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Leverage data to improve compliance like the SEC and FINRA

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The SEC’s Office of Compliance Inspections and Examinations (OCIE) is responsible for protecting retail investors and assessing market-wide risks, but now is shifting its attention also toward figuring out how to leverage data analytics to identify potential for illegal trading activities, conflicts of interest or other misconduct, according to a recent article by ThinkAdvisor, Compliance Data Analytics: Do as Regulators Say AND as They Do.

How will they do this?

They are enhancing data mining and analysis functions through the National Exam Analytics Tool (NEAT), a tool that looks at data to identify “insider trading, improper allocation of investment opportunities and other infractions.”

FINRA has also jumped on this data mining bandwagon to combat fraud. It already uses technology to monitor nearly 90% of trading in U.S. equities markets, running “complex surveillance algorithms against massive amounts of trade data to detect market manipulation, insider trading and other compliance breaches.” Read the rest of this post »

Financial services customers are now expecting compliance expertise

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A recent survey of asset managers, broker/dealers, alternative managers and wealth managers found that compliance is now a core business practice of financial services firms, yet many are not yet devoting the financial resources toward making these programs truly effective.

Firms have been facing enhanced scrutiny for years: 81% of respondents stated that they are “concerned or very concerned” about the SEC’s current practice of identifying and prosecuting individuals. But now these firms also finding that their clients have come to expect a robust compliance function: 70% of respondents have clients who included this in their due diligence.

Financial services firms who have been most effective at this are assigning the compliance duty to the committees and individuals with sole responsibility in this function. However, according to the report, two years ago, compliance officers’ paychecks were decreasing and budgets were being cut in this area. With a dedicated compliance resource or function, firms benefit from:

  • Reduced conflicts of interest
  • Enhanced regulatory compliance
  • Increased internal visibility for compliance issues

Read the rest of this post »

How to drive the most value from your compliance investments (WEBINAR)

Compliance has become a strategic and executive-level imperative for financial services organizations. Capturing data to meet regulatory requirements in reporting, risk management, and compliance is timely, expensive and challenging because it requires gathering, enhancing, and reporting the required data from multiple data sources.

Thomson Reuters’ sixth annual “Cost of Compliance” study was just released this past month, and it reveals that the following are increasing this year and show no signs of stopping:

  1. shutterstock_142778230Regulatory fatigue: 70 percent of firms expect regulators to publish even more regulations in the next year. Many firms are required to address both domestic and international regulatory requirements and have trouble keeping up with the growing volume of compliance pressures and the frequency of regulatory change.
  2. Resource staffing challenges: Senior compliance professionals are difficult to find and expensive to employ.
  3. Compliance budgets 
  4. Personal liability on compliance officers: They’re even more exposed to scrutiny, accountability and face record fines for non-compliance.
  5. Senior leadership involvement: It’s also becoming a hot topic in board rooms as senior executives must step in to correct non-compliance and put together strategies and enterprise-wide systems and strategies to prevent further sanctions and meet new rules.

With the increased importance and scrutiny, it’s more important than ever that these investments pay off.  The report suggests further that senior leaders “ensure a culture of transparency, trust and adaptive-change in behaviors throughout firms” and “begin to think through how they can help their firm to ‘future proof’ changes made, and in turn get the very best value out of their investment made into systems, technology and personnel.”

How can you do this?

Our experts are positioned to assist leading financial services firms to implement strategic and structural technology and data management processes to meet the new rules and drive tangible business benefits from these projects.

Rather than structure your data project as a tactical approach to meet regulatory requirements, join our webinar with CEB TowerGroup, “Leveraging Data to Meet Regulatory Requirements and Create Competitive Advantage” to learn how your data investment can drive

  1. True cost savings,
  2. Fine avoidance,
  3. Revenue creation, and
  4. Competitive advantage.

June 16th at 1:00 ET
Learn More | Register

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Firms often address these data challenges as one-off projects with the objective of complying with a single regulation rather than improving risk management overall.

