Conduct Compliance Testing

posted in: Compliance | 0

“Forensic testing” is certainly the buzzword in compliance circles. Think CSI: Crime Scene Investigation. Essentially, an adviser should conduct some type of transactional or quality control tests that will assist the adviser in determining whether its activities are consistent with its stated compliance policies and procedures.

A non-exhaustive list of tests includes:

  1. Reviewing client trade patterns relative to investment objectives (Suitability)
  2. Comparing the firm’s most profitable trades to news events (Insider Trading)
  3. Review trade error patterns to assess broker quality (Best Execution)
  4. Review broker’s execution quality (Best Execution)
  5. Compare disclosures made to clients about the firm’s brokerage policies with actual practices (Best Execution)
  6. Sample client files with directed brokerage arrangements for documentation evidencing receipt of initial disclosures (Best Execution)
  7. Sample client accounts to confirm that proper customer identification as obtained (Anti-Money Laundering)
  8. Conducting OFAC checks both initially for new clients and periodically thereafter for existing clients (Anti-Money Laundering)
  9. Annual audit of client fees (Safeguarding Client Assets)
  10. Conduct a global billing review designed to detect dramatic changes in the amounts clients are charged (Safeguarding Client Assets)
  11. Periodically test your disaster recovery plan (Business Continuity)

And of course, document EVERYTHING you do.

Leave a Reply

Your email address will not be published.