Monitoring Employee Trading is no Longer a Nightmare

Account aggregation is not just a way to track assets your clients hold away from your active management. It's a way to make sure your staff aren't breaking the inside trading rules.

Every financial firm's compliance officers have experienced the stress of monitoring employees' personal trades as required by the SEC, FINRA and other regulators.

All personnel with access to client data need to report their personal trades at least once a quarter. Sometimes the requirements extend to all individuals living under the same roof as these employees in sensitive positions.

Even when things are going well, it can be a headache. The question is how we got to a place where small firms have to have compliance officers at all.

In the relatively recent past, the regulators discounted the prospect that a small advisory or financial planning firm could have an impact on the way public securities trade.

But as the industry grew and these firms took on more CEOs and other executives as clients, the sheer amount of potential inside trading information made it essential to track the advisors as well as the executives.

As a result, firms that cross a given AUM threshold are registered and regulated just like they were sprawling mutual fund complexes -- and now that hedge funds are part of the equation, the world of "registered investment advisors" is even broader.

But for a one- or two-advisor shop that primarily deals with high-net-worth and retail accounts, the compliance officer now needs to keep up with the high-powered billion-dollar institutions.

Simply identifying everyone deemed to have "access" to material corporate information can be daunting enough in itself. Collecting quarterly statements from all those people drains additional resources from the designated employee who likely has other tasks to complete.

While the Internet allows compliance officers to simply log into employee accounts and check the trades, reviewing the statements to ensure true compliance still takes a lot of time.

And with the rules getting more complex as to what exactly constitutes a "restricted" trade, in-house compliance officers have started turning to consultants and automated software to manage the process.

Whether they do it all in-house or rely on third-party specialists, compliance officers are still personally responsible for getting all the data from employee account statements into an exportable format.

Some get around the problem by restricting the range of financial institutions where employees can hold investable assets to those with export-ready data formats.

However, top executives tended to balk at the notion that their freedom was being restricted and forced the CCO to enter the "off-base" account statements by hand.

And then it hit us: With aggregation, companies can passively track their employees' trades, no matter where they open their accounts.

Once the compliance officer determines that someone has "access," it's simply a question of entering the login information and letting the system do the rest.

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