On September 3, 2026, the U.S. Securities and Exchange Commission (SEC) proposed rescinding Rule 206(4)-5 under the Investment Advisers Act of 1940, commonly known as the Pay-to-Play Rule. If adopted, the proposal would eliminate the rule’s restrictions on political contributions by investment advisers and certain employees.
Adopted in 2010, Rule 206(4)-5 was designed to prevent political contributions from influencing the selection of investment advisers by state and local government entities, including public pension plans. Among other requirements, the rule can prohibit an adviser from receiving compensation from a government entity for two years following certain political contributions by the adviser or a covered associate.
The SEC is now proposing to eliminate the rule entirely, citing concerns that its broad restrictions can create significant consequences even when contributions are small, inadvertent or unrelated to an effort to win government business.
After more than 15 years of administering the rule, the SEC says its current approach has created unintended consequences. The Commission pointed to the operational challenges associated with determining which employees, contributions and elected officials fall within the rule. It also noted that relatively small or inadvertent contributions can result in significant consequences for an adviser, even when there is no evidence that a contribution was intended to influence the selection of the firm.
SEC Chairman Paul Atkins described the rule as overly prescriptive and argued that political contributions are more appropriately governed by state and local laws and federal election regulations. The proposal would rescind Rule 206(4)-5 in its entirety and also amend the Advisers Act books and records requirements to remove provisions requiring advisers to maintain certain records related to political contributions.
However, the SEC has made clear that fraudulent pay-to-play activity could still violate the antifraud provisions of the Advisers Act. Advisers would also remain subject to fiduciary obligations, compliance requirements and codes of ethics. State and local campaign finance, lobbying and public procurement laws would continue to apply as well. Depending on how an adviser raises capital and works with government entities, other regulatory requirements may also remain relevant.
This distinction is important. Rescinding Rule 206(4)-5 would remove a specific prescriptive framework. It would not give advisers a green light to disregard the potential conflicts created by political contributions.
For now, nothing has changed. Rule 206(4)-5 remains in effect unless and until the SEC adopts a final rule. Advisers should continue to follow their existing Pay-to-Play policies and procedures, including applicable employee pre-clearance, employee reporting and recordkeeping requirements. Compliance teams can also begin assessing what their programs might look like if the rule is rescinded. Firms with government investors, public pension exposure or active government fundraising efforts may determine that many existing controls remain appropriate even without Rule 206(4)-5.
The SEC’s public comment period is open through November 9, 2026. The Commission is also seeking feedback on alternatives to full rescission, including changes to contribution thresholds, lookback periods and other provisions.
Regulatory changes often create a second question for private fund advisers beyond what the rule says: what does the change mean for our compliance program?
Petra Funds Group works with private fund advisers to assess regulatory developments and translate them into practical policies, procedures and controls. As the SEC considers the future of the Pay-to-Play Rule, Petra can help advisers evaluate their existing political contribution policies, understand their exposure to government-related fundraising and determine whether changes are appropriate once the SEC takes final action. Get in touch with Jesse Brown, Senior Director in Petra’s Regulatory Compliance Group.
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