Our experts understand the current regulatory, compliance and anti-money laundering issues that financial institutions are facing. We know the pros and cons of a tactical versus strategic approach to meeting regulatory requirements, specifically around data governance.

In this webinar, Perficient’s team of risk and compliance experts and CEB TowerGroup analyst Andrew Schmidt will present their experienced point of view on current regulatory compliance and anti-money laundering issues that financial institutions are facing, the pros and cons of tactical versus strategic approaches to meeting regulatory requirements, specifically around data governance, and examples of how financial services firms can leverage data governance to drive compliance as well as competitive advantage.

Read the rest of this post »

SIFMA AML Highlights: Compliance, Enforcement and Preparing for Tomorrow

2015We attended SIFMA’s Anti-Money Laundering & Financial Crimes Conference last month where experts in the industry discussed legal and regulatory developments, enforcements, and industry perspectives.  There were many discussions around whistleblowers, anti-bribery & corruption, securities fraud and even marijuana related securities legislation.

Andrew J. Ceresney, Director of Enforcement at the U.S. Securities and Exchange Commission, gave a keynote address on these important elements of compliance:

  1. Promoting a culture of compliance at companies is critical; AML compliance programs must not be siloed from other aspects of compliance.
  2. Suspicious Activity Reports (SARs) are critical to what the SEC does in the Division of Enforcement.
  3. SAR filings present troubling data, but the SEC remains committed to enforcing the rules relating to the BSA, and the Division has launched a program to address fostering compliance with these rules.

Our team of experts attended to discuss how we help our clients navigate the evolving financial crime landscape by reducing cost, improving efficiency, and overcoming reputational, operational, and financial risks associated with anti-money laundering and regulatory compliance initiatives. A sound AML and KYC policy and reporting procedure must be in place to monitor and prevent fraud and money laundering. If you happen to be a target or a subject of a federal investigation, you must have crossed your t’s and dotted your i’s when it comes to the adequacy and effectiveness of SAR content and sanctions screenings.

We’re currently working with one of the world’s largest financial services institutions in an anti-money laundering (AML) initiative where we are leveraging for our client our team’s extensive banking, payment and regulatory expertise and a proven track record of industry success. For the summit, our AML and compliance experts at Perficient put together this presentation around our core capabilities as they related to AML and financial crimes. It is an 8-point approach to AML, risk and compliance for financial services firms, including: Know Your Customer, Customer Due Diligence, Anti-Bribery and Corruption, Global Payments, Sanction Programs, Cyber Security & Privacy Regulations, Anti-Money Laundering, Fraud Protection, and Regulatory Compliance.

Regulatory change, budgetary constraints and rapid changes in technology are making it hard for financial firms to transform for tomorrow while managing the challenges of today. Our guide, “Transform for Tomorrow”, can help.

Contact Us to Learn More.

 

Deflategate: Lessons Learned for Financial Services Firms (and the NFL)

If you had not heard about the latest NFL scandal with the New England Patriots leading up to the biggest football game of the season (the Super Bowl) surely you did during some of the coverage of the game. National news took time out of their normally depressing nightly news to cover the latest developments in Deflategate. I’ll preface this story by saying I’m a Patriots fan and I’m quite used to being heckled by my friends for liking “America’s (Most Hated) Team”. However, there are many people that do not feel the same about New England regardless of the now four Super Bowl Championships they’ve won in the past two decades, their dominance in the AFC under Bill Belichick’s leadership, and with Tom Brady, one of the greatest quarterbacks of all time, at the helm (but I digress). Deflated Football

So you may be asking me, “What’s your point to this story? How possibly can Deflategate equate to lessons learned in financial services? Let me connect a few dots.

If you’re not following the story, the NFL has spent the last several weeks conducting a very thorough investigation into the New England Patriots after the AFC Championship game where they were accused of having 11 of 12 footballs “underinflated”. Immediately news of these mysteriously deflated footballs spread like wildfire on social media and the Patriots were bombarded by media and critics asking questions and lashing out calling them cheaters. The Deflategate debate raised several questions:

“Would the controversy taint the Patriots’ dynasty?”

