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Friday, February 16, 2018

Being named as supervisor of any registered investment advisor or broker dealer comes with a great deal of responsibility, and risk. This is why it is very important for all firms to not just have adequate compliance procedures in place, but to also enforce those supervisory procedures. Having procedures in place, enforcing the procedures, and maintaining documentation to evidence that the procedures are being enforced is key to protecting one’s self as a designated supervisor.

One misconception many designated supervisors have when it comes to the supervision of its staff is that registered individuals are the only area of risk. The truth is that there is risk involved with all employees. The reason being, all employees have access to information regarding the services being provided by the firm. This information can always be used to the employee’s advantage.

For those who are wondering how the admin who answers the phone could possibly be a risk to the firm need to conduct an internet search of administrative assistants convicted for theft. Remember, almost all employees typically have access to customer personal information, knowledge of the activities of the firm, access to firm banking and financial information, and in some cases, proprietary investment strategies. All of this information can be used to either embezzle money from the firm and/or clients or used to take advantage of the trading activity of the firm.

As stated earlier, this is why it is so important to not just have adequate written compliance policies and procedures in place, but to enforce them, and, document in writing to evidence that the procedures are being enforced. With this being said, please be aware of the importance of the review of ALL employee personal securities trading accounts, ongoing review of client’s custodial account statements, ongoing review of the firm’s bank account statements and financials, and requiring ALL employees to provide written documentation regarding any and all outside business activities for review and approval.

Although an extreme example, this is an interesting article about an individual who had criminal charges filed against him for taking advantage of information obtained during the course of his employment in the financial services industry.

About Red Oak Compliance Solutions

Red Oak Compliance Solutions is a leading provider of intelligent compliance software, offering a range of AI-powered solutions designed to help firms of all sizes successfully navigate the increasingly complex regulatory landscape. Our suite of 17(a)-4/WORM compliant features offer risk minimization, cost reduction, and process optimization capabilities with features that are designed to evolve with our client’s needs. Our flagship advertising review software enables firms to deliver compliant content to the market with confidence, faster. Our Disclosure Management and Intelligence solution simplifies the management of disclosures, while our Registration Management solution automates and streamlines the licensing and registration process, further enhancing your internal processes. 

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