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Compliance Net
Compliance Net is an automated, Internet based compliance software process designed to shield mutual fund dealers, brokerage houses and investment council from “improper supervision” lawsuits brought against the firm, the compliance department or branch managers. Compliance Net also protects individual advisors by monitoring Know Your Client data for all on book accounts.
Compliance Net works like an electronic compliance team, reviewing every on-book account, every day. Compliance Net checks for:
1. Unsuitable investments
2. Stale-dated Know Your Client data
3. Over-concentration in a single security in a client account
4. Accumulation of a security in multiple client accounts
5. Trades in unauthorized product
6. Unauthorized trades in pro accounts
7. Churning in client accounts
8. Unilateral mutual fund substitutions (IDA by-law 29.1 and Regulation 200.1 (h))
9. Listed Persons under U.N. Suppression of Terrorism Regulations (IDA Notices MR102, MR105) to help combat the financing of terrorism
10. Suspicious transactions for Proceeds of Crime (Money Laundering) FINTRAC reporting obligations
11. Accounts held in non-cooperative countries and territories (NCCT list) as determined by the Financial Action Task Force on money laundering
12. Address changes in violation of IDA Policy 2 Section II.C(1)
13. Orphaned accounts to aid in account reallocation
Once initial set up is complete, Compliance Net can completely take over daily trade review for all on-book accounts. Compliance Net automatically contacts advisors and compliance officers on compliance issues WHEN NECESSARY with no further prompting required from the compliance department. All contact made between Compliance net, advisors and compliance officers is permanently logged. This results in an independent third party “electronic paper trail” ensuring transparency and fairness in the compliance process.
Compliance Net has also been optimized for US customers to comply with SEC Rule 405 and NASD Rule 2860, 2310 and 3010 which collectively cover suitability, ‘Know Your Customer’, fair practices and trade supervision rules. Updates from the Office of Foreign Assets Control are imported automatically.
Read about recent IDA and MFDA fines, suspensions and permanent bans for improper supervision (violation of IDA Regulation 1300.2) that could have been prevented by implementing Compliance Net:
NASD fines Raymond James for lax supervision of producing branch managers - February 2007 - US$2.75 million fine for failing to maintain an adequate supervisory system to oversee sales activities of producing branch managers
IDA fines Roger Racine $30,000 for failure to supervise - July 25, 2006 - failure to use due diligence in his supervisory capacity to learn the essential facts relative to every client and every account accepted when approving new options accounts for seven clients, as well as changes in their investment objectives and risk tolerances, failure to exercise adequate supervision of transactions, failure to question or verify that the representative had met the firm’s requirements
IDA imposes permanent ban and $35,000 fine on Christian Guilbault - July 4, 2006 - Failed to use due diligence, recommended unsuitable trades, effected discretionary trades, listed the same speculative investment goals and same risk tolerance for seven clients without regard for the true investor profile of each, contrary to By-law 29.1, falsified reports to clients
IDA fines MGI Securities Inc. $250,000, Crawford Gordon never to supervise again and fined $150,000 - May 25, 2006 - Failed to establish proceedures for supervision of insider clients
IDA fines Kelly John Campbell Husky $25,000 - May 11, 2006 - failed to use due diligence, and discretionary trading
IDA imposes $63,000 in fines, costs and disgorgement and suspends Larry Jay Tobin for six months - May 8, 2006 - working as a Portfolio Manager without being registered, discretionary trading and failed to ensure investment recommendations were appropriate
IDA imposes $50,000 fine and six month suspension on Zygmunt Janiewicz - February 7, 2006 - Failure to determine suitability of investments, and discretionary trading violations
Frank Youden Found Guilty of Failure to Supervise - January 9, 2006 - contrary to Policy 2 and Regulations 1300.1 (c) and 1300.2 - permanently prohibited to be registered with and IDA member and $61700 fine
Discipline Penalties Imposed on David Patrick Joseph Yanor for violation of 1300.1(q) - November 21, 2005 - $30000 in fines, denial of re-approval for one year, plus required to re-write the CSC and PDF
IDA fines William Richard Booth Bell Wright $25000 - 09/09/2005 - $25000 fine plus $4500 for costs of the proceeding, a requirement to re-write and pass the Partners, Directors and Officers examination within 12 months of the Settlement Agreement.
IDA imposes permanent supervisory ban, one-year suspension, and $40,000 fine on John Norman Alexander - 08/17/2005 - $40000 fine plus $10000 for investigation expenses, a permanent supervision ban, a 1 year registration suspension, and 1 year strict supervision if registration is renewed.
IDA Fines IPC Securities Corporation $100,000 for Failure to Maintain Adequate Records of Head Office Supervision, Failure to Supervise Principal Trading Activity, and for a Capital Deficiency - 08/12/2005
IDA imposes Compliance Monitor on Union Securities Ltd. - 07/26/2005 - compliance monitor assigned for 90 days at the expense of the firm to ensure repeated regulatory deficiencies are corrected.
IDA fines Spencer Edward Graham $50000 - 06/23/2005
Once Compliance Net is integrated with your existing back office platform, your firm’s entire suitability review is done with a push of one button. Not just the accounts in which trades were placed that day are checked. To avoid inactive account portfolio drift problems, every on-book account is reviewed in detail, every day. How does Compliance Net do it?
Compliance Net analyses each account’s standard deviation, and then compares that standard deviation with the last known Know Your Client information tagged to the same account. Any accounts that do not fall within the parameters set by your compliance office, or do not have up-to-date Know Your Client data are listed on an electronic exception report. Compliance Net also stores and re-reviews trade blotter data for up to 30 consecutive business days to enhance churn, frequent trade and unilateral mutual fund substitution detection.
Compliance Net tracks progress on all delinquent accounts, so there’s no need for the compliance department to keep separate files on offside accounts. As offside accounts move through different phases of delinquency, Compliance Net automatically appends notes to the file so, with a click of a button, an account’s compliance history can be called up and reviewed. If requested by a regulatory body, every attempt made by the compliance department to get the account back on-side is automatically documented and dated.
Notices are also automatically forwarded to the advisor in charge of each account as well as to the advisor’s branch manager. The exception report review features of Compliance Net makes it simple and secure for branch managers and compliance officers to find trades on the trade blotter that have moved the account outside of compliance tolerances.
Read an extract reprinted from Year 2001 Lexpert/American Lawyer 500 by John A. Campion entitled ‘Securities Litigation’ (note the author is referring to litigation of Branch Managers and Advisors in Canada)
Download Article Extract...
Compliance Net can be further customized to email trading restrictions to the compliance department for any accounts that are not updated by the advisor in charge of the account. Once the account’s Know Your Client data is updated, Compliance Net automatically emails a notice to the compliance department to remove trading restrictions.
Compliance Net is so simple to use, training time is almost non-existent. Operation is a total of three steps:
Step 1: Sync data with your back office platform — Once triggered, Compliance Net will compare current account holdings against last known Know Your Client data automatically.
Step 2: Review compliance reports — Compliance Net has a number of built in reports that provide the compliance department with a simple way to determine who the most problematic advisors, branch managers, or clients are. Compliance officers can quickly filter out all accounts with a large percentage allocation made to one security, or that hold specific ‘problem’ securities. Lists of restricted securities can be tagged to advisor profiles, making trade restriction violations quick to catch.
Step 3: Broadcast reports to Advisors and Branch Managers — All off-side accounts are automatically updated so advisors in the field can log into 128-bit encrypted advisor portals to review instructions on how to get account(s) back on-side. Advisors are also automatically emailed an updated summary report once a week to remind them to log into the advisor portal to update delinquent accounts. All email contact is automatically documented in Compliance Net.
Advisor Portals have now been linked directly to OASIS. All firms implementing Compliance Net will receive units of OASIS for all advisors at no extra charge.
More details about OASIS below...
Price List...
Copyright © 2006 by PureLogix Corp.
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