Newness … and All of Its Challenges

Actimize FMC Product Team, Financial Markets Compliance

Being new is, well, tough. Think about new things in your life and how they got started. Think again about how much energy it took to figure things out, to get to know your new environment, to understand the “lay of the land” around a new school, a new job, a new relationship, or a new town you just moved to.

Now let’s flip the tables for a moment and let’s think about how hard it is to figure out lots of other new people. Pretend, for a moment, that YOU are the veteran who has been around the block and who is suddenly responsible for assessing, helping, coordinating, or somehow organizing all of those new people who you hadn’t previously known. Perhaps you’re the supervisor of an incoming class of students, or the owner of a new factory that’s been around for 20 years, or … (drum roll please) … the person whose job it is to accept new customers at a financial institution?

Yep, you heard me right … accepting new customers (be they individuals or organizations … for the sake of this blog post it doesn’t matter to me all that much) has big challenges if you are a financial institution. You’ve got lots of things to think about. We see this every day in our client engagements. In fact, it’s a fairly consistent theme across our many lines of business.

For instance, in the money laundering prevention world, knowing who your customer remains a top priority, especially as regulators become more aggressive in their use of fines. Financial institutions are intent on keeping their CEO’s off the covers of the world’s major newspapers; to do this, they need to know that the group or individual giving them funds are who they claim to be and are not on any obvious known list of criminal groups.

Second, some of the recent focus from FINRA surrounding Sales Practices concerns remains a stark area of focus for our clients and prospects. Their needs cover 2 main areas. First and foremost, financial institutions that are in the business of recommending investment strategies and transactions to their own clients have suitability due diligence obligations as a result of FINRA 2090, which mandates that firms conduct “reasonable diligence” to gather and retain “essential facts” about investors (including information that reflects their investment ability and strategy), throughout the entire commercial relationship. (The fact that FINRA 2090 doesn’t only deal with the initial account opening but also with the ongoing monitoring of the account’s lifecycle is a unique distinction but not worth getting into in this blog posting.)

The second area relevant for institutions managing investor funds has to do with FINRA 2111 (Suitability), which was itself modeled after the former NASD Rule 2310 and requires that firms “have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer’s investment profile.” This requirement, with explicit recommendations for an investor to buy, sell, or hold securities that are suitable based on the customer’s investment profile, certainly requires these firms to gather and to retain the necessary background information.

Finally, in the fraud world, concerns around how to vet new accounts and how to prevent things like deposit fraud remain a major problem that we hear about nearly every day. While some might argue that this type of fraud is a niche area, I would disagree, as we continue to see tireless efforts by cyber-criminals who wish to use legitimate banking institutions as their transactional communications channel; having an account is a critical part of being able to do this.

So whether your concerns are around anti-money laundering, brokerage compliance with FINRA rules, or fraud concerns, remember that being new is tough on you and those around … and not just when you move to a new town or take that new job.

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