Yes, they break the rule.  Technically, they also beak the rule if they are on a floating dock without a PFD.  This is a rule that had a lot of unintended consequences.

Was the Y flag flying ashore or from the committee boat?
Also, 40.1 references "each competitor." Would a boat be considered "competing" if the racing is done? 

The question is, of course, how long after the finish the Rules can apply to a boat. At Pac Cup, this has been the subject of debate, or at least concern. We insist on good behavior all week at our host clubs, and we require boats to come directly to the inspection dock after finishing, without stopping or taking on or discharging crew or gear. We have penalized boats for breaking those requirements, but they have not gone up on appeal.

The preamble to part 4 says it applies to boats racing unless the rule states otherwise. None of rule 40 specifically states otherwise. Common sense says:
40.1 refers to competitors - if the event is over, you can't be competing. The definition of racing doesn't apply and you can't be subject to the NOR or SI's any longer.
40.2 (a) refers to while racing
40.2(b) refers to at all times while afloat that day in the context of 40.1 "competitors". Therefore 40.2(b) can't apply after the event is over.
 If other safety rules of the club apply at other times while on or in their premises under their jurisdiction, that's a different matter.
40.2(c) is also in the context of when the CLASS RULES, NOR, OR SI apply.

If you're sailing your boat within the context of a competition or an event governed by its specific rules, then you're subject to those, otherwise you're on your own and subject to your government's boating rules.

Part 4 rules apply only to boats Racing unless the rule states otherwise. 

Rules of Part 4, Section A apply only to boats RACING, unless the rule states otherwise. 
40.2.b does not specifically state otherwise.