On September 3, 2026, the Securities and Exchange Commission (“SEC” or “the Commission”) proposed to rescind Rule 206(4)-5 under the Investment Advisers Act of 1940—the federal “pay-to-play” rule for investment advisers (the “Rule”)—in its entirety and eliminate associated recordkeeping requirements.¹ The proposal responds to long-standing concerns that the Rule is overly prescriptive, difficult to administer, and capable of imposing severe consequences for political contributions that bear little or no relationship to an effort to improperly obtain public investment pool business.²

The release of the SEC’s proposal is just the first step in a potentially lengthy rescission process. The Rule remains in force unless and until the SEC adopts a final rescission and that action becomes effective. The SEC must first complete a 60-day public comment process and consider any comments received before deciding whether to adopt a final rescission. The Commission has not proposed a compliance date or transition period. As a practical matter, the Rule is expected to remain in effect through the November 2026 midterm elections and advisers should plan accordingly.³ And it is possible the SEC could face legal challenges if it moves forward with adoption, which could further delay implementation.

As the SEC’s proposal makes clear, even after any rescission, investment advisers would remain subject to anti-fraud and fiduciary duty obligations; compliance and codes of ethics requirements under the Advisers Act, alongside other federal pay-to-play regimes; and a varied array of state and local contribution, disclosure, procurement, and placement agent restrictions. Moreover, the SEC expressly notes that other regimes may continue to restrict political contributions or solicitation activity, including the Municipal Securities Rulemaking Board (“MSRB”) Rule G-37, FINRA Rule 2030, and Exchange Act Rule 15Fh-6. Advisers therefore should not rush to dismantle existing compliance controls. Instead, they should use the proposal period as an opportunity to assess whether their existing programs are calibrated to the risks that will remain given their specific business focus and customer base.⁴ Advisers should also expect continued, and possibly increased, attention to pay-to-play concerns at the state and local levels.

Chairman Paul Atkins framed the proposal as a return to the Commission’s core mission, explaining that “matters involving political contributions are more properly governed by local ordinances, state laws, and federal election regulations—not by the SEC.” If the federal rule is rescinded, states and municipalities may redouble their commitment to enforcing their existing pay-to-play regimes more actively, and some may adopt new ones.⁵ This would parallel recent federal-state dynamics in other deregulatory contexts, including consumer financial protection, where states have expanded enforcement and legislation amid reduced Consumer Financial Protection Bureau activity.

I. What the SEC Has Proposed

Adopted in 2010, the Rule generally prohibits a covered investment adviser from receiving compensation for advisory services to a government entity for two years after the adviser or a “covered associate” makes a contribution to an official or a candidate whose office can influence the selection of an investment adviser for a public investment pool. The Rule also restricts certain solicitation and coordination activity, limits the use of third-party solicitors, treats certain covered investment pools as government entities, and imposes related recordkeeping requirements.⁶

On September 3, 2026, the SEC proposed rescinding the Rule in its entirety and eliminating the associated recordkeeping requirements in Advisers Act Rule 204-2(a)(18). The SEC cited the Rule’s complexity, burdens, uncertain scope, de facto strict-liability standard, low de minimis thresholds, covered-associate lookback, and potential to prompt blanket bans on employee political contributions, stifling the First Amendment expression rights of adviser employees. The proposal would remove the Rule’s prescriptive framework in favor of preexisting principles-based approaches grounded in Advisers Act obligations and other laws that predate the enactment of the Rule but are still in place today.⁷

The Commission’s analysis closely tracks concerns we have previously raised. In our March 2025 Law360 article, “It’s Time to Fix the SEC’s Pay-to-Play Rule,” we described the Rule’s uncertain scope, compliance costs, lookback provision, effects on political participation, and disproportionate consequences and proposed targeted reforms. The Proposing Release cites that article, along with our March 2023 client alert, among the market participant sources for its conclusion that the Rule “is burdensome, complex, and both lacks clarity and creates a de facto strict liability standard.”⁸

