November 21, 2022

Six features your PCV platform should include to comply with SEC political contributions compliance requirements

Ensure employees aren’t putting your firm at risk of reputational damage or costly violations by integrating a political contribution compliance platform into your tech stack.

Complying with political contribution compliance requirements, including the Securities and Exchange Commission (SEC) political contributions rule, demands constant awareness of and access to key data sets. For firms who rely on government contracted work, even the smallest of breaches can result in detrimental penalties, including the loss of contracted work for a period of years.

In order to alleviate some of the manual burden, many firms have turned to political contribution verification and monitoring technology. With real-time data aggregation, firms can proactively sort through political contributions, alerted to any breaches as soon as they occur. However, what separates the good from the bad when it comes to political contribution compliance monitoring technology? Let’s dig into the six key features you should look for when selecting a technology provider to help alleviate the manual compliance processes of political contribution monitoring.

#1: Real-time data integration

Your compliance software should include real-time data integration which can be used to instantly verify an employee’s political contribution records. This includes real-time data collected from every state, at the federal level and from cities and local jurisdictions. Accessing the most up-to-date data available gives your firm the upper hand in staying compliant and identifying potential violations as they arise.

#2: Preclearance

Offering one robust workflow means your compliance platform should be able to allow for preclearance alongside its data monitoring. This software should ideally integrate self-reporting and contribution requests to make it easier for firms to provide preclearance, approve requests and monitor ongoing real-time changes.

#3: Sophisticated filters

When choosing a compliance platform, review its filtering system thoroughly. It’s important you have the capability to identify and remove false positives, as these can lead to unnecessary reputational damage and employee frustration.

#4: Daily alerts

Unexpected employee behavior can create costly violations and damages overnight. Because of this, your compliance platform needs to be able to keep up with real-time changes. Daily alerts take the manual process out of political contribution monitoring, while still keeping your firm informed of immediate changes.

#5: Clear reports

One of the most important aspects of your compliance platform is its ability to provide accurate, clear reports for your compliance team. Most employees don’t have time to sift through unreadable data or fact-check sources. Instead, they benefit from clear reports which provide the crucial information needed to take action, approve contribution requests and maintain compliance.

#6: Does it align with your cybersecurity needs?

As financial firms continue integrating new technology and platforms into their day-to-day operations, cybersecurity must remain a top priority. Any political contribution compliance platforms being considered should meet a strict standard of privacy and security. The information gathered, while public record, should come from verified and trusted independent sources.

Monitor political contributions with illumis

A political contribution or pay-to-play violation can create long-lasting reputational damage to your firm, not to mention the costly penalties your firm will likely incur. But by implementing a compliance software dedicated to tracking real-time data and alerting your firm to potential violations, you have the tools to remain vigilant of your employees’ actions.

Try illumis by contacting our team today and starting your free trial.

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.

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.