Compliance: Clearing the Fog of Bad Data
summary
One of the world's leading asset management companies acquired an emerging markets business and quickly integrated it into their broader institutional complex. However, as soon as the emerging markets desk (EMD) began using the trading and pre-trade compliance system, hundreds of violations began occurring on a daily basis. The Compliance Team— already stretched thin by recent staff turnover and a special project— could not spare the resources to investigate the problem, so the CCO turned to IMP.
understanding the context
After the basic data issues were sorted out by our Business Analyst, it was clear that we needed a resource with EMD portfolio management and trading experience to dig into the more complex issues. Time was of the essence; frustrated Portfolio Managers were bulk closing violations in order to keep trades moving through the system, and both Compliance and the EMD were worried that a genuine breach would be missed amidst all of the noise.
peeling back the layers
IMP deployed a senior consultant who was able to act as a proxy for the PMs. He met briefly with the head of the EMD to gain the desk's perspective on the issues and crafted a test plan to identify the sources of the problems. Through thorough testing, he was able to identify multiple issues that were combining to cause the erroneous results. He corrected configuration issues in the staging area, documenting the changes and capturing accurate results for Compliance for their approval.
delivering the solution
IMP's protocols include preparing changes to be migration-ready, so our final deliverable made it easy for IT to move the changes into production.
Best practices and recommendations
1. Whether launching a new product line or acquiring one, ensure that the trading and compliance systems are configured to support it. A "square peg" can leave the firm open to trading errors.
2. Train staff, including Compliance and IT, on strategies and security types that are new to them. Having strategy-specific knowledge will help them spot potential problems before they happen.
3. Create a data dictionary to ensure that everyone is using the same protocols and nomenclature.
4. Include robust testing during the on-boarding process, especially for new products.
takeaway
Implementing industry best practices in compliance will ultimately lower the cost and reduce the risk associated with managing complex institutional accounts.
