Pay-to-Play Compliance Key in Record Breaking Election Cycle

    

The Federal Election Commission (FEC) recently released their Statistical Summary of 18-Month Campaign Activity of the 2019-2020 Election CycleThe data shows that the 2020 election cycle has so far seen record-breaking political donations across the board.

 This unprecedented level of contributions combined with stringent regulations, low donation thresholds, and past history of strict enforcement actions means that Pay-to-Play compliance needs to be a top-of-mind concern for firms of all sizes right now.

The FEC summary shows that Presidential candidates raised nearly $2.8 billion in the first 18 months of the 2019-2020 election cycle, according to campaign finance reports filed with the Federal Election Commission that cover activity from January 1, 2019 through June 30, 2020. During that same timeframe, Congressional candidates raised approximately $1.9 billion, political parties received $1.4 billion, and Political Action Committees (PACs) raised over $5.2 billion.

Looking at the Statistical Summary of 18-Month Campaign Activity of the 2015-2016 Election Cycle, the last U.S. Presential election year, in comparison to the current cycle, the data shows significant increases. In the 2016 cycle, Presidential candidates raised nearly $936.6 million, Congressional candidates raised approximately $1.1 billion, political parties raised $839.8 million, and PACs raised $2.5 billion.

 “The 2018 election smashed fundraising records for midterms, and 2020 is going to absolutely crush anything we’ve ever seen — or imagined — before” said Sheila Krumholz, executive director of the non-partisan Center for Responsive Politics in a recent release.

 Firms must anticipate that regulators will be keeping a close eye on the political donations of both the organization and their employees in regards to rules including SEC Rule 206 (4)-5, FINRA Rules 2030 & 4580, MSRB Rule G-37and CFTC Regulation 23.451. These rules prohibit individuals or organizations from making contributions to elected officials or political campaigns in the hopes of influencing future businesscommonly known as pay-to-play. Even an inadvertent infraction can lead to fines, lost fees and reputational damage.

 Read more about Pay-to-Play Compliance

According to Sonia Gioseffi, Partner at K&L Gates, “as the November 2020 elections approach, investment advisers and other financial institutions who do business with, or seek to do business with, public pension plans and other government entities should revisit their compliance policies and procedures regarding political contributions as the contributions may pose a material compliance risk.”

“Given the U.S. Securities and Exchange Commission (SEC) staff's strict interpretation of the SEC Rule, the low threshold for triggering the SEC Rule, as well as the draconian consequences of a violation, it is all the more important that the appropriate individuals are aware of their compliance obligations.” For more details, read the K&L Gates Compliance Reminder: Pay-to-Play and the 2020 Election Cycle and watch the on-demand webinar Pay-to-Play Compliance: The 2020 Election and Beyond presented by MCO and Sonia R. Gioseffi.

And pay-to-play compliance is not the only political compliance concern. Firms must also be paying attention to other areas including restrictions on gifts and entertainment and potential lobbyist registration requirements.

 MCO’s Political Contributions and Donations solution provides firms of all sizes with access to updated donation data across federal, state, and local jurisdictions. Compliance teams can easily and efficiently configure customized rules and run reporting to monitor and verify political contributions.

Want to learn more? Let us know and we’ll set up some time to chat.

 

 

 

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