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Cutting the Regulator Some Slack

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22 March 2020
William Trout

So-called collaboration tools like Zoom and Slack were on the radar of SEC and other regulators well before COVID-19. In fact, FINRA made explicit the obligation to record and oversee communications conducted on these channels in findings published last year.

A key focus of these findings relates to governance. Process matters; it’s not just about the capture, review, and booking of information. Today’s wealth managers must show they have the means to identify new communications tools used by their advisors, as well as demonstrate the efficacy of their monitoring.

Fragmented Landscape

In recent weeks, terms like “telework" and “social distancing” have gained currency, as even SEC staff work from home. Which begs the question: as we approach exam season, would it not make sense for federal and state examiners to get more plugged into modern compliance systems? The scope of the current crisis means reviews may be postponed for months.

Reviews are a manual and labor-intensive process. The OCC, state bank, insurance and securities regulators; and FINRA all carry out their own audits. The Office of Compliance Inspections and Examinations (OCIE) of the SEC—the supervisory body with the most teeth—alone conducts more than 3,000 examinations each year. These hands-on reviews offer an opportunity to look at processes, systems and the flow of data at a granular level.

Case in Point

The case management systems of vendor compliance software are designed to do much the same thing. Robotic process automation and shared investigative tools help deliver a 360 degree view and enterprise-wide understanding. The most robust systems are embracing elements of machine learning and even virtual reality technology to tease new insights from data.

With the right safeguards in place, why not pipe in the regulator? Access could be limited to certain audit trails or data extracts. Tripwires to catch advisors trying to game the system could be set up and then followed up more closely. Time is pressing, as COVID-19 is not the only element that makes 2020 a challenging year for examiners and inspectors. The June deadline for implementation of the SEC’s Regulation Best Interest standard will stretch an overburdened field force even further.

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