days following the publication of the proposing release in the Federal Register.
