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Fighting Financial Crime

Suitability and Surveillance: What Does the Future Hold for Wealth Managers?

Across Europe and Asia, the term “suitability” seems to be as popular as the tongue-in-cheek reference “Brexit.” With the Financial Conduct Authority (FCA) in the UK leading the charge, regulators are consistently reevaluating their expectations surrounding suitability rules, and because of this continual change, there has been uncertainty in the marketplace.

FCA’s MiFID and MAR Fines Begin, Buy-Side Takes Note

Recently, the U.K. Financial Conduct Authority (FCA) fined a large global financial institution its highest penalty ever levied for systems and controls failures related to noncompliance with both Market Abuse Regulation (MAR) and Markets in Financial Instruments Directive (MiFID) to the tune of GBP27.6 million. A week later, the regulator fined another well-known firm an even higher amount—GBP34.3 million—for similar infractions. The record-breaking fines were levelled at the financial institutions for failures related to the reporting of millions of transactions over numerous years and reflects the regulatory community’s increasing scrutiny of firms’ compliance technology and operational practices.

Are Compliance Teams Feeling the Impact of RegTech?

Recently, Octavio Marenzi, CEO of leading research and advisory firm Opimas, posted the chart below on LinkedIn, which illustrated the disparity between the staffing size of compliance programs across US asset management firms. As part of Opimas’s recently published research report, “Outsourcing at Asset Managers -2022”, the simple graphic pulled in a flood of inquiries about the findings – the findings weren’t necessarily what some readers may have expected.

Seeing the Cloud Through the Fog of Brexit

With the March 29 deadline for a Brexit deal quickly approaching, companies around the globe are contemplating the regulatory implications on their operations and infrastructure. One of the chief concerns by financial services organizations worldwide is the movement of data across borders between the UK and the EU. The UK government intends to seek an adequacy decision under EU Directive 95/46/EC, thus allowing for the free flow of data to and from all EU States and European Economic Area member countries – but that tactic is far from guaranteed and any decision will likely be far past the Brexit deal deadline. This and many other queries remain unanswered for now, but we are getting closer to the time when things are going to see activity. While your guess is as good as mine as to what impact some of these changes may have, let’s look at what is being prioritized behind the scenes.

Compromise is Good for Politics, Not Surveillance

​Compromise is essential in politics, but unnecessary when it comes to market surveillance. Over the last few years, technology and regulation have transformed the benefits that well-executed surveillance initiatives can bring to an organization. Although compliance teams have never been asked to accomplish more than they are now, they also have an unprecedented arsenal of tools at their disposal to accomplish it all – and in record time. Behavioral profiling, anomaly detection, rule-based models, custom models, the ability to correlate communications data with trade alerts and automated case management should now be in every compliance team’s toolbox. If your surveillance program isn’t capitalizing on these new analytics and tools, you are most certainly compromising on surveillance and putting your firm at risk.

Mastering Householding to Increase Returns and Reduce Risk

​Financial regulators worldwide are enforcing suitability and supervisory requirements designed to protect investors working with wealth management firms, retail brokers and registered investment advisors. The Consumer Financial Protection Bureau, under the direction of the Dodd–Frank Act (DFA), requires financial professionals to check the suitability of products and adhere to a strict code of conduct when selling to investors – with householding a clear standout issue. Similar rules apply to firms who do not fall under DFA, typically promulgated by FINRA.

Suitability Surveillance and Controls: Moving Targets That Reinvent Themselves

Best practices for managing suitability compliance risk is a good news, bad news bedtime story in the financial services industry. The good news is that I am hard pressed to identify another area where both the global regulators and regulations, including, but not limited to, the FINRA, the SEC, MiFID, and the IOSCO, speak with one voice with respect to global statutes, rules and regulations. On a global basis, capital markets compliance is usually a patchwork of disparate requirements. However, the global requirements relating to suitability are nothing short of harmonious and work to support the actions of many firms for adopting and implementing a holistic compliance framework across the enterprise.

Cryptocurrencies: Is Your Compliance Team Ready to Monitor the New Wave of Trading?

It’s impossible to peruse any news website these days without seeing Bitcoin in the headlines. The digital currency has skyrocketed to popularity over the last year, with no sign of slowing down. If you were lucky enough to purchase a Bitcoin in 2010 for $150, today that very same Bitcoin would be worth well over $17,000. That’s one remarkable ROI. Consider also that cryptocurrencies have reached a combined market cap of over half a trillion dollars and it’s clear Bitcoin is here to stay.

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