“Would Deflategate overshadow or discredit a Patriots Super Bowl victory?”  

“Will these allegations tarnish Tom Brady or Bill Belichick’s reputation and keep them out of the NFL Hall of Fame?”  

Message to the New England Patriots: The Importance of Managing Reputational Risk

While the investigation is still ongoing and no one has been found guilty of purposefully deflating the teams’ game balls, these allegations surrounding the Patriots have potentially tarnished their reputation with outsiders and maybe with league officials. While you could point fingers at Bob Kravitz for leaking the story and portraying the Colts as sore losers or Roger Goodell for how the investigation has been handled, ultimately this falls on the shoulders of Robert Kraft, Bill Belichick and Tom Brady.

What has been the effect on the Patriots organization as a result? The perception of the organization’s trust-worthiness and question of whether this potential rule violation compromises the integrity of the game has resulted in reputational risk. So what exactly is reputational risk and how can financial firms relate to managing risks similar to what the Patriots are facing?

Reputational risk is defined as a risk of loss resulting from damages to a firm’s reputation, in lost revenue, increasing operating, capital or regulatory costs; or destruction of shareholder value, consequent to an adverse or potentially criminal event even if the company is not found guilty.

Since, a bank’s business model is primarily built on public trust, it’s essential firms avoid risks that can undermine trust and potentially result in financial loss. Similar to the Patriots, financial firms need to have a framework in place to help identify, escalate, and resolve reputational risks that may arise from business activities of the bank.

Here are 5 keys to managing reputational risk based on the exercise the Patriots have gone through with Deflategate as the organization and certain individuals were forced to defend themselves:

  1. Oversight at the executive level. Just like it is Robert Kraft’s job to uphold the reputation of the New England Patriots, so too is it important to have strong board oversight when it comes to risk oversight. When managing a financial firm’s reputational risk, it’s important for executive management to be alert for behavior that can lead to ethical breaches or taking risks beyond their risk appetite.
  2. Effective communication and brand building. Similar to what football fans expect of the Patriots’ players on and off the field, clients expect financial institutions to live up to their brand promise. Messages the press, regulators or internal sources can deliver can have an impact on the brand. As we’ve seen in recent bribery and corruption cases, as well as the impact of major data breaches can have on a bank’s customers. Financial institutions need to have a communication plan in place and spokesperson assigned to openly communicate to customers, regulators and media during situations where a company’s market value is threatened as a result of reputational risk.
  3. A strong culture of compliance. In the case of Deflategate, if any wrongdoing on the part of the Patriots occurred (locker room attendant or Brady), could potentially tarnish the brand’s reputation. As the head coach, it’s Belichick’s duty to uphold and deliver a strong “tone at the top” and assess whether or not certain behaviors could potentially undermine the way he coaches the team and the values he stands for. The need to focus on values serves as the foundation for sustaining the reputation of your financial institution. Encouraging employees and other stakeholders to uphold and abide by these values is a critical component to managing reputational risk.
  4. A commitment to quality. During this league investigation, it was evident that the speculations had a deep and personal impact on Tom Brady. He commented during numerous interviews his feelings were hurt. Brady, and the Patriots organization, have done a lot to advance the game of football for the league, so for these rumors to surface leading up to potentially their fourth Super Bowl Championship it was likely a hard pill to swallow. From an industry perspective, there were many lessons learned from the recent financial crisis. As banks embark on their post-crisis journey rebuilding consumer trust, it is important to understand and have a commitment to quality. This can encompass day-to-day interactions with employees, partners, regulators and other stakeholders to having sound public and financial reporting.
  5. The need for internal controls and policies. Belichick has probably learned an important lesson with this whole situation. He openly said he now knows more about the rules around pre-game processes for preparing footballs and officials approving the balls (probably more than he cared to know). As Belichick discovered in their own internal investigation and research, there may be a number of variables that could have affected the PSI of the balls – weather, how they prepare the balls, testing them in a controlled environment, etc. Clearly, having a strong operational focus and control environment are vital components to managing reputational risk. For financial institutions, knowing how to respond to a crisis, who should be speaking to the media, understanding the importance of transparency with regulators, stakeholders and customers, as well as having a plan of action to help mitigate and manage reputational damage and financial loss, are all important steps to take.

Message for the NFL (and Regulators): Ensuring Compliance of Rules and Regulations 

Just before the Super Bowl on Sunday, the news broke that the NFL had neglected to record the actual PSIs of the Patriots’ game balls. What did that mean for Roger Goodell and Wells’ Deflategate investigation? It means a lot when it comes to having irrefutable evidence to convict the Patriots of purposely deflating the footballs. The balls are simply “approved” or “disapproved” before the game. In other words, the NFL is taking the referee’s word that they were set to 12.5 PSIs. It wasn’t clear if the balls were just slightly under-inflated due in part to a change in temperature (if at all) and that won’t sit well in the minds of many.

Here are 3 keys to managing reputational risk from a regulatory agency’s perspective and how financial institutions play a role in helping to shape relationships with regulators:

  1. The need for sound policies and procedures. As we learned in the financial crisis of 2007-2008, the ramifications of loose lending requirements, the ensuing credit crunch, financial bailouts and a lack of checks and balances across the industry are still being felt. Goodell has likely realized that the NFL and the competition committee will need to take a good hard look at the pregame football procedures. The impact this had on an organization illustrates the need for documented evidence and audit trails to uphold the integrity of game and for the sake of all parties involved. This can also be translated over to the goals of a financial institutions’ enterprise risk management practices, regulatory compliance processes and reporting, as well as how this is communicated to a bank’s board of directors.
  2. The need for complete transparency. One of the biggest complaints from fans and Belichick was the lack of open communication and transparency from Goodell regarding the Wells investigation. By Monday the media was drilling Belichick with questions and repeatedly he told reporters to ask the NFL because he didn’t have the answers nor did he have an explanation as to how the balls became deflated. From a governance perspective, it is important that regulators are openly communicating regulatory requirements and expectations to banks, especially when reputation damage or financial loss occurs as a result of regulatory fines.
  3. The importance of sound regulatory relationships. In the wake of the Deflategate controversy, New England Patriots owner, Robert Kraft, demanded an apology from the league should the organization be found not guilty of violating any rules. In a statement, Kraft said he was disappointed in how the matter has been handled and reported upon. They expected hard facts rather than circumstantial evidence leaked to drive the results of the investigation. The relationship between the team owners and the NFL Commissioner is critical to the league’s growth. While Roger Goodell may deserve a lot of the credit for the NFL’s growth the past few years, the relationship he has with many of the league’s owners, players association and fans can lead to reputational risk. The same can be said for maintaining a healthy relationship with regulators in the financial services industry. A top-down approach (driven from the board level) to developing and maintaining sound relationships with regulatory agencies will help build trust and confidence, and ultimately, enable you to not only meet the regulators’ perspective and mission, but help you achieve your business’s goals as well.

Banks Have a Handle on KYC, Lack KYV Guidance

While most banks have a better grip on Know Your Customer requirements than they did years ago, the challenges and risks of non-compliance continue to grow as regulators focus on sources outside the financial institutions’ walls. What is the impact of a failed risk management program as a result of actions committed by a vendor or service provider? Your financial institution may be exposed to reputational damage and multi-billion dollar fines.

During our webinar “Navigating the Financial Crimes Landscape with an Effective Vendor Management Program” last week, we explored this newer risk management focus area that is surfacing as a top strategic priority for banks in 2015.how-well-do-you-really-know-your-customers

Our speaker and regulatory compliance expert covered the complexities of the growing financial crimes landscape and potential areas of risk associated with third-party relationships. Some key takeaways for attendees included:

  • How firms are evolving their regulatory compliance programs
  • Understanding areas of vendor risk and gaps in supplier management
  • The need for governance and an enterprise approach to managing risk
  • Synergies with your existing financial crime and compliance framework
  • “Know Your Vendor” (KYV) due diligence best practices
  • Conducting comprehensive vendor assessments

Below is a copy of the Slideshare deck from the webinar. Also, join us for Part 2 in our 2015 Risk and Compliance Webinar Series next week as we explore, “How to Drive Value from Operational Risk Data”.

Turning Digital Disruption into Digital Transformation in Banking

Digital has permeated almost every facet of our lives as consumers in an “always on” connected world. In fact, it’s even impacted how we, as a company, serve our clients across industries based on their top priorities and challenges to better reach and serve their customer base – and the financial services industry is no exception. Over on our new Digital Transformation blog, Michael Porter, highlighted a story from Information Age around the first UK “digital-only” bank Charter Savings Bank launching. While I’d argue that they’re not the first, nor will they be the last – considering how hot the fintech market is right now – the main premise of the story is definitely relevant to the paradigm shift the financial services industry is experiencing. And we’re not the first thought leaders to be talking about it – Chris Skinner, Brett King, Brad Leimer and Ron Shevlin are all advocates for digital banking or neobanking.shutterstock_digital

We’re seeing both digital disruption AND digital transformation across the board in financial services. Not only in retail banking, but in wealth management, investment banking, capital markets, insurance and payments. Michael makes an interesting statement in his blog post that I’d debate:

“…digital transformation drives disruption.”

I’d argue that it’s the reverse that’s actually happening in financial services. The consumerization of mobile technology, APIs, cloud services, wearables and the like are enabling technologies or “digital disruption” that have relevance in the industry, and brick-and-mortar banks, payment companies, insurers and other traditional financial services providers are having to find ways to embrace digital transformation as a result.

Furthermore, non-traditional financial services providers and technology innovators (a.k.a. digital disruptors) like Apple, Google, Amazon, Uber, Simple, and PayPal, are changing the digital banking game for the Wells Fargo’s, Bank of America’s, Citibank’s of the world. All of these financial institutions are having to re-platform their products and services to satisfy three primary goals:

  1. Customer Goals: Simplify and help customers more easily manage their financial lives (i.e. mobile banking, mobile payments)
  2. Sales & Marketing Goals: Interact and engage customers (i.e. personalized experiences, social integration, digital marketing)
  3. Operating Goals: Remove traditional barriers, adopt new operating strategies, deal with disruptors, partner with innovators (i.e. revenue, growth, retention and customer loyalty goals)

While we may never really see a “Google Bank” per say (because it doesn’t need to), they are disrupting the traditional relationship with the financial customer. In both retail banking and institutional segments, digital’s pervasiveness in the industry is forcing financial institutions to redefine how they deliver value to their customers with their products and services – all through what we call digital transformation. While, it may take on many different shapes or forms for your organization (evolving the mobile banking customer experience, the use of big data and analytics, digital marketing, etc.) one thing is certain – digital transformation is imperative!

6 Risk and Compliance Trends to Watch in 2015

There will undoubtedly be a wide range of financial services predictions and banking trends that will surface throughout the year which will make planning your organization’s top priorities in 2015 increasingly difficult. However, one thing is certain – risk and compliance continues to move to the top of the executive’s agenda. As financial institutions continue to experience an onslaught of cybersecurity threats, a growing financial crimes landscape and increasing regulatory demands, the need to prepare for several long-term risk and compliance trends is apparent. To help get you on the fast track to success with your New Year’s resolutions, here are six risk and compliance trends you should make a top priority in 2015.

For a more in-depth discussion on effectively managing the evolving financial crimes landscape and the growing role of operational risk management, join our 2015 Risk and Compliance Webinar Series in January.

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Top 10 “Best Of” Financial Services Thought Leadership for 2014

The clock is ticking as we are fast approaching the end of 2014 and are already focused on what’s ahead in 2015. Before we take a jump ahead into the next calendar year, I thought I’d give readers a look back at some of the great content produced this past year. Visit our Thought Leadership section of our website for more great content. Be sure to stay tuned for more posts as we take a sneak peek at the top priorities and industry trends that will position today’s leading firms at the forefront of innovation!

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Perficient Financial Services National Practice

Transform for Tomorrow: Navigating New Forces in Financial Services a White Paper by Various Contributors

Building a Customer-Centric Model in Financial Services a Perficient Perspective with Hemant Jaiswal, Director of Wealth Management, Perficient

Investment Product Reengineering: Optimizing Sales Enablement for Asset and Wealth Management Firms a White Paper by David Wiesel and Vince Orzo

Improve Efficiency, Compliance and Productivity Through Finance Transformation in Financial Services a Webinar with Sanjay Balan, Director, Perficient

Success Factors for Ensuring Regulatory Compliance with CCAR/DFAST Programs a Feature Article (original source on Wall Street Technology Association) by Rich Brownstein, Director of Risk and Compliance, Perficient

Overcoming Strategic Challenges of Dodd-Frank a White Paper by Chris Skinner

From the Financial Services Blog

4 Global Business Functions You Must Modernize

Apple Aims to Transform Consumers’ Financial Lives

3 Key Themes to Harness Payments Innovation and Regulation

Millennials Want to Manage Wealth Relationships Digitally

Millennials Want to Manage Wealth Relationships Digitally

This morning I got to work and went through my usual routine of catching up on the news online, posting articles on social media, and taking a quick scan of my Facebook feed. One particular Facebook post from one of my younger friends caught my attention. He and his wife recently adopted a child and I’m sure have been receiving a lot of paperwork these days as they go through open enrollment for medical insurance and things of that nature. They also started a college fund for him with large financial services company (which I will leave nameless). They just returned from a trip to Colorado and were going through the stack of mail to find six, yes six, letters from the wealth management firm all just regarding the confirmation of the account being setup for their son. Client onboarding process

His comment is around the topic of “digital” that is often debated in the the financial industry (and other sectors too). In fact, I recently interviewed our wealth management practice director for our Perficient Perspectives series, “Building a Customer-Centric Model in Financial Services”. As part of this Q&A series we talked about the demand for digital during all phases of the customer interaction lifecycle – from engagement, transaction, and fulfillment to servicing the client. The pile of paperwork my friend received is a perfect example of where, even with little interactions, customers react to certain processes and interactions with their financial services provider. Not to mention, if this is the “typical” amount of paperwork a new client receives during the on boarding process, then I cannot imagine what the financial services company is spending to create, print and mail these documents to all of their clients! Then throw in the monthly or quarterly statements regarding a client’s assets or accounts – what kind of reaction does this cause? Well, here’s a quote from Hemant Jaiswal from our interview that puts it into perspective:

…we’re at a tipping point in the industry. Financial services companies must adopt more customer-centric operating models going forward or risk becoming irrelevant with consumers and corporate clients.

Research shows that this industry challenge and paradigm shift exists beyond Millennials and younger generations. In fact, according to the recent Capgemini and RBC Wealth Management World Wealth Report 2014, “nearly two-thirds of clients with at least $1 million or more in investable assets expect to manage most of their wealth relationships digitally in five years,” and these clients “would consider leaving their current firm if an ‘integrated channel experience’ is not provided.

Unfortunately, digital transformation for banks and financial services companies isn’t something that can happen over night either. For many of the larger financial firms, this is a multi-year engagement that requires a lot of integration and consolidation of legacy systems to reach the desired target state operating model. Throw in the demand for new mobile technology and digital marketing tactics, and the struggle to reach digital nirvana seems insurmountable or unobtainable. The below graphic represents a high-level overview of our approach to helping banks and financial services companies transform for tomorrow through new digital capabilities. To learn more about industry trends and how Perficient is helping top-tier financial institutions solve business and technology challenges, read the full Perficient Perspective with Hemant Jaiswal.

Customer Engagement Solutions

Posted in Wealth Management