Interest Rate’s Effect On Compliance

Miranda Kerr says "you're welcome"
Miranda Kerr says “you’re welcome”

I thought if Interest Rates won’t interest you then maybe Miranda Kerr would. Obviously, this only works for 2/3rds of you. (About a third of you aren’t into Miranda Kerr or any other woman.)

Interest rates have many economic effects, which I do not need to describe to my audience. The Federal Reserve decided to raise the interest rate (Fed Funds Rate), to show that the economy is doing well. There are plenty of signs that the Fed is doing this as a symbolic move but it is still under the belief that the economy is not doing well. I’m of the side that the economy isn’t doing well, but I will get into why some other day.

For certain types of compliance, problems will increase as a result of interest rate increases. Interest rates can be viewed as the cost of capital. A cost eats away at income. It puts pressure on those who are supposed to maintain costs and those who are supposed to bring  in revenue.

So, the OCC isn’t likely to see much difference in volume of issues arising from financial institutions or money service businesses. OFAC isn’t going to be affected either. But FINRA and the SEC will. FINRA moreso than SEC because they deal primarily with revenue centers. SEC doesn’t deal with operations as much as reporting issues. But, of course, when the pressure to perform increases, there might be some increases in financial statement reporting fraud cases.

FINRA will face the problem of brokers trying to replace lost revenue. No matter what the interest was, if there is an increase, the pressure increase forces some to take shortcuts. Financial statement reporting fraud is one. Others include, ghost sales, underreporting expenses, embezzling, or, in the case of brokers, churning (making additional transactions to create business).

Banking is affected as well. Mortgage bankers may provide loans to those who wouldn’t qualify with the new interest rates because the amount lent maybe be higher than the bank is willing to accept. Clients might adjust records to pass credit analysis with inflated projections or hiding liabilities, such as other loans.

All of these things can happen without interest rate increases but the increase puts more pressure on these functions.


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. 

Wu Tang album not in FBI’s possession

from WIRED

That’s what you wanted to know, right?

Martin Shkreli [was] an American entrepreneur and financial and pharmaceutical executive. He is co-founder of the hedge fund MSMB Capital Management, co-founder and former chief executive officer (CEO) of the biotechnology firm Retrophin LLC and founder and CEO of Turing Pharmaceuticals AG. – Wikipedia

Shkreli rose to infamy earlier this year when Turing jacked up the cost of a life-saving AIDS pill by more than 5,000% after the company acquired the rights to it. – New York Daily News

from The World’s Best Ever

Schkreli is also known for purchasing the lone copy of Wu Tang Clan’s latest album at $2 Million. He live streams himself for several hours every few days or so, which you can see on Youtube. There, you can see glimpse of the album, which is listens to from time to time and uses as a coaster.

Schkreli was arrested on using the assets of his hedge fund like his own piggybank. This is how Americans view Wall Street Bankers, and he is giving it to them. Mother Jones Magazine reported that “Most Hated Man in America” Martin Shkreli Was Just Arrested for Alleged Securities Fraud. The Daily Mail reported that ‘World’s most hated man’ Martin Shkreli arrested charges of securities fraud and running a Ponzi scheme to pay off debts from an old company.


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. 

What Marie Kondo can teach us about Compliance Management

Marie Kondo is a diminutive Japanese woman in her mid-30’s who has taken over the world with her spiritual and thoughtful method of tying one’s home and soul. Her book’s English title is The Life-Changing Magic of Tidying Up: The Japanese Art of Decluttering and Organizing. She has been featured on New York Times, The New Yorker, various television shows and publications. She is one of Time‘s 100 most influential people, just above John Oliver and just below Christopher Nolan. So much of a fan, Jamie Lee Curtis was asked to interview Kondo. (I’m not sure how valuable Curtis really is as a journalist since she doesn’t speak Japanese, Kondo does not speak English, and has no knowledge of Japanese culture beyond any other Hollywood personality, but I suppose, Time just thought having her involved could help sell copy.)

Compliance, if you’ve been following the news at all for the past seven years, requires some tidying up of home and soul. In this entry, I am going to take a three of Kondo’s biggest ideas and applying to Compliance Management.

  1. Take an inventory of Compliance problems that needs to be solved. Each problem should be thought through carefully but quickly for what the source of the problem is, why it continues to be a problem, and that’s it for the first step. The main point is to get your arms around the issues. Things change all the time, but if you can get your arms around the issues at a single point, then new ones are incremental additions.
  2. Then ask yourself, “Does solving this problem provide value to customers in some fashion?” Rather than prioritizing them onto a list, this simple segregation of issues filters out the ones were identified as problems to be solved, but maybe they are actually problems to be gotten rid of. This exercise might actually be made easier if you start with smaller, obviously less important problems. The idea that once you’ve gotten used to applying this filtering method, the bigger decisions won’t seem so hard.
  3. And then prioritize the remaining issues that add value to customers and work on them all in priority order. Don’t do it piecemeal. That is a trap to not getting around to it. This might mean a massive buildup of your department for several months or a year, but you will have a transformed organization because you’ve tackled compliance problems that are worth tackling.

Two things to add:

  1. You will need to take the remaining problems to tackle and estimate their cost. Do a simple cost analysis to figure out if it is worth tackling them. Even if it is important to tackle them, if your institution or department is jeopardized by tackling it, ultimately it does not serve the customer. So, the isolated issue will have to also tackle in relation to other issues.
  2. You can apply this to your own department or just to yourself. The main problem you might face is the lack of resources. Hopefully you will find that many things are not worth tackling and you will free up your time and resources to spend on the important things, but if too many things are important, rather than tackling them one by one, you should figure out a way to tackle them all within a certain amount of time. Tackling them piecemeal is the slippery slide to a time-suck.


How do you like applying popular culture with Compliance? 

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: Retirees, be ware

Don’t trust her with your money. Kristina Svechinskaya, 26, is a Russian hacker who stole $3 Million

FINRA has proposed new rules that will allow a firm to put a temporary hold on financial transactions when abuse is suspected, and will allