SEC Proposes to Rescind Investment Adviser Pay-to-Play Rule

On September 3, 2026, the U.S. Securities and Exchange Commission (SEC or Commission) proposed to rescind Rule 206(4)-5 under the Investment Advisers Act of 1940, as amended (the Advisers Act) and the pay-to-play rule (the Rule) and to eliminate its related recordkeeping requirement (the Proposal). The Proposal would eliminate the pay-to-play Rule altogether; the proposing release points to existing fiduciary duties under the Advisers Act and other federal, state, and local laws as the basis for addressing pay-to-play risk. The comment period will run for 60 days after publication of the Proposal in the Federal Register.¹

Our Take

While the SEC has proposed to rescind Rule 206(4)-5 and related recordkeeping requirements, alleviating what have been identified as complex and burdensome requirements, we note that state and local pay-to-play and procurement laws, placement-agent and contribution rules imposed by public pension systems, federal bribery statutes, and parallel securities regimes, including Municipal Securities Rulemaking Board (MSRB) Rule G-37, Financial Industry Regulatory Authority (FINRA) Rule 2030, and Exchange Act Rule 15Fh-6, would continue to apply. Although the rescission would provide meaningful relief from a particularly onerous regime, the complexity and burden of pay-to-play compliance arise from many sources, and this action would address only one.

Background: Rule 206(4)-5

Adopted in 2010, Rule 206(4)-5 generally bars an adviser from receiving compensation for advisory services to a government entity for two years after the adviser or a covered associate (broadly, certain executives, employees who solicit government entities, and adviser-controlled political action committees) makes a contribution to an official positioned to influence the selection of the adviser. The compensation ban is subject to limited de minimis exceptions for contributions. The Rule also restricts the use of unregistered third-party placement agents, prohibits soliciting or coordinating certain contributions, and imposes related recordkeeping requirements. It applies to registered advisers, foreign private advisers, and exempt reporting advisers and reaches a government entity’s investment in a “covered investment pool,” so a public pension’s investment in a private fund may create the same exposure as a direct advisory mandate.²

The Proposed Rescission

The Proposal would rescind the Rule in full and make a conforming amendment deleting pay-to-play recordkeeping requirements (Rule 204-2(a)(18)).

The Commission identifies four principal concerns:

• Overbreadth and complexity. Definitions such as “official” and “covered associate” can be difficult to apply and may sweep in personnel and contributions far removed from any potential pay-to-play arrangement.
• Strict-liability consequences. Even small or inadvertent contributions, what the release characterizes as “foot faults,” can trigger the Rule’s two-year compensation ban.
• Disproportionate burdens. The Commission questions whether the Rule’s compliance costs are justified by the harms it prevents and notes that the look-back provisions may deter advisers from hiring or promoting qualified personnel because of attenuated prior contributions.
• First Amendment concerns. To manage the Rule’s complexity, some advisers have adopted broad contribution bans that in the Commission’s view may unnecessarily restrict protected political speech.³

The Commission also requests comment on alternatives to complete rescission. These include raising the de minimis threshold (e.g., to $3,500), shortening or eliminating the two-year timeout and lookback provisions, narrowing the definitions of “official” and “covered associate,” and adopting a more principles-based rule built around a risk-assessment process, contribution guidelines, and an annual review.⁴

The Proposing Release also requests comment on whether the Commission should take parallel action with respect to the related pay-to-play regimes including MSRB Rule G-37, FINRA Rule 2030, and Exchange Act Rule 15Fh-6. Commissioner Hester Peirce raised the same question in her statement on the Proposal, asking whether those rules should be rescinded as well.⁵ Unlike with the other pay-to-play rules, the DC Circuit upheld the constitutionality of MSRB Rule G-37 on the merits in Blount v. SEC⁶, so the SEC could choose to repeal Rule 206(4)-5 without necessarily deciding to repeal all of the other pay-to-play rules.

Practical Implications

The Proposal does not change advisers’ current obligations. The Rule remains in effect unless and until a rescission is finalized.

