Election Year Essentials: Your Guide to Pay-to-Play Regulations

Understanding “Pay-to-Play Rules”

In an election year, financial professionals are often inundated with pleas for political support. Compliance and supervision teams need to be diligent about monitoring and recording campaign contributions to protect their firms’ ability to solicit or serve governmental clients.

While the so-called “Pay-to-Play” rules aren’t new, the contribution limits are arguably low (as low as $150), monitoring can be difficult, and the penalty for over contributions can impact firm revenues for years.

Applicable Pay-to-Play Regulations

Depending on how your firm conducts its business, there are several regulations to review:

• For Registered Investment Advisers (“RIAs”): SEC Rule 206(4)-5
• For Broker-Dealers marketing on behalf of RIAs: FINRA Rules 2030 and 4580
• For Firms or Individuals seeking to do business with municipalities: MSRB Rule G-37 

Ensuring Compliance

When reviewing your firm’s business, Oyster’s experts recommend that you:

• ensure you have clear policies and procedures in each of these areas;
• have communicated these policies to your financial professionals; and
• that you have adequate means of monitoring contributions.

One of the toughest aspects of these rules is that they rest at the intersection between a financial professional’s perception of free-speech rights, his or her privacy related to those viewpoints, and heavy reliance on self-reporting given the lack of centralized databases to track these contributions. Centralized databases are an effective augmentation to other supervision in this area.

Educating and Safeguarding Your Team

Educating (and reminding) your financial professionals of your firm’s policies related to pay-to-play and of the consequences for the firm from non-compliance is essential. Firms should also put in place reasonable safeguards to protect the privacy and free-speech rights of their professionals. You may also want to involve your legal team in reviewing the indemnification provisions in your financial professional contracts for any professionals that don’t follow your firm’s rules in this area.

Recruiting New Advisors and Representatives

Given these Rules’ lookback provisions, its equally important when recruiting new financial professionals to conduct a review of that professional’s political contributions prior to their onboarding to assure that they don’t adversely impact your firm’s ability to solicit or maintain these relationships.

Oyster Consulting: Your Partner in Compliance

At Oyster Consulting, we know you have competing priorities on your plate.  Our team of regulatory compliance consultants will review your policies or supervision in this area, identify gaps and assist with implementing control improvements.

Oyster Solutions: Streamlining Compliance

Oyster Solutions governance, risk and compliance software allows you to easily track and collect attestations and certifications, with robust reporting for oversight and surveillance. Automated reminders keep employees on track. Your team will find that by using Oyster Solutions, the answers and processes that they need are easy to find, follow and understand.