Slide-deck from our Compliance breakfast event @ Microsoft Flagship.

1. COMPLIANCE AUTOMATION WITH
MICROSOFT TECHNOLOGY FOR
BROKER DEALER FIRMS
Marie Johnson| Peter Ward<>
SoHo Dragon | LiveTiles| Microsoft | Sept 21st 2016

2. - It’s the new IT buzzword
- So all the big consulting firms are jumping onto the Hype - Deloitte, Accenture,
PwC, McKinsey
- Gartner has created a new hype cycle analysis around the term and for 2015 has
rebranded its annual portal conference to Digital Workplace Summit.
- All the white papers have the words Millennials, NexGen, Woman In Technology

3. Access devices Communications
infrastructure
Business
applications
Digital security

4. User Zero training
Speed of
Delivery
Citizen
developer

5. Knowledge
Management
Intranets /
portals
Digital
Workspace

6. Access devices Communications
infrastructure
Business
applications
Digital security

7. What are people’s roles in their companies?
Who has Office 365?

8. {
background : “Compliance functions in compliance testing, surveillance program",
skill : “Financial and Operational, Regulatory Compliance",
hobbies : “Baking and gourmet cooking",
}

9.  Lack of a Corporate culture that promotes and supports a mindset of
compliance
 Lack of documentation to evidence supervisory reviews by trading and
sales managers
 Inflexible exception/reporting scheme lacking dedicated IT personnel
for nimble updates and or development of compliance /surveillance
reporting to support the business
 Data overload requiring data analytics to understand what the reports
may be indicating (e.g. trends)
 Much reliance on emails and disjointed reporting
 Lack of seamless interface with front office to track activity
 Breakdowns in operational controls

10.  Review Annual FINRA and SEC’s Examination Priorities Letters and disseminate
to Department Head and Senior Management. Regulators’ Top priorities
continue to include supervision, risk management, cybersecurity risk management
 Maintain Compliance Testing program/Internal Audit
 Prioritize training for personnel including FINRA’s Firm and Supervisory Element
 Strong supervision of sales (applicable registrations, KYC, markups, etc.) and
internal controls of Trading desks
 Compliance and Surveillance programs including document retention
 Establish Compliance as the point of contact for regulators for the firm

11.  Clear designation of supervisors
 The first level of firm supervision consists of policies and procedures and a culture of compliance
 Firm should set up a comprehensive supervisory control program (essentially FINRA 3110) that
includes
 Proper registration of employees and business - licensed and up to date
 KYC(new accounts), CDD, AML
 Communications review and retention (emails, chats, IM, etc.)
 Monitoring for cybersecurity threats
 Front end trading systems- ensure regulatory compliance (pricing, best execution/markup)
 Operational processing support to ensure timely regulatory reporting (OATS, TRACE) and identify
exceptions to established procedures
 Risk management and risk reporting

12. Data management and systemic controls – adequate systems with protection built in (limits, data
checks and validation, operational reconciliations)

13. Supervision over conduct of sales persons
(Sales Practices) entails reviews for:
Supervision and Internal Controls
• KYC, suitability, churning
• Excessive undisclosed mark ups
• Unauthorized transactions
• Misrepresentations, Unregistered offerings
• Advertising and sales literature
• Scripts, cold calling
• Market manipulation
• Books and Records reviews ( Customer account
activity, Commission reports, blotters, compliance
exception reports)
• Customer complaints
• Best execution, Excessive mark ups
• Unauthorized transactions
• Excessive trading
• Misrepresentations
• Market manipulation
• Unregistered offerings
• Risk limits, risk monitoring
• Books and Records reviews (Trading account
activity, P/L, Trading blotters, compliance
exception reports)

14.  Primary requirement – identify products vs desks vs. people
 Identify applicable risks and related controls
 Create strong supervisory systems by understanding the risks being managed, how the desks are
managing their risk
 Supervisory matrix is useful to memorialize what the supervisor is responsible for, e.g., approval
of personal trades, review of communications

15.  Regulators have identified the following and their examination programs focus on the areas
listed below. Compliance and surveillance program should focus on these also.
 UNREGISTERED DISTRIBUTIONS: Abuses of Reg S exemption, 144A
 UNDERWRITING ABUSES: Manipulated aftermarket, tie-in sales, Reg M Offerings and Rule
144
 OFFERING FRAUD: Private Placements, Regulation D, Misappropriation of investor proceeds,
Ponzi scheme, misrepresentations in offering documents
 SALES PRACTICE ABUSES: Unauthorized trading, Misrepresentations, Suitability, Failures to
sell
 EXCESSIVE MARK-UPS
 BRANCH SUPERVISION: Supervision of activities of Reps operating in branch locations
 WEAK SUPERVISORY SYSTEMS, CONTROLS AND PROCEDURES:
 NET CAPITAL VIOLATIONS and RECORDKEEPING PROBLEMS

16.  Corporate culture
 Supervisor controls
 Technology

17. {
background : “Founder/Chief Executive Officer",
employee : “SoHo Dragon",
skill : “SharePoint, O365",
hobbies : “Yoga, cooking vegetarian food",
}

19. Traders’ Compliance Trading Desk Manager Surveillance

20. User Profile: New at the job, wants something that
is simple, intuitive and easy to use
Pain Points: Would like a better understanding of the
company threshold policy
Desire: Whatever it is, keep it simple, don’t want
another system that requires time away from the trading
desk
Traders

21. User Profile: Former trader, but now married and
wants, a less stressed life. Now manages the traders on
the desk
Pain Points: The rules for trade supervisor approval, is
an art, rather than a science
Desire: Better visibility to trader activity, with tacking
and trending reports. In short:- Reports, reports, reports
TradingDeskManager

22. User Profile: New at the job. Used to work for a larger
firm, with a more formal policy
Pain Points: It’s a challenge, to be proactive with
Compliance, Surveillance, and regulatory requests
Desire: A 1 or 2 click visibility experience would be
perfect and all that web 2.0 stuff people always go on
about. The role, can’t be a responder… Must be
proactive with alerts, on parking, ramping, and fishy
behavior.
Compliance

23. User Profile: Reports to management on trading desk
activity
Pain Points: Catching trading abuses ASAP.
-Information, price, volume, market view
Desire: A way to identify trading patterns with traders.
Ability to run ad hoc and weekly summary reports
Surveillance

24. Bloomberg
Traders
All trading activity
E.g.: - Blotters
Trading Activity DB
SharePoint
Compliance
Trading Desk Manager
Surveillance
1
2
3

25. Trading Activity DB
SharePoint
Compliance
Trading Desk Manager
Surveillance
3

26. Power Bi Live Tiles SharePoint AgilePoint
Power BI Live Tiles SharePoint Agile Point

27. Trading Desk Manager Compliance
Surveillance
Start End
FYI email

29. What you are going to see:
 -Commercial Mortgage-Backed Securities (CMBS)
 Day in the life of a broker dealer firm
 Mobile enabled
-Yes all in SharePoint!!!!

30.  Trades above threshold
 Trade supervisor – adds comments, approves
 Exception Reporting (surveillance). Run canned daily reports
 Evidence of supervision
 Report sign off, with comments. Audit trail
 Monitoring

31. SoHo Dragon | LiveTiles | Microsoft
Your code is: 757051

32. QUESTIONS