When Pre-clearance Is Not Enough, It Is Time for Political Contribution Surveillance

Set amongst the backdrop of working from home, it is easy to forget we are in the middle of a historic election season. Both parties are fighting over a large pool for campaign contributors, and 2020 is looking to set fundraising records. Likely, you and your employee’s personal email boxes are filling up with donation requests, which allow for one-click contributions. This is the time to really consider if your firm knows if your employees are breaking your Pay-to-Play policies.

When the SEC’s Pay-to-Play Rule 206(4)-5 went into effect nearly 10 years ago, the first steps to prevent against violating the new rule was pre-clearance and attestation (for the full rule click here). What we have seen time and time again is that another layer was needed in order to truly mitigate the risk. If you can monitor and verify political contributions on a daily basis, you reduce risk and “know what you don’t know”.

There is a certain layer of trust that is built into all compliance programs, especially when protecting against Pay-to-Play. Even the most honest and ethical employee can slip up and expose their firm. Another area of exposure our clients are becoming increasingly concerned about is a contribution made by a spouse or an adult living in the household. Political contribution policies are not always top of mind when it comes others in the household, thus exposing the employee and ultimately the firm.

Record-keeping Requirements

In connection with the adoption of Rule 206(4)-5, the recordkeeping requirements under Advisers Act Rule 204-2 were amended to add specific requirements applicable to registered investment advisers related to political contributions.

In particular, “All direct or indirect contributions made by the investment adviser or any of its Covered Associates to an official of a government entity, or direct or indirect payments to a political party of a state or political subdivision thereof, or to a PAC.” Our tool works with the existing public data to help you comply with this rule.

The question becomes; how can you protect your firm against a rogue principal, an honest employee, or an unknown household contribution?

The most complete way would be to add a verification layer and a contribution surveillance tool to monitor all activity on a Federal, State, and Municipal level to make sure nothing slips through the cracks. Six Lambda’s solution allows you to keep track of daily activity and get notified of political contributions made every single day. Compliance teams can create or request custom reporting in addition to having an interactive workflow tool to provide an audit trail for an SEC exam.

The fines, fee-forfeitures, negative press, and sitting on the sidelines, are penalties that can all be avoided. Whether it is malicious activity or policy oversite, implementing our political contribution monitoring and surveillance tool can help you reduce risk. In addition to staying compliant, creating an efficiency so you don’t have to manually search websites on all levels is a tremendous value-add.

Please Request a Demo of our tool and see how we can address any issues you face when it comes to protecting your firm against Pay-to-Play.

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