Masters, JPMorgan’s Ball and Blockchain

Blythe Masters, the former head of commodities at JPMorgan, became the CEO of Digital Asset Holdings about a year ago and she has been on a tear through Wall Street talking up a recordkeeping technology called blockchain.

Blockchain is most famously tied with the digital currency BitCoin. It isn’t actually part of the digital currency. It is commonly known as a type of public ledger, a recordkeeping system, if you will. It is conceptually simple, but technologically very advanced. The idea is to have one central accounting system for all transactions where the whole world can see. In this way, embezzling is more difficult to do. One can’t only be financially savvy, but also be technologically so. Not just a little but a lot. Because blockchain is  central ledger for transactions, there is an external reference that is common to the buyer and seller. So, when a customer tries to buy something from a seller, the currency portion of the transaction (payment), goes through the blockchain, which verifies that the currency is in the buyer’s account and no one else on the blockchain is supposed to have it.

It makes every penny into a unique penny. We have a unique number on all paper bills in the United States, but that unique number really isn’t used for common transactions. This provides that extra security.

Masters is leading the idea that blockchain technology can be brought to Wall Street. Most senior investment bankers are skeptical. Of course, they are. Most senior investment bankers don’t understand blockchain or BitCoin. And, when they do, they generally know as much as you, my reader, because you now have read my previous paragraphs. To Masters, it is a no brainer. Here’s a technological tool that reduces counterparty verification which should, in theory, reduce the number of days it should take to clear a trade, thereby reducing cost.

The risk, aside from bank management not even understanding the significance of this technology, is the risk of systemic fraud or glitch. But one thing we’ve learned over the last century as we’ve centralized many of our transactional activities is that it greatly reduces the inherent risks of transactions, but because of the way our laws allow for increased risky behavior when risk has been reduced, it will likely increase the residual risks. There are a number of examples of this. When all trading goes through fewer routes to their eventual transactions, there are fewer route that need to be monitored and therefore monitoring and surveillance can improve. But when there are losses, they are usually big because the glitches are systemic or categorical. The Flash Crash it an example of centralizing and automating trades through fewer pipes led to big and quick irrational dive of the market.

I for one is a proponent of the BlockChain. I am not the person to discuss the potential economic consequences of this, but it would be the next step in the evolution of the Depository Trust Company, the central counterparty in US capital market trading.


Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE. 

Week In Compliance: Local News uses beauty as click-bait

Hello on this crisp-cool Friday here in New York. Excuse my unexplained absence, the reason was personal.

Rochelle Yazzie

News from Albuquerque: “Southwest Capital Bank has hired Rochelle Yazzie, who will work as an Operational Compliance Specialist.” Okay, so, this isn’t exactly new to the compliance world at large, but I find it funny that this is news to Albuquerque, especially for someone who is going into a role at the bottom of the compliance organization. Just goes to show you how small that town is. Yazzie showed up on the local newspaper’s “People On the Move” column. – Albuquerque Business First 

“Dozens of Swiss banks have been spilling their secrets this year as to how they encouraged U.S. clients to hide money abroad” – WSJ

New CFPB proposal would publish arbitration awards given to consumers from banks and credit unions, making it part of public record like court cases. – Tina Orem from Credit Union Times 

God giveth in investment returns – Amvona Fund LP is a hedge fund run by a Greek Orthodox church, which exempts it from compliance from SEC. It manages $20 Million. – Claire Groden at Fortune

SCCE‘s 2015 Compliance Officer Compensation Survey is out, HERE!

2015 Compliance and Ethics Officer Salary SurveySome takeaways from the aforementioned survey: It is does not include non-managing compliance officers, it does not include CAMS or CRCM or many of the technology certificates, it does not include many people in financial services (just 8%). 50% of respondents who make more than $1M in compensation per year had JD’s. And, if presentation matters to you, it used Microsoft Excel’s default setting for tables.

KeyCorp seeking $4 billion purchase of First Niagara.” (The Buffalo News). Buffalo, NY is obviously worried that this could mean job losses for the area. For me, I’m observing KeyCorp executing on a long tradition of itself: buying smaller banks. KeyCorp’s ambition is to become another national bank, the likes of JPMorgan Chase, Citigroup, Wells Fargo, and Bank of America Merrill Lynch. There are couple other contenders for such a role: PNC, USBancorp, Capital One, Suntrust, BB&T, Fifth Third, Citizens, M&T, and Huntingdon.

