December 6, 2022

Learnings from the midterm election: Why political contributions compliance is more critical than ever

Did you know? Funding for the 2022 midterm elections reached a whopping $9.3 billion. A number which, for those of you keeping track, surpasses the 2018 election by $2 billion.

For those on the receiving end of the donations, that number is great. However, for those financial firms who rely on government contracted work and are, therefore, subject to the Securities and Exchange Commission (SEC) pay-to-play rules in addition to other federal, state and local regulations, it can be more than a little worrisome.

Why? More contributions mean more opportunity for risk of noncompliance.

Using a political contribution monitoring technology to comply with the SEC pay-to-play rule

In previous elections, manually verifying and monitoring your covered associated political contributions may have been a feasible option, however, with the steep increase in quantity of contributions being made and the monetary value of those contributions, the task has become near impossible. Not to mention, the bevy of pay-to-play regulations requiring various reporting and verification from your firm.

With so much on the line, many financial firms have turned to automated solutions to help ease the burden of tracking and monitoring. Think a political contribution monitoring technology could be the answer to your pay-to-play headache? Here are a few benefits of automation:

  1. Real-time data sourcing.
  2. Aggregated information from hundreds of public data records.
  3. Aligned preclearance and verification processes and workflows.
  4. Monitoring and alerts to notify you of any irregularities or possible compliance violations.
  5. Thorough reporting and analytics.

Whether your firm must comply with SEC Rule 206(4)-5, Financial Industry Regulatory Authority (FINRA) Rule 2030 & 4580 or any of the other myriad of federal, state and local regulations, automation powered by real-time data is the answer. Ready to see why illumis is the best-in-class technology to support your firm’s political contribution verification? Schedule a demo today!

In November of 2021, ComplySci announced the acquisition of illumis, a premier data aggregator and technology provider whose solutions are used by financial services firms to identify and mitigate risk from employee political contributions. While the initial acquisition saw the firms operating as two independent organizations, we are thrilled to announce the merging of the illumis and ComplySci brands. With this initiative, we aim to arm our clients with a more comprehensive solution to mitigating compliance risk, which includes the increased risk associated with employee political contributions.

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.

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.