protecting your business and clients from ......and hidden threats •visualize and manipulate data...
TRANSCRIPT
PROTECTING YOUR BUSINESS AND CLIENTS FROM HIGH RISK BROKERS
28 March 2018
Webinar
Today’s speakers
For more information on today’s topic please also visit: www.niceactimize.com/compliance
Brian Stein
Director, specializing in Data and Analytics
solutions within PwC’s Financial Crimes Unit
Paul DiBlasi
Director of Product Marketing, Financial Markets
Compliance
3
OUR FINANCIAL CRIME & COMPLIANCE PORTFOLIO
Regulators
Emerging Payments
Providers / FinTech
Buy-side/Sell-Side
Banking / MSBs
FRAUD &
AUTHENTICATION
MANAGEMENT
FINANCIAL
MARKETS
COMPLIANCE
Data Management Security
FINANCIAL CRIME RISK PLATFORM
ANTI-MONEY
LAUNDERING
ANALYTICS
Behavioral Network RiskPredictive Machine Learning
Alert Investigate ResolveVisualize
ENTERPRISE RISK CASE MANAGEMENT
Analytics Authoring
4
OUR CUSTOMERS
PwC
• The State of Regulations
• Sales Practices Ecosystem & Limitations
NICE Actimize
• Evolving Surveillance Landscape
• Identifying Risky Individuals & Locations
• Household Surveillance
• www.pwc.com
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 www.pwc.com/structure for further details.
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
FINRA 2018 Annual Regulatory and Examination Priorities
7
“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.”- http://www.finra.org/sites/default/files/2018-regulatory-and-examination-priorities-letter.pdf
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
Metadata(Definition, Lineage, Audit
Trail, etc.)
Approach: Build the foundation for a comprehensive view of brokers, customers, and associated accounts
AcquisitionHistory
Transactions
Balance
Portfolio(s)
Service & Channels
Date Opened/Closed
Sales History Incentive
Rules
Performance History
TradingHistory
RelationshipHistory
PII
Contact Events
Date PII First
Recorded
Scorecard Rules
Complaint History
Customer Consent
Inquiries & Complaints
Account
Customer
Broker
PII
Sales Channel
Sales Practices Ecosystem
Sales Practices surveillance occurs via a combination of analytically-driven controls (preventative) and post-trade surveillance (detective)
Post-trade Surveillance
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)
Investigations
Individual Alert / Incident Review
Expanded Review
Systemic Risk Analysis
Expansion of investigation outside of specific
incident alert (e.g., more accounts, more
products, expanded time period)
Are there aggregate patterns /
concentrations of conduct issues by location,
product, etc. that may precipitate a further
expanded review?
Conduct issue?
If Yes, then
Pre-trade Controls
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?
Suspicious account
opening features or
attributes?
Escalated review / approval process based
on above risk indicators as well as whether
employee is on the Watch List
Employee Watch
List
High RiskLow Risk
+
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 analyticsWatch List
Control
Refinements
Surveillance
RefinementsPwC | Banking sales practices
Paul DiBlasi
Director of Product Marketing
The Expanding Scope of Surveillance
11
DETECT MARKET ABUSE
Product Switching Market Timing
TRADE & ACCOUNT LEVEL
Trade Account
TRADITIONAL SURVEILLANCE SURVEILLANCE TODAY
Missed Breakpoint
HOUSEHOLD LEVEL
Client
Branch
IDENTIFY RISK
Advisors OSJ Brokers
• 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
• 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
Regulatory and Business Drivers
FINRA ENFORCEMENT PRIORITIES
12
FINES + BUSINESS RESTRICTIONS
Increased regulatory pressure from FINRA, MiFID II, IIROC and Others
The Value of Identifying Risk
13
Stimulates
investigations that…
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
Pinpointing Risky Advisors, Brokers, Branches & OSJs
14
Potential Risk Factors and Profiles
15
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
Interactive Dashboards
Identify risky brokers, examine, take action
16
Enabling Technology
17
• 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
Market Data
AccessLogs
Alerts
Trades
PROFILING ENGINE ADVANCED ANALYTICS BUSINESS INTELLIGENCE
TOOLS
Household
Surveillance
• 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
Analytics and Alerting at Household level
19
JASON JONES ACCOUNTNICK JONES ACCOUNT
JENNIFER JONES ACCOUNT
JONES HOUSEHOLD
• Assess alerts better
• Accelerate investigative process
The Next Step: Correlating alerts with e-communications
20
Info
rma
tio
n
Ca
ptu
red
TRADE DATA
• Alerts
• Orders
• Executions
• P&L
E-COMMUNICATIONS
• Internal Chats
• Text
21
www.niceactimize.com/compliance