• The prohibition on pay-to-play practices is unchanged. Even if the Rule is rescinded, the Proposing Release makes clear that pay-to-play practices (i.e., making political contributions or providing other support to government officials to influence the award or retention of advisory business, including a government entity’s investment in a fund the adviser manages) would continue to violate the Advisers Act’s antifraud provisions and an adviser’s fiduciary duty and would remain subject to the compliance rule, the code of ethics rule, and applicable federal, state, and local law.
• Exempt reporting advisers and foreign private advisers. The Rule currently applies to all advisers, including exempt reporting advisers and foreign private advisers. The compliance rule and the code of ethics rule, on which the Proposal relies as the primary protections against pay-to-play practices, apply only to registered investment advisers. The Proposing Release acknowledges this gap directly and requests comment on whether rescission would increase pay-to-play risk for these advisers. An open question is whether elements of those rules should be extended to exempt reporting advisers.
• Inventory fund and commercial documents. Advisers should conduct an inventory of pay-to-play representations, covenants, and disclosures in fund and commercial documents, including side letters, investment management and subscription agreements, placement agent and solicitor agreements, and fund offering documents.
• Placement agents and third-party solicitors. The Proposing Release would eliminate the Rule 206(4)-5 prohibition on paying a third party to solicit government entities unless that person is a “regulated person.” The SEC notes this would allow advisers to use a broader range of placement agents while recognizing that FINRA Rule 2030, MSRB Rule G-37, state and local law, and public pension plan procurement lobbying and related policies may still limit that flexibility. There are also longstanding and well-covered requirements under the Exchange Act and Advisers Act governing broker-dealer and investment adviser registration requirements, respectively, for the solicitation of investments in funds (by placement agents or other broker-dealers) or of separate advisory accounts or relationships.
• Other regimes would remain. As noted, state and local pay-to-play and procurement laws, placement-agent and contribution rules imposed by public pension systems, federal bribery statutes, and parallel securities regimes, including MSRB Rule G-37, FINRA Rule 2030, and Exchange Act Rule 15Fh-6, would continue to apply, although, as noted, the Proposing Release requests comment on whether the SEC should also revisit the parallel MSRB, FINRA, and Exchange Act rules.⁷

Sidley has advised the Securities Industry and Financial Markets Association and numerous other clients in connection with earlier pay-to-play rulemakings and comment processes, and we would welcome the opportunity to assist clients evaluating this proposal or considering submitting comments.

Sidley will continue to monitor the rulemaking as it develops.

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1 Political Contributions by Certain Investment Advisers, Investment Advisers Act Release No. IA-6994 (Sept. 3, 2026), File No. S7-2026-31 (the Proposing Release), available at www.sec.gov/files/rules/proposed/2026/ia-6994.pdf.
2 See Political Contributions by Certain Investment Advisers, Investment Advisers Act Release No. IA-3043 (July 1, 2010), available at www.sec.gov/files/rules/final/2010/ia-3043.pdf; Rule 206(4)-5(a), (f).
3 See Proposing Release, supra note 1, §§ I, I.C, II.A; Press Release, SEC Proposes Rescission of Political Contribution Rule for Investment Advisers, No. 2026-85 (Sept. 3, 2026), available at https://www.sec.gov/newsroom/press-releases/2026-85-sec-proposes-rescission-political-contribution-rule-investment-advisers.
4 See Proposing Release, supra note 1, §§ II.A.3, III.E; Press Release, supra note 3.
5 Commissioner Hester M. Peirce, First Amendment Sense and Sensibilities: Statement on Proposed Rescission of Pay-to-Play Rule (Sept. 3, 2026), available at www.sec.gov/newsroom/speeches-statements/peirce-statement-pay-play-090326.
6 See Blount v. SEC, 61 F.3d 938 (D.C. Cir. 1995).
7 See Proposing Release, supra note 1, §§ I.C, II.A.2; see also MSRB Rule G-37, FINRA Rule 2030, and Exchange Act Rule 15Fh-6.