Singapore‘s tax authority collects $217 Million in unpaid taxes. (The Business Times). Even on the island of prosperity, tax evasion happens.

Goldman Sachs fined $50M by NY regulator for leaking data from Federal Reserve Bank of New York. (ValueWalk).

Jobs In Compliance

Opinion: 3,415 American renounced their citizenship

American immigration policy is a problem. Not just do poor people from other nations want to come here but rich people from America want to leave. In 2014, 3,415 people gave up their American citizenship. As of September 30, 2015, 3,221 people gave up their citizenship. That’s 15 times more than in 2008. (Sophie Yan of Local Syracuse). This is a result of FATCA, the tax law that requires reporting assets held by American in foreign jurisdictions. The law’s reach is long, just $10,000 in assets. While it is illegal to renounce American citizenship because of the tax bill associated with foreign assets, the the law faces a steep cultural hill. America was founded on the fact that it did not want to pay taxes to Britain. The problem with many of the new financial regulations is that they don’t tackle the primary problems, they tackle tertiary ones. FATCA is no different. Reporting foreign assets might be a solution to getting information, but proving that a person gave up citizenship due to taxes is quite difficult. Without explicit evidence, the only evidence that would exists, at best, are circumstantial. Plus, not all jurisdictions cooperate with the US, and even when they do, they don’t cooperate with laws that would be financially beneficial to them. FATCA is one of those laws. They could be giving up valuable tax dollars in various forms if the interested person finds the jurisdiction supporting US tax policies that was being evaded. The other problem with jurisdiction is that FATCA will likely reveal tax avoiders, not tax evaders. The difference is that tax avoiders are avoid taxes using the rules while tax evaders are not paying taxes they are supposed to be paying either by misclassifying accounting rules or simply hiding the funds through some legal convolution. The solution for the immigration problem is extremely complicated. Plus, I don’t have an integrated, holistic one to share with you. I just wanted to point out that regardless of the law, the culture of not paying taxes is the primary problem. The solution really should be cultural, not legal.


How do you like the new weekly round up?


Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE. 

Week In Compliance: Blatter Loses Control, Swiss Open Investigation

US Deputy Attorney General Yates publishes memo that explains six changes that will take place in FCPA enforcement and investigation. DOJ intends to focus on individuals and will not resolve any related corporate involvement until all related individuals’ cases are resolved. FBI has tripled its International Corruption Unit in order to make this more than lip service. You can read the memo HERE (PDF).

Baby Boomers are targets to securities fraud in Free Meal Seminars. North American Securities Administration Association, association of state securities regulators, warns “senior investors to be aware that a combination of “free lunch” seminars, misleading professional “senior specialist” designations, and abusive sales practices can create a perfect storm for investment fraud. Remember: there’s no such thing as a free lunch.” Read the full warning HERE (PDF).

ABA Chip Card Inforgraphic
ABA Chip Card Inforgraphic

American Bankers Association released Chip Card Infographic:

Financial services firms have been getting blackmailed by DD4BC (Distributed Denial of Service for Bitcoin). In Q4 2014, there were only 10 reported cases. In Q2 of 2015, there were 83 reported cases. BitCoin is a decentralized currency and transactions can be performed in complete anonymity. The US treats BitCoin as an ordinary asset rather than currency, requiring a gain/loss realization calculation for every transaction, as one would if one sold a painting. While this makes the use of BitCoin cumbersome, it does legitimizes BitCoin. It also means, it is not treated as currency for reporting purposes to the OCC. – Olivia Solon for Bloomberg

For a better, more entertaining explanation of this type of extortion, RadioLab recently published a podcast that explains a similar type of extortion as an introduction to its episode about Darkode, a place on the internet where hackers could buy and sell hacked assets or rent access to hacked networks. – RadioLab

Credit unions might not be filing appropriate SARs and CTRs, says Jennifer Shasky, Director of FinCEN, at National Association of Federal Credit Unions. – Kevin Funnell, BankLawyersBlog.com

