SEC Moves To Scrap Pay-to-Play Rule

On Sept. 3, the U.S. Securities and Exchange Commission (SEC) proposed rescinding Rule 206(4)-5, the SEC’s “pay-to-play” rule for investment advisers (Pay-to-Play Rule).¹ Since its adoption in 2010, the Pay-to-Play Rule has been a focus area of SEC examination and enforcement–often “where small donations or ‘foot faults’ potentially trigger substantial prohibitions and fines."² Indeed, rescission of the rule will be welcome news to the rule’s many critics³ and to the investment advisory industry by eliminating compliance and recordkeeping costs attendant to a rule that can impose severe fines and penalties for inadvertent and minor mistakes. Importantly, however, the proposed rescission of the Pay-to-Play Rule will not become effective until at least 60 days from the publication of a final rule in the Federal Register–meaning that the Pay-to-Play Rule in its current form will remain in effect throughout the entirety of the 2026 midterm election cycle.