Published on Sep 4th, 2026 |

“Pay-to-Play” Rule | SEC Proposes Rescission

SEC Releases

Introduction

On September 3, 2026, the SEC proposed rescinding Rule 206(4)-5 under the Investment Advisers Act of 1940, commonly known as the “Pay-to-Play Rule”.

The Rule generally prevents Investment Advisers from providing compensated Investment Advisory Services to a Government Client for two (2) years after certain political contributions by the Adviser or its covered associates. The SEC also proposed removing related recordkeeping requirements.

In its proposal, the SEC cited compliance burdens, operational challenges, and concerns about the rule’s lack of clarity.

SEC Chairman, Paul Atkins and Commissioners, Hester Peirce, and Mark Uyeda also discussed concerns regarding the Rule’s impact on political contributions and speech.

Key Takeaways

Key Takeaways

  • The SEC proposed rescinding the Pay-to-Play Rule.
    • If adopted, Rule 206(4)-5 would be eliminated, along with related recordkeeping requirements.
  • The current Rule generally creates a two-year restriction.
    • Certain political contributions can prevent an Adviser from receiving compensation for Advisory Services to a Government Entity for two years.
  • The SEC cited compliance concerns.
    • The SEC stated that the Rule can be difficult and burdensome to implement and can create a strict liability standard where small donations or technical violations may trigger significant consequences.
  • The SEC noted concerns about political contributions.
    • The proposal states that some Advisers have prohibited political contributions by their employees at the state and local level because of the Rule.
  • Other requirements would remain.
    • If the Rule is rescinded, existing Advisers Act provisions, including antifraud requirements, fiduciary duties, the compliance rule, and the code of ethics rule, would continue to apply.
  • The Proposal is not final.
    • Rule 206(4)-5 remains in effect unless and until the SEC takes final action. The public comment period will remain open for 60 days after publication of the proposing release in the Federal Register.

Vigilant's Conclusion

Vigilant’s Conclusion

The SEC’s proposal would eliminate the current Pay-to-Play Rule and its related recordkeeping requirements, but Investment Advisers should not treat the proposal as a change to the current Rules at this time. Rule 206(4)-5 remains in effect unless and until the SEC takes final action.

The SEC’s rationale for the proposed rescission is based in part on its more than 15 years of experience administering the Rule. The SEC stated that the Rule has created operational challenges and significant compliance burdens and can lack clarity in certain circumstances. The SEC also noted that some Advisers have prohibited political contributions by their employees at the state and local level because of the rule.

If the Rule ultimately is rescinded, the SEC has stated that other existing Advisers Act requirements would continue to apply, including antifraud provisions, fiduciary duty requirements, the compliance rule, and the code of ethics rule. The SEC stated that these existing requirements are likely sufficient to address pay-to-play practices while providing Advisers with greater flexibility.

The SEC also made clear that rescinding Rule 206(4)-5 would not eliminate other laws addressing public-sector corruption or the public procurement process. The SEC stated that its ability to bring cases involving fraudulent practices or violations of fiduciary duty related to Pay-to-Play practices would remain unchanged.

For Investment Advisers, the key takeaway is to continue following the existing Pay-to-Play Rule while monitoring the SEC’s rulemaking process. Firms should not make changes to their current Rule 206(4)-5 compliance framework solely because of this proposal. If the SEC ultimately adopts the rescission, Advisers should then evaluate how the change affects their political contribution policies, compliance procedures, codes of ethics, and related recordkeeping practices in light of the requirements that remain in place.

Vigilant will continue to monitor developments related to the proposed rescission and provide updates as the SEC’s rulemaking process progresses.

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