Goodbye Pay-to-Play?
By Craig Moreshead and Lance Whittemore, Chenery Compliance Group
Introduction
On September 3, 2026, the SEC proposed a full rescission of Rule 206(4)-5, the “Pay-to-Play” Rule, together with its related recordkeeping requirements. The SEC cited the Rule’s burden, complexity, and lack of clarity, along with an unnecessary chilling effect on political speech, as the primary drivers behind the proposal. The SEC also maintains that existing laws and regulations already provide a sufficient framework for addressing “pay to play” fraud.
Background
The Pay to Play Rule was adopted in 2010 to prevent investment advisers from seeking to influence an elected official’s award of advisory contracts by making or soliciting contributions to that official. The Rule has three key elements:
A two-year compensation ban. It prohibits an investment adviser from providing advisory services for compensation (either directly or through a pooled investment vehicle) for two years, if the adviser or certain of its executives or employees make a political contribution to an elected official who is in a position to influence the selection of the adviser.
A ban on bundling. It prohibits an advisory firm and certain executives and employees from soliciting or coordinating campaign contributions from others (a practice referred to as “bundling”) for an elected official who is in a position to influence the selection of the adviser, and prohibits coordinating payments to political parties in the state or locality where the adviser is seeking business.
A third-party solicitor restriction. It prohibits an adviser from paying a third party, such as a solicitor or placement agent, to solicit a government client on behalf of the investment adviser, unless that third party is itself an SEC-registered investment adviser or broker-dealer subject to similar restrictions.
The rule includes a de minimis exception permitting contributions of up to $350 for candidates for whom the contributor is entitled to vote, and $150 for candidates for whom the contributor is not entitled to vote.
What Advisers Need to Know
The rescission would be total. Rule 206(4)-5 and its related recordkeeping requirements would be eliminated completely, not narrowed or amended.
The current Rule already functions as a de facto strict liability standard. Advisers have struggled to apply the definitions of “official” and “covered associate,” leading many firms to adopt blanket contribution bans broader than the Rule actually requires.
The SEC pointed to a chilling effect on political speech. Because of the Rule’s severe penalties, many advisers have prohibited employees from making any political contributions at all, even where their pay-to-play risk is low.
Existing regulations would still address pay-to-play fraud. Section 206’s antifraud provisions, Rule 206(4)-7 (the compliance rule), and Rule 204A-1 (the code of ethics rule) would all remain in force regardless of the outcome.
Nothing is final yet. Rule 206(4)-5 remains fully in effect unless and until the SEC takes final action, and the public comment period will remain open for 60 days after the proposal is published in the Federal Register.
Bottom Line
Statements released by Chairman Atkins, Commissioner Uyeda, and Commissioner Peirce were universally supportive of the proposal, and we expect it to pass. In the meantime, advisers should not treat this proposal as a change to current requirements. Firms should continue complying with Rule 206(4)-5 and their existing pay-to-play policies and procedures until a final rule is adopted, which would not occur before the 2026 midterm elections. We will continue monitoring this rulemaking and will flag any changes to your compliance program as it progresses.