Durbin Amendment has had a mixed impact on the costs of accepting debit cards, the retail price of goods and services and restrictions on debit card use. – DoddFrankUpdate.com

FIFA 15, the game on XBox, Play Station and PC, was 15% of EA Sports’ revenue in 2014. FIFA 16 came out this week to great fanfare, now that women’s teams are also on the game. Due to the bribery scandal being investigated by the DOJ, many fans are boycotting the game. EA Sports has sued FIFA in relation to this outcome. This impacts not only FIFA 16, but all future FIFA games by EA Sports. Their contracts lasts through 2022. – Ilya Zlatkin from FCPA Blog

Swiss authorities open criminal proceedings against FIFA president Sepp Blatter – Christopher Elser, Tariq Panja and Hugo Miller at Bloomberg

“During the first half of 2015, FINRA reported $37.5 million in fines from monthly disciplinary actions, compared to the $42.2 million reported in the first half of 2014.” – The Compliance Digest at Quest CE

“… renewed concerns that compliance officers could be blamed for violations committed by others at their companies.” –  Matt Rybaltowski at Reuters

FDIC to provide regulatory relief to those affected by fire in California. – FDIC

Jobs In Compliance

Opinion: Compliance at Credit Unions 

I think this is a major issue. Credit Unions are usually smaller than Community Banks, but they offer almost as many products. CU’s face all of the same risks associated with those products, but they tend to have less resources to prevent, deter and investigate money laundering or other financial crimes. With the recent news about the statistical analysis that concluded that Credit Unions are way under-reporting suspicious activity, this issue isn’t likely to go away. Ever since the financial collapse, a lot of people have taken to move their money to CU’s. For good reason. Since these institutions are not profit driven, they are operational efficiency-driven, any excess funds beyond capital funding is returned to depositors. If these depositors are effectively customers and investors, we can assume that when it is convenient for them to be one or the other, they will. In order to pay for acquiring the compliance resources, the CU’s will have to return less money. But if they aren’t returning much money to begin with, then they might still be underfunding compliance programs. For criminals, this situations is perfect. There are several ways to solve for this. One solution would be to centralize the compliance of credit unions. Along with the solution comes the problem of making the credit unions too uniform and, possibly, losing the very efficiency they strive for. Another solution is to subsidize compliance programs. Then the issue becomes the fairness of the subsidy amounts. Another solution would be to close down CU’s that are not meeting the regulatory requirements. This leaves a vacuum in the market, which is also not ideal. But that would force criminals find other ways to finance their activities, and those alternatives aren’t as good, for the most part. All of the solutions have are accompanied by major negatives. I am not leaning toward any one or combination of them. I think, though, the issue of compliance programs at CU’s should be given far more attention than it is receiving.


How do you like the new weekly round up?


Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE. 

Week In Compliance: Bankers believe that their employees do not want overtime pay

American Bankers Association reports that banks believe their overtime exempt employees do not want overtime pay, as stated by Christeena Naser, Vice President and Sr Counsel. This opinion stems from the Department of Labor’s new interpretation of the Primary Duty Test. “The term “primary duty” means the principal, main, major or most important duty that the employee performs. Determination of an employee’s primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.” (DOL). ABA goes onto to state that the Test’s objective was to identify obvious non-exempt employees, but the new interpretation would seem to try to identify obvious exempt employees. The difference in nearly $27,000, or about 30 Million employees across all industries.

The Financial Crimes Enforcement Network (FinCEN) today announced a settlement with Desert Palace, Inc. d/b/a Caesars Palace where Caesars agreed to pay an $8 million civil money penalty for its willful and repeated violations of the Bank Secrecy Act. In addition, the casino agreed to conduct periodic external audits and independent testing of its anti-money laundering compliance program, report to FinCEN on mandated improvements, adopt a rigorous training regime, and engage in a “look-back” for suspicious transactions. – FinCEN

CFPB reported that it has handled 677,200 complaints nationally. – SubPrime Auto Finance News Staff

Big companies are some of the worst offenders in foreign corruption cases, but they are also increasingly policing themselves and self-reporting instances of bribery, new data show. The Organization for Economic Cooperation and Development analyzed 427 cases of foreign bribery in 17 countries to determine who’s bribing who, and how authorities are discovering corrupt practices. – Kathleen Caulderwood at International Business Times

FTC can sue companies for inadequate cyber-security protection, so says the United States Court of Appeals for the Third Circuit. – Dan Appleman at FCPA Blog

Caesar’s Palace to pay $8 Million penalty on poor compliance regime. FinCEN has also forced the Palace to take on additional action for boosting compliance an a lookback program to seek noncompliance in past transactions. “When it came to watching out for illicit activity, [Caesar’s Palace] allowed a blind spot in its compliance program,” says Jennifer Shasky, director at FinCEN.

“Whistle-blowers and insiders play an increasingly important role in our work,” says David Green, Director of the Serious Fraud Office in the UK. “I suggest… moving away from the identification principle of corporate criminal liability in English law and embracing something closer to vicarious liability, as in the USA,” he said in his speech at the 33rd Cambridge Economic Crime Symposium.

By performing an assessment of OFAC compliance programs and establishing a culture of compliance throughout the organization, a company can position itself to better understand and identify potential risk exposure. – Sven Stumbauer, Director in the Financial Crimes Compliance Practice at AlixPartners, LLP at International Banker

Jobs In Compliance

Opinion: FRB of Boston says Prepaid cards can be a savings tool, and I agree 

credit Danny Choo

Prepaid cards from credit card companies have grown significantly in the past decade. They offer credit transactions to those who do not have the credit history to have credit cards. They offer a way to build credit for those who cannot even open a bank account. These are people and families who make $25,000 or less. If you are reading this, you are very likely a person with a bank account and a credit card. You might not know, but there are people who do not qualify to have a bank account. I was once such a person. But I wasn’t the norm of such a person. I had graduated from college and I didn’t yet have a job. During college, I had a college student checking out. I was moving back home 2,000 miles away from my bank. So, I needed a local bank. Wells Fargo said that I had overdrafted too many times and I do not have a history of income that would otherwise let them overlooking this. I was shocked. I didn’t know that banks refused to open checking accounts. Even more astonishing, this was at a time when checking account were not free. I went down the street to Key Bank, who opened an account for me. I got a job and Key Bank had my business for many years. But most people who do not qualify for checking account aren’t in my position. They have never made enough money to have any savings at all, which means even if they had a checking account, it would sit empty. Even having an account for someone open a bank up to various risks, which all have a cost. But financial institutions have come up with a solution: Prepaid Card. This uses the credit network for transactions but at no time transactions beyond the amount in the card can be made. And banks do not have to offer any services, keeping all of the information on the card. Actually, in Eastern Africa, the same type of decentralized banking system is growing through cellphones. And if you think about it a little longer, Bitcoin and other cyber-currencies are just another decentralized payment system, albeit with more value involved. What Prepaid Cards offer is not merely a way to make transactions. It can be method to store value, as economists would put it. That is, a person can save money in such cards. The difference for the user is minimal for the most part. Sure, it is less secure because if you lose it, you’ve lost all of your money, just like cash. But it is safer than cash since it is possible to have an account on that card, even though it wouldn’t have any of the protections of a checking account. At least, there would be a remote way to stop transactions on that card, if lost, unlike cash. For the financial system, prepaid cards balances cannot be used to lend money. But banks are not starved for money right now. The Federal Reserve is offering money below the inflation rate, which means, banks are being paid to just hold money. The card balance does not flow through the system until it is used for a transaction, but it a clear benefit to the consumer who cannot afford to be connected to the financial system through depository banking. For banks, it allows them to have a credit history on those people should they eventually want to join the financial system. The banks also make money on the credit transaction. And for the system as a whole, it reduces risks involving money laundering, fraud, theft and cyber crimes.


How do you like the new weekly round up?


Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE. 

Bankers believe that their employees do not want overtime pay

Williams Sisters, unlikely to be affected by new Primary Duty Test Standards | credit Youtube

American Bankers Association reports that banks believe their overtime exempt employees do not want overtime pay. That’s not exactly what Christeena Naser, Vice President and Sr Counsel, said, but she might as well have in her comment letter. The Letter goes onto to state that the Primary Duty Test‘s objective was to identify obvious non-exempt employees, but the new interpretation would identify obvious exempt employees. The difference in nearly $27,000 per eligible employee, or about 6.3 Million employees.

“The term “primary duty” means the principal, main, major or most important duty that the employee performs. Determination of an employee’s primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.” (DOL).

The change in Standard would reach approximately 30 Million employees across all industries, 6.3 Million of which are in financial services. The previous Standard deferred to states because many state standards were more inclusive than that of the DOL. The new DOL standard is much higher. being raised from $23,660 per year to $50,440. One should know that while these figures are yearly, the Standard applies to overtime pay on a weekly basis.

“The salary standard would reduce the number of individuals eligible for the exemptions by 6.3 million salaried employees, ” ABA’s comment letter states. The implication is that banks would reduce hours of 6.3 Million employees to the lowest end of full-time status as much as possible in order to avoid paying overtime. It also implies that DOL have reason to believe that the guarantee in employment due to the salaried nature of a role is worth very little. Considering how little guarantee there is, the DOL is onto something there.

Just because a bank employee makes more than $50,440 per year without overtime pay does not mean that that employee cannot be on an hourly wage. DOL has moved the cap on all hourly wage employees from $100,000 to $122,148. This means hourly employees can qualify for overtime pay as long as the non-overtime pay is less than $122,148 per year. ABA objects to this as well.

All of these Standard change-levels are based on data from the Bureau of Labor Statistics.

ABA objects to the Standard not be adjusted for geography. This is quite valid. A community bank in rural Iowa will be hit harder than a community bank in New York City.

But the rest of the complaints, and they are truly complaints, read as veiled threats. There are a lot of justifications based on what will happen if these Standards are applied. All of them are dire. All of them do not bode well for employees. For that strategy to work, the bank would have to assume that its employees do not know what is good for them. The direness of the predictions imply that banks will be forced to hurt their employees by complying with the new DOL mandate.

If enumerating all the ways the ABA’s Comment Letter fails to make its point to someone who might have helped craft this new Standard at the DOL, the failure can be summed up thusly: ABA’s Comment Letter fails to convince the Department to stop the pursuit of the new Standards because it fails to address the issues that are important to employees as seen by the Department. At no time does the Letter acknowledge the good that the Department is trying to accomplish. So, when the Letter provides alternative solutions, it carefully avoids stating what the such solutions provide. By avoiding such valuation, the ABA avoids having their alternative compared to the Department’s solutions. And by avoiding the value of their solutions, the ABA makes their members seem unconcerned with the wellbeing of bank employees, and does not avoid to address how the new Standards are not as beneficial as they can be.

Overall, the letter is a carefully crafted legal argument wrapped in economic concerns. The DOL, I assume, are seriously concerned with economics and less so with legal intricacies.


I have read ABA’s Comment Letter for you so that you don’t have to. If you don’t like how I interpreted ABA’s Comment Letter on the new overtime exemption and HCE standards, comment below.


Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE. 


Bibliography

Limit to compliance – taxes

from The New York Times

Privacy is important, but for what? Is ownership of real estate an issue of privacy? If you were a person of interest, like a celebrity, it might be an issue of privacy. But how about the rest of us?

Obviously, New York City Mayor De Blasio does not believe that real estate ownership information is subject to privacy. (Note: We are not discussing residence information, we are discussing ownership. Residence information is already considered to be public information.)

In times when New York City is witnessing an incredible growth in luxury apartments not just in Manhattan but in all of its boros, more and more people are being priced out of their homes. Rents have been going up much faster than wages, let alone the very sticky long-term unemployment rate. It is really indeed a shame that people must move away from the meager jobs they possess to be able to afford rent, even though that move might cost them their career network, the very group of people who will help them find a job should they lose one. Starting in a new place is very difficult.

Here’s an issue where the tax revenues that usually offset such disparities somehow have not been and are not. It is getting worse. On a line-by-line basis, everyone might be paying their correct taxes, but on an aggregate basis, there are many who do not seem to be paying.

This is very likely because of an accounting issue. A taxpayer can be completely compliant with all taxes, but still be paying less than economists have predicted because economists forgot to take into account a very important change that takes place when profits are earned by a corporation but is kept to raise the price of shares. The only way for investors, which are a class of people who can afford to buy much more than their needs and can afford to buy the productivity of other people, can only reap the benefits of the productivity of those people’s work they own through shares by… selling the shares. When those shares are sold, it is sold to other people who can afford to buy the productivity of people who work in a public corporation. Share prices rise due to increased net income, but rise in share price is not taxed at the earned income rate as employee’s must pay.

In this particular case, shell corporations are a great way to make real estate investments into parcels of interest rather than land, allowing shareholders to sell their interests even if the real estate generates net income.

Here’s the limitations of compliance. Compliance professionals in financial services cannot work on these types of policy issues because it requires changing the economics of our economy as a whole. Until this situation continues, compliance officers can only continue to make sure that the system perpetuates.


Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE. 

Cantwell-King-McCain-Warren to re-up Glass-Steagall

Sens. Elizabeth Warren (D-Mass.), John McCain (R-Ariz.), Maria Cantwell (D-Wash.) and Angus King (I-Maine) proposed a 21st Century Glass-Steagall, which would separate commercial banking with investment banking. Sen. Warren has published a fact sheet, which we publish here in its entirety.

21st CENTURY GLASS-STEAGALL ACT

Fact Sheet

The original Glass-Steagall, the Banking Act of 1933, was introduced in reponse to the financial crash of 1929. Starting in the 1980s, regulators at the Federal Reserve and the Office of the Comptroller of the Currency reinterpreted longstanding legal terms in ways that slowly broke down the core function of the bill – a wall between investment and depository banking to curb risk. In 1999, after 12 attempts at repeal, Congress passed the Gramm-Leach-Bliley Act to repeal the core provisions of Glass-Stegall.

The 21st Century Glass-Steagall Act would reduce risk in the financial system and dial back the likelihood of future financial crises.

  • Returning basic banking to the basics. The 21st Century Glass-Steagall Act separates traditional banks that offer savings and checking accounts and are insured by the Federal Deposit Insurance Corporation from riskier financial services, such as investment banking, insurance, swaps dealing, and hedge fund and private equity activities. The bill also separates depository institutions from products that did not exist when Glass-Steagall was originally passed, such as structured and synthetic financial products including complex derivatives and swaps.
  • Countering regulatory loopholes for risky activities. The 21st Century Glass-Steagall Act specifies what activities are considered the “business of banking” to prevent national banks from engaging in risky activities, and bars non-banking activities from being treated as “closely related” to banking. Over time, the Office of the Comptroller of the Currency and the Federal Reserve used these terms to allow traditional banks and bank holding companies to engage in a wider and wider range of high-risk activities. This bill would end those practices.
  • Taking on “Too Big to Fail.” The 21st Century Glass-Steagall Act cannot end “Too Big to Fail”on its own, but it moves the financial institutions in the right direction by making them smaller and safer. By separating depository institutions from riskier activities, large financial institutions will shrink in size and will not be able to relly on federal depository insurance as a safety net for their high-risk activities. Although some financial institutions might be large, they would no longer be intertwined with traditional depository banks, reducing the implicit government guarantee of a bailout.
  • Enforcing Glass-Stegall. The 21st Century Glass-Steagall Act institutes a five-year transition period and penalties for violating the law.

Does this proposal to separate commercial banking and investment banking forget that it was repealed because foreign banks were eating into the global financial services market share?
With China having half of the largest global banks, will this separation effectively bar the US from becoming the greatest financial center?
Is giving up much of this market a risk we are willing to take?


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


Hire a regulatory relationship manager

If you are not a big bank. You are unlikely to be able to afford a compliance office with experience at a regulator. The next best thing to do is not to hire a law firm with that experience. The next best to do is to hire someone to be a regulatory relationship manager.

The main reason to hire a relationship manager rather than an outside firm is because if something comes up, you want to be able to have a quick, immediate and candid contact with your regulator. Regulators are people. Even as an institution, it is made up of people. While all regulators have a way of prosecuting bad behavior, mistakes are not things they want to punish banks for. They don’t want to take down a bank. They want to keeps banks in compliance with the law, rules and regulations.

As people, regulators are less likely to look at big banks favorably because they see that big banks have the resources to implement changes required for compliance. Inversely, they are sympathetic to the smaller banks for the reverse reason. Big banks are indeed putting incredible effort to stay in compliance. But just look at their market clout and the profits they generate, regulators find it difficult to believe that more cannot be accomplished. Small banks are not failing at any great rate. Still, they lack diversity of products, services, clients and geographic reach to weather waves the big banks consider to be just a little splash in the bathtub.

Considering the help regulators like to provide smaller institutions, having a person who is dedicated to staying constant contact to keep the regulator abreast of the effort being made and the resources allocated to compliance helps a lot.

The reason not to outsource this function is simple: anyone facing the public is an ambassador to the firm. The US does not outsource diplomacy to Germany. Why should your bank outsource such an important face of the firm.

For that matter, a relationship manger need not be the most experiences but having experience is crucial to success. Just having someone with a decade of experience or more helps to give the impression that the relationship is important to them.


Will FATCA compliance strengthen the financial sector?


About the Author: M. C. Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. 



Government websites are a wealth of knowledge

Screenshot from Investment In Love

This fact is a bit obvious but I think people often forget: government websites are a wealth of knowledge.

For Compliance Officers, dealing with regulators is part of the job description. It is very important that the compliance officer does not reveal too much information when dealing with a regulator because that could be used against it in other matters. So, if there are ways to get information without having to provide information to a regulator is very useful. Luckily, the US regulators are all about providing as much information as possible.

Take, for example, the Securities and Exchange Commission (SEC). The SEC provides not only its organizational breakdown, but on each of the division’s pages, there are links to decisions, interpretations and research coming out that division. If you work for an investment manager, you, hopefully, won’t have to deal with the Enforcement Division. It is SEC’s division of lawyers who investigate possible misdeeds. Go to SEC’s Enforcement page and there you can find all of the Administrative Law Decisions made since 1960. Go to SEC’s Corporation Finance page and it will provide SEC Reporting accountants all of the official Disclosure Interpretations. Did the SEC just conclude its triannual exam of your fund? Well, go to SEC’s Investment Management page where you can learn about what kind of cybersecurity the SEC might ask you to implement to keep your clients more safe.

All of the regulators have incredible amount of resources. Money Compliance intends to be a resource as well. Regulator’s web pages are well organized, but they aren’t user-friendly for those who do not know where to begin. Under Resources, Money Compliance will begin to make this clear for Compliance Officers. It will try to explain where to go first depending on your role or the various common questions compliance officers ask. Right now there isn’t anything in the Resources page, but keep checking. Over the next few weeks, it will be more robust.


Harper Lee has published her second book Go Set A Watchman; will you read it?


About the Author: M. C. Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. 


btn_donateCC_LG


How could the Iran-nuclear deal affect your compliance department?

Flag of Iran

Assuming your bank performs transactions for people with international connections, Americans are barred from doing most types of transactions with Iran interests because of the economic sanctions. There are several sets of economic sanctions on Iran and only the the set that were implemented because of the nuclear activity were lifted. Practically, very little has changed for your bank, so, very little has changed for your compliance department.

Even, still, the elation alone is building interest in investment and trade activity with Iran. American entities with subsidiaries in Europe are likely to try to get around these sanction by claiming European sovereign rule. But this only works if the subsidiary can prove that it is not controlled by the American umbrella.

There’s no way to prove this. Just the fact that the subsidiary is a subsidiary and not a joint venture or minority interest deems it American jurisdiction on transactions because the net income is accounted for here in the States.

Minority interest is where things get tricky. If a client is doing business with an entity which has American minority interests and does business with Iran, then that’s territory that requires some legal analysis. The reason for the complication is even though there are many situations where Americans may have minority interests in European entities that will do business with Iran, one of those entities could be a fund that is specifically initiated to do that business. Wealth Americans have access to foreign markets without working through the American markets. It is possible that an American investor can buy into a Iran direct investment fund in London using his British assets. If he is able to do this, then he adds a legal entity layer. He will own a majority interest in an entity that is investing into a fund as a minority investor.

Your department will have to decide whether American jurisdiction applies to ownership of legal entities or if business will benefit the American.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


btn_donateCC_LG