PROTECTING YOUR BUSINESS AND CLIENTS FROM HIGH RISK BROKERS

Transcription

1 PROTECTING YOUR BUSINESS AND CLIENTS FROM HIGH RISK BROKERS Webinar 28 March 2018

2 Today s speakers Paul DiBlasi Director of Product Marketing, Financial Markets Compliance Paul.DiBlasi@actimize.com Brian Stein Director, specializing in Data and Analytics solutions within PwC s Financial Crimes Unit Brian.M.Stein@pwc.com For more information on today s topic please also visit:

3 OUR FINANCIAL CRIME & COMPLIANCE PORTFOLIO ENTERPRISE RISK CASE MANAGEMENT Alert Investigate Visualize Resolve Banking / MSBs Buy-side/Sell-Side Emerging Payments Providers / FinTech Regulators ANTI-MONEY LAUNDERING FRAUD & AUTHENTICATION MANAGEMENT FINANCIAL MARKETS COMPLIANCE ANALYTICS Predictive Behavioral Network Risk Machine Learning FINANCIAL CRIME RISK PLATFORM Data Management Security Analytics Authoring 3

4 OUR CUSTOMERS 4

5 PwC The State of Regulations Sales Practices Ecosystem & Limitations NICE Actimize Evolving Surveillance Landscape Identifying Risky Individuals & Locations Household Surveillance

6 Brian Stein, Director PwC 2017 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

7 FINRA 2018 Annual Regulatory and Examination Priorities High-risk Firms and Brokers Building on our work in 2017, a top priority for FINRA will continue to be identifying high-risk firms and individual brokers and mitigating the potential risks that they can pose to investors.2 FINRA will focus on firms hiring and supervisory practices for high-risk brokers, including, for example, firms remote supervision arrangements; supervision of point-of-sale activities, including individual broker accountability when using joint rep codes; and branch inspection programs. - Controls: Policies and technology to help identify risky brokers Surveillance: Behavior and red flags indicating a broker is putting their firm at risk Supervision: Supervisory mechanisms to protect investors, specifically vulnerable investors such as elderly 7

8 Sales Practices Ecosystem Approach: Build the foundation for a comprehensive view of brokers, customers, and associated accounts Inquiries & Complaints Relationship History Acquisition History Balance Transactions Account Service & Channels Contact Events Customer PII Trading History Date PII First Recorded Portfolio(s) Date Opened/Closed Performance History Customer Consent Complaint History Broker Scorecard Rules Metadata (Definition, Lineage, Audit Trail, etc.) Sales Channel Sales History PII Incentive Rules

9 Sales Practices surveillance occurs via a combination of analytically-driven controls (preventative) and post-trade surveillance (detective) Pre-trade Controls Post-trade Surveillance Investigations Product Fit Assessment Is product consistent with customer financial needs? Is new customer product portfolio consistent with similar customers? Account Legitimacy Analysis Suspicious customer contact information? Low Risk + Suspicious account opening features or attributes? High Risk Escalated review / approval process based on above risk indicators as well as whether employee is on the Watch List Consumer SP Complaints / HR SP Issues / Ethics Hotline SP Complaints Sales practices issues from these sources are forwarded for investigation and for incorporation into surveillance analytics Broker Sales Practices Risk Outliers Employees whose risk metrics exceed certain thresholds relative to peers and control groups Account-level Sales Practices Risk Outliers Accounts exhibiting suspicious patterns or activity Account-Level Surveillance (v2.0) Individual Alert / Incident Review Conduct issue? If Yes, then Expanded Review Watch List Expansion of investigation outside of specific incident alert (e.g., more accounts, more products, expanded time period) Systemic Risk Analysis Are there aggregate patterns / concentrations of conduct issues by location, product, etc. that may precipitate a further expanded review? Employee Watch List PwC Banking sales practices Control Refinements Surveillance Refinements

10 Paul DiBlasi Director of Product Marketing

11 The Expanding Scope of Surveillance TRADITIONAL SURVEILLANCE SURVEILLANCE TODAY DETECT MARKET ABUSE IDENTIFY RISK Product Switching Market Timing Missed Breakpoint Branch Advisors OSJ Brokers TRADE & ACCOUNT LEVEL HOUSEHOLD LEVEL Trade Account Client 11

12 Regulatory and Business Drivers Increased regulatory pressure from FINRA, MiFID II, IIROC and Others FINRA ENFORCEMENT PRIORITIES Identifying and monitoring brokers that pose a risk to the firm Suitability, commissions & fees, outside business activities Evaluating supervisory systems for branches and non-branch locations Account activity, change in investment objectives, communication with clients FINES + BUSINESS RESTRICTIONS WH Ireland No new clients for 72 days 1.2M fine Wells Fargo Cannot increase AUM until governance improved $110M fine Jacob Securities Suspended from IIROC for three years 12

13 The Value of Identifying Risk Stimulates investigations that 13

14 Pinpointing Risky Advisors, Brokers, Branches & OSJs Risk Profiling Create individual profiles consisting of multiple risk factors Assign risk score based on firm metrics, industry benchmarks or deviations from normal behavior Interactive Dashboards Instantly identify individuals and locations posing a risk to the firm Drill down to review factors generating high risk score Take Action Initiate heightened supervision, additional training, disciplinary letter Open an investigation, uncover market abuse 14

15 Potential Risk Factors and Profiles ADVISORS AND BROKERS 50% of Products concentrated in VA 75% of clients elderly Cancels after settlement date Turnover of accounts Commission advances Debt to income ratio BRANCHES AND OSJs Number of reps new to the industry Percentage of new to total reps Reps with 3+ firms over last two years Number of reps on heightened supervision Number of sales practices related complaints Number of arbitration awards >$25K 15

16 Interactive Dashboards Identify risky brokers, examine, take action 16

17 Enabling Technology 17 Market Data Access Logs Alerts Trades PROFILING ENGINE ADVANCED ANALYTICS BUSINESS INTELLIGENCE TOOLS Profile comprised of multiple risk factors Profile of normal behavior for entity or their peer group Standard statistical functions Behavioral Analytics: detect anomalies from normal activity Machine Learning: discover new groups and hidden threats Visualize and manipulate data Open platform to create different views of data and dashboards

18 Household Surveillance

19 Analytics and Alerting at Household level Need to ensure suitability across all accounts account level monitoring gives an incomplete view of risk Exposes firm to concentration, breakthrough discount and turnover violations JENNIFER JONES ACCOUNT JASON JONES ACCOUNT NICK JONES ACCOUNT 19 JONES HOUSEHOLD

20 Information Captured The Next Step: Correlating alerts with e-communications Assess alerts better Accelerate investigative process TRADE DATA E-COMMUNICATIONS Alerts Orders Executions P&L Internal Chats Text 20

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