The countdown is on for the 2024 General Election. With only six months to go, campaigns and the contributions they depend on are only ramping up. According to the FEC website, as of May 2, election candidates have raised:
- Presidential Candidates: $570,142,674
- Senate Candidates: $824,478,856
- House Candidates: $1,110,788,399
And for those firms subject to pay-to-play regulations, that can only mean one thing: increased risk.
But how exactly do you go about establishing your firm’s pay-to-play compliance program to mitigate that risk? In this blog, we’ll dive into the process of establishing this aspect of your compliance program and highlight areas of risk to pay special attention to, especially over the course of the next six months.
How to Establish Your Pay-to-Play Compliance Program
For those just getting started, it might seem overwhelming to understand what to do and how to do it when it comes to pay-to-play compliance risk. Like any other aspect of your compliance program, it starts with the crux of your entire compliance program. Your Code of Ethics.
- Craft a political contribution policy in your Code of Ethics/Policies and Procedures.
- Ensure clear procedures for reviewing employee preclearances.
- Monitor employee political contributions.
- Reconcile preclearance requests and contributions.
- Assess and attend to any (potentially) risky contributions.
- Iterate!
What to Consider When Creating Your Pay-to-Play Policies and Procedures
As the cornerstone of your pay-to-play compliance program, establishing your Code of Ethics and Policies and Procedures will be critical to ensuring the firm understands what is and isn’t allowed and how to navigate political contributions.
As you set about establishing what your firm will allow, you should consider:
- Scope: Identify applicable regulations for your firm, and who should be covered by your policy.
- Preclearance vs Banning: Assess which is a better policy for your firm.
- Preclearance Procedures: How and what do you want employees/covered associates to preclear?
- Preclearance Review: Who is the contributor, and what is the risk there? Is the contribution direct or indirect? Who is it to? Also consider political committee status and public funds requirements.
Navigating Areas of Increased Risk
While establishing your program, its policies, and your firm’s specific rules, you should consider the following areas of increased risk:
- Direct vs. Indirect contributions: To best mitigate risk, it is critical for firms to first understand what and who is classified under indirect contributions within their state and locality and what, if any, indirect contributions are being made by your employees and their family members.
- In-kind contributions: In-kind contributions can be more difficult to track because they aren’t physical payments made to political parties. Instead, they are donations of goods or services, which, depending on the amount given, can equate to a substantial monetary value.
- Look back provisions: Firms must ensure due diligence is performed on all new employees, examining any historical political contributions to ensure their past doesn’t create conflicts for the future of your firm.
- Accidental contributions: Covered employees must be vigilant about the types of events they participate in and attend, ensuring they don’t accidentally contribute to a politician’s electoral race and inadvertently violate a pay-to-play regulation in the process.
Mitigating Pay-to-Play Risk with COMPLY
Adhering to the multitude of applicable rules and navigating risks like accidental and in-kind contributions can often lead to onerous, unmanageable manual tasks.
The answer? Automation.
Meet the leading solution used by compliance teams for automated monitoring of political contributions on the federal, state, and local levels. COMPLY’s political contribution monitoring platform is specifically tailored to help financial institutions accurately and effectively operationalize pay-to-play regulatory compliance processes.
Ready to power up your pay-to-play compliance program? Let’s talk!