The SEC has proposed rescinding Rule 206(4)-5, the long-standing “pay-to-play” rule that restricts investment advisers from receiving compensation from government entities following certain political contributions. The proposal would also remove related political contribution recordkeeping requirements.
The SEC cited concerns around the rule’s complexity, compliance burden, and unintended consequences, including hiring restrictions and disproportionate penalties for minor compliance breaches.
Importantly, the rule remains in force while the proposal is under consideration. Advisers should continue to comply with existing requirements and maintain current controls and recordkeeping arrangements.
If adopted, the rescission would provide firms with greater flexibility, but advisers would still be expected to manage pay-to-play risks through appropriately designed compliance programmes, policies and procedures.
Read our full article in September’s regulatory newsletter.
Click here for the full proposal.
Please contact us if you would like to discuss the potential impact of this proposal on your firm.