II. The Rule Has Not Been Rescinded and Current Requirements Still Apply

The most immediate compliance point is also the simplest: The SEC has issued a proposal, not a final rule. The comment period will remain open for 60 days after publication in the Federal Register. Until a final rescission is adopted and becomes effective, advisers remain subject to every element of the Rule, including the two-year compensation time-out, the covered-associate lookback, restrictions on solicitation and coordination, the prohibition on doing indirectly what the Rule prohibits directly, and the existing recordkeeping requirements.⁹

Accordingly, advisers should continue to apply existing preclearance, screening, training, certification, monitoring, escalation, and recordkeeping protocols. Contributions that occur during the rulemaking process can still create exposure under the current Rule. As during the standard rulemaking process, the proposal on its own does not excuse a contribution, shorten a time-out, eliminate a lookback, or change the standards for exemptive relief.¹⁰

The same caution applies to firms with multiple registrations or regulated affiliates. The proposed rescission is limited to the Rule and its related recordkeeping provisions. The SEC expressly notes that other regimes may continue to restrict political contributions or solicitation activity, including MSRB Rule G-37, FINRA Rule 2030, and Exchange Act Rule 15Fh-6. Those regimes may be relevant to dually registered advisers, broker-dealers, municipal advisers, security-based swap dealers, and affiliated firms that share personnel or compliance resources.¹¹

III. Rescission Would Not Legalize Quid Pro Quo Conduct or Eliminate the Need for Effective Compliance Programs

If the SEC finalizes the proposal, the need for advisers to maintain an effective compliance framework in this space may become more flexible, but it will not disappear. The SEC’s release stresses that pay-to-play practices remain contrary to an adviser’s fiduciary role and may constitute fraud under the federal securities laws. Sections 206(1), 206(2), and 206(4) of the Advisers Act prohibit fraudulent, deceptive, and manipulative conduct, and the Commission has previously brought pay-to-play enforcement actions under anti-fraud provisions without relying on the Rule.¹² The proposal also emphasizes that the SEC’s ability to pursue fraudulent practices and fiduciary duty violations would remain unchanged by the rescission.¹³

Registered advisers also would remain subject to the Advisers Act’s compliance rule and codes of ethics rule. Rule 206(4)-7 requires written policies and procedures reasonably designed to prevent Advisers Act violations and at least an annual review of their adequacy and effectiveness. Rule 204A-1 requires a code of ethics with a standard of business conduct reflecting the adviser’s fiduciary obligations and requiring compliance with the federal securities laws. The SEC’s proposal contemplates that advisers with government business will assess their particular pay-to-play exposure and maintain or adopt controls tailored to that risk.¹⁴

Federal criminal law would remain relevant as well. The Proposing Release identifies 18 U.S.C. §§ 201 and 666 as examples of federal statutes that can impose criminal or civil consequences for bribery or fraudulent quid pro quo schemes. State bribery, procurement integrity, ethics, campaign finance, and disclosure laws may create additional exposure depending on the jurisdiction and facts. Rescission would therefore remove a prophylactic SEC rule, not the underlying prohibitions on corruption or fraud.¹⁵

The Need for More Tailored Risk-Based Programs

The Proposing Release offers a useful road map for risk-based controls going forward. Depending on an adviser’s business, government relationships, personnel, and use of solicitors, relevant measures could include:¹⁶

• Identifying government clients and prospective government business, together with officials, offices, and intermediaries that may present heightened risk
• Using contribution preclearance where warranted, with thresholds or narrower coverage for lower-risk personnel or activity
• Maintaining contribution reports, certifications, training, and periodic monitoring calibrated to the adviser’s risk profile
• Applying enhanced diligence and approval requirements to third-party solicitors and placement agents
• Establishing escalation and remediation procedures for contributions that are inconsistent with firm policy
• Aligning the code of ethics with the adviser’s pay-to-play policies and documenting the annual compliance review

For some advisers, final rescission could simplify two particularly burdensome features of current programs. First, the federal covered-associate lookback would disappear with the Rule, although state or local laws may contain their own backward-looking disclosure or eligibility periods. Second, advisers that currently use blanket contribution bans primarily to manage the Rule’s uncertainty may be able to move toward more tailored preclearance and risk-based restrictions. The SEC expressly recognizes, however, that some firms may appropriately retain existing controls because of their business model, state-law exposure, other registrations, or affiliated entities.¹⁷

IV. State and Local Requirements Will Remain and Scrutiny May Increase

The most important limit on the proposal’s simplifying effect is the state and local landscape. The Proposing Release acknowledges that state and municipal rules vary considerably in whom they cover, what they restrict, which offices are implicated, and what consequences follow. Some jurisdictions prohibit contributions by firms or principals, some impose disclosure duties, some make a contractor ineligible for government business, and some restrict placement agents. Local rules and ordinances can add another layer of complexity even where a state lacks a broad statewide regime.¹⁸

These rules can be more onerous than the Rule in important respects. State and local regimes may extend beyond the federal definition of “covered associate” to reach directors, officers, partners, significant owners, spouses, minor children, other family members, or affiliated entities. Their thresholds and temporal windows differ, as do the covered government offices and the consequences for a violation. A contribution permitted under a future post-rescission federal framework therefore could still trigger a disclosure obligation, bar or jeopardize a contract, or create enforcement and reputational risk under state or local law.¹⁹ Indeed, the continued variability of state and local laws may limit the degree to which day-to-day compliance will become simpler if the rescission of the Rule comes to fruition. The SEC itself asks whether a federal rule remains necessary because of “the variability among State and local pay-to-play laws and the complex analyses required to determine whether these regulations are applicable.”²⁰ Transition costs may be higher for advisers operating in jurisdictions with their own restrictions because firms will need to reevaluate which controls remain necessary and which can be more tailored.²¹

We expect the federal proposal to draw additional attention from state and local lawmakers, enforcement officials, pension boards, and procurement authorities. Whether and how any particular jurisdiction responds remains to be seen, but states and municipalities retain independent authority to adopt and enforce their own regimes. Advisers should monitor legislative, regulatory, procurement, and enforcement developments rather than treating federal rescission as the end of the issue.²²

V. Practical Steps for Investment Advisers

For now, advisers should maintain compliance with the existing Rule while preparing for a potentially more tailored framework.²³ Practical steps include:

• Keep current Rule controls in place through the rulemaking process and any transition period.
• Inventory other applicable regimes, including state and local laws, procurement rules, MSRB Rule G-37, FINRA Rule 2030, Exchange Act Rule 15Fh-6, and placement agent restrictions.
• Map government clients, prospective government business, public investment pools, relevant personnel, regulated affiliates, and third-party solicitors.
• Identify which elements of current policies respond only to the Rule and which address broader anti-fraud, fiduciary, state, local, or other federal obligations.
• Consider whether a future risk-based program should retain preclearance, contribution reporting, training, periodic database checks, certifications, and enhanced review for higher-risk employees or jurisdictions.
• Document the rationale for any policy changes, align the code of ethics, and incorporate pay-to-play risk into the annual compliance review.
• Monitor the SEC rulemaking docket and state and local developments and consider whether to submit comments on the proposal.

VI. How WilmerHale Can Help

For years, we have been at the forefront of analyzing the practical consequences of the SEC’s pay-to-play framework.²⁴ Our team regularly helps investment advisers and other financial institutions analyze contribution requests, map state and local restrictions, design and implement preclearance and compliance controls, conduct training and monitoring, remediate potential violations, seek exemptive relief, and respond to regulatory inquiries.²⁵

Our bipartisan State Attorneys General Practice complements that work with experience at senior levels of state government and in complex single-state, multistate, and parallel regulatory matters. That combination allows us to help clients anticipate state enforcement priorities, navigate interactions among state and federal regulators, and respond effectively if scrutiny develops. As the federal framework evolves, we are well positioned to advise on both the immediate Rule requirements and the broader federal, state, and local terrains that will remain.