September 4, 2026
What happened?
On September 3, 2026, the SEC issued a proposal to rescind the political contribution rule (also known as the “Pay to Play” rule) that currently prohibits investment advisers from providing compensated advisory services to a government client for two years after making a political contribution to certain elected officials or candidates whose political office is in a position to influence the selection of the investment adviser. The proposed rule would also remove the recordkeeping requirements that correspond to the Pay to Play Rule.
In a statement on the proposal, Chairman Atkins said “it is clear that [the rule] is overly prescriptive and has produced a host of unintended consequences.” He cited the impact of large punishments for small, often impulsive, donations to candidates and how the strict liability of the rule even applies to donations made before the donor was employed by the investment adviser. He also pointed to local ordinances, state laws, and federal election regulations as the proper means to govern the issue. In closing, Chairman Atkins said “[r]escinding the rule would not open the door to fraud because sufficient protections exist (and have always existed)” [emphasis in the original], pointing to the antifraud requirements, fiduciary obligations, and requirements of compliant codes of ethics.
The public comment period runs 60 days after the proposal is published in the Federal Register. Public comments can be made here.
What this means for me?
Given the amount of compliance work surrounding the Pay to Play Rule and its strict liability, you would be hard-pressed to find a compliance professional who is a big fan. Compliance burdens would be less if the rule is rescinded. We have covered enforcement actions that show how such a blunt rule has led to unintended consequences. However, if we look back to the rule’s adoption, there did not seem to be “sufficient protections” against fraud as claimed by Chairman Atkins. The rule’s intended consequences were significant enough to receive a unanimous vote by all 5 commissioners at the time.
Back in 2010, then Chairman Schapiro said “[p]ay to play practices are corrupt and corrupting. They run counter to the fiduciary principles by which funds held in trust should be managed. They harm beneficiaries, municipalities and honest advisers. And they breed criminal behavior.” The proposal today to rescind the Pay to Play Rule is likely to face legal challenges from advocates for those beneficiaries, municipalities, and/or honest advisers.
We will have to wait and see if the rule is finalized and whether current compliance burdens around political contribution monitoring is lessened. We will continue to monitor this and all regulatory updates and new developments that impact investment advisors. If you have questions, contact us. Fairview is here to help.
