How Far We Have Come! Meeting your Compliance Requirements and Tracking your Employee’s Personal Trades

The employee compliance landscape has certainly changed over the past few years. In fact, now is a good time to take a look back, and then fast forward to the present – in order to see just how far we have come. There are four developments that quickly become apparent:

1.) The past is past – but it was really only yesterday.

It wasn’t that long ago that the compliance department in a Registered Investment Advisor’s office would spend a good deal of their time hounding employees for monthly and/or quarterly financial statements. Once the compliance department had received these statements, they would have to engage in the laborious process of carefully reviewing them in order to make sure the employees had not placed any trades for assets that were on the firm’s restricted list. This was a very time consuming process, to say the least. And it diverted resources from the firm’s core competencies and revenue-generating activities—namely, investing their clients’ money effectively.

2.) Any way you look at it, corporate growth means increased complexity.

Compliance departments were (and are) tasked with enforcing another stringent regulation: Employees were only allowed to hold assets at a handful of approved custodians/brokerage firms. If a firm wasn’t on the list, it was off limits. The good news was that the compliance department could count on   receiving duplicate statements from the custodians/brokerage firms in question – thereby easing the time and effort required to gauge the level of compliance. But as the RIA grew, it was also natural that the number of restricted assets would grow as well, and that the rules around trading would become more complex. Who could trade? Who couldn’t? And when could these trades be made? So now, for many RIAs, it was no longer simply a question of having to expend a great deal of labor to review documents. Now, in addition, the compliance process had become incredibly complicated. A very demanding task had become that much harder.

3.) Technology has come to the rescue – and not a minute too soon.

Now, due to the wonders of technology, compliance officers can require an employee to log into a website, enter online account access in a secure manner, and retrieve all the employee’s account data directly into a compliance application. These types of applications can track the holdings, trades and any activity in the employee’s accounts, and then send out any necessary alerts to the compliance officer and to the employee. Furthermore, if a new asset is added to the restricted list, the notification can automatically be sent out to all employees. The result is that it’s now much easier to comply with the SEC’s Personal Trading requirements—not to mention the increase in accuracy. Automation can be a very good thing.

4.) The compliance officer wins – and so does everybody else at the firm. 

In the end, this new compliance technology enables the compliance officer to spend more time monitoring critical regulations and managing risk. That means the firm’s investors are better protected and the firm itself can more readily go about the business of investing its clients’ money wisely.  

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