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March 24, 2022

Pay-to-Play Compliance Update: Delaware County Most Recent Locality to Institute New Pay-to-Play Regulations

Starting April 1, 2022, Delaware County will join the growing number of municipalities and localities implementing increased pay-to-play regulations. As reported back in January 2022, this is one more instance within a larger trend of pay-to-play regulations continuing to move local.

These localized rules and amendments add to the complexity for firms, as they adapt to navigating federal, state, and local regulations. And as we enter Q2 of a mid-term election year, firms face mounting scrutiny of their employees’ political contribution activity and disclosures.

In the case of Delaware County, the latest requirement amends existing code 6-12 to include additional pay-to-play disclosure regulations for county contractors.

Most notably, the definition of contractor under this new amendment includes “any non-governmental person, corporation, partnership, association or other entity, whether or not for profit, and includes any subcontractor which is reasonably anticipated to receive compensation of $50,000 or more under the applicable covered contract.”

Required disclosures for Political Contributions in Delaware County include:

  • Contractors must submit any reportable political contributions at least 8 days prior to their meeting. Reportable contributions include any contributions within the last 2 years or 24 months.
  • “All invitations to bid, requests for proposal or other contract solicitations by the County for covered contracts shall include a requirement that all bidders/respondents provide the required disclosure form. All covered contracts shall provide the right to void the contract as set forth in this Section 6-12.E.”
  • Contractors in a covered contract which extends beyond one year must submit annual reports no later than January 30th noting any political contributions made within the last year. This amendment will go into effect January 30, 2023.

Penalties for nondisclosure are as follows: “Any contractor which fails to provide the disclosure forms required hereby or which submits disclosure forms which are materially inaccurate may be banned as a contractor or subcontractor to the County for a period of up to three (3) years, and/or, to the extent legally permitted, the covered contract in question may be terminated, in each case, by a majority vote of County Council following such investigation and consideration of such evidence as County Council deems appropriate or by action of such other entity or body as may be designated by resolution of County Council.”

The Delaware County amendment is another example of the ways that firms - even in non-election years - must navigate a maze of increasingly complex political contribution compliance requirements.

At illumis, we provide the leading monitoring solution to help reduce risk and increase transparency around pay-to-play rules. Our platform continues to set the standard, with cutting-edge technology to help ensure comprehensive coverage. Interested in a demo of the illumis Compliance platform? Click here or email solutions@illumis.com.
Why real-time data is essential to helping your investment firm avoid violating pay-to-play regulations, SEC rule 206(4)-5

Political contributions made by firm employees pose a significant threat to investment advisory firms. And even firms with the best compliance teams can be at risk of violating pay-to-play regulations, like the Securities and Exchange Commission’s (SEC) rule 206(4)-5, given the complexity of the rules and the myriad of regulations to which firms must comply.

Because of this, investment firms must arm themselves with the access to and support of real-time data, which can help identify potential violations and anomalies in the political donation process.

By leveraging real-time data, investment firms can quickly detect suspicious or unauthorized activities and take prompt action to prevent pay-to-play violations.

Beyond SEC Rule 206(4)-5: A look at state and local political contributions compliance regulations

SEC Rule 206(4)-5 is arguably the most well known regulation regarding political contributions compliance or pay-to-play compliance. However, it certainly isn’t the only regulation to which firms must comply.

In fact, beyond federal regulations, firms which take part in government contracted work must contend with numerous and varied state and local regulations as well. Such regulations present unique challenges because of the various requirements within each, which should they be neglected, can cause significant financial and reputational damage.

Aligning pay-to-play rule 206(4)-5 compliance practices with your investment firm’s regulatory compliance program

While it would be almost too easy to treat the Securities and Exchange Commissions’ (SEC) pay-to-play rule 206(4)-5 as a special requirement implemented only during election years, that mistake can cause serious, firm-wide damages. In fact, for investment firms, establishing a compliance program which actively and regularly incorporates compliance with the SEC pay-to-play rule is essential to avoiding fines, sanctions, lockout periods, loss of revenue and a damaged reputation.