# Rescission of Political > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Asec%3A7a074195b701ee29 ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text FACT SHEET Rescission of Political Contribution Rule for Investment Advisers On September 3, 2026, the Securities and Exchange Commission proposed the rescission of the “pay-to-play" rule (Rule 206(4)-5 under the Investment Advisers Act of 1940) that prohibits investment advisers from providing investment advisory services for compensation to a government client for two years after making a political contribution to certain elected officials or candidates, and related recordkeeping requirements. Background Investment advisers play a vital role in helping governments responsibly manage public funds and honor commitments to their taxpayers; public-sector employees and retirees; and retirement benefit plan participants. Adopted in 2010, the political contribution rule was intended to reduce the possibility that campaign contributions and other support of elected officials and candidates for public office by investment advisers and covered associates would result in fraudulent activity (so-called “pay-to-play” practices). The Commission has determined that the political contribution rule has led to significant unintended consequences, such as prohibitions by some advisers on political contributions at the state and local level. As discussed in the release: • Advisers have indicated that the rule is operationally challenging to implement, and creates a de facto strict liability standard, which can lead to situations where small donations or “foot faults” potentially trigger substantial prohibitions. • Advisers may be prevented from hiring or promoting qualified individuals into roles where they would be considered a “covered associate” for either six months or two years following an individual’s contribution, despite the contribution potentially having an attenuated relationship or no relationship to pay-to-play practices. • Public pension plans may be unable to hire the most qualified or cost-effective advisers or may ultimately lose the services of an existing adviser because of contributions by the adviser’s covered associates during the two-year lookback period. • It can be difficult for an adviser to identify which persons fall within the definition of an “official” who is “indirectly responsible for, or can influence the outcome of, the hiring of an investment adviser by a government entity.” Making the determination could require analysis of government entity oversight structures, an official’s appointment authority, or the scope of duties of a state government employee. • The definition of “covered associate” can be difficult to interpret and may have been applied more broadly than intended, with employees whose contributions are unlikely to be related to pay-to-play practices being subjected to restrictive policies. U.S. SECURITIES AND EXCHANGE COMMISSION PAGE 1 OF 2 FACT SHEET | Political Contributions by Certain Investment Advisers • The exemptive process through which the Commission may, upon application, conditionally or unconditionally exempt an investment adviser from the prohibitions of the rule may be costly and time-consuming to pursue. In its proposal to rescind the political contribution rule, the Commission stated its view that the rule’s goals of deterring fraud would be better achieved using a principles-based approach and that other existing laws and regulations provide a sufficient framework to support this approach. Highlights of the Proposing Release The proposal would rescind the political contribution rule in its entirety and amend the recordkeeping rule under the Advisers Act to eliminate the provisions requiring a registered investment adviser to make and keep certain records in connection with the political contribution rule. Other existing requirements of the Advisers Act and associated rules would continue to apply, including prohibitions on fraud, fiduciary duty requirements, and rules requiring investment adviser compliance procedures and practices and codes of ethics. The Commission notes that these and other existing federal, state, and local requirements could avoid many of the issues and unintended consequences associated with the political contributions rule and lead to more appropriate measures by investment advisers to address pay-to-play practices. What’s Next? The public comment period will remain open for 60 days following the publication of the proposing release in the Federal Register. U.S. SECURITIES AND EXCHANGE COMMISSION Page 2 of 2 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3A7a074195b701ee29. Public record. Not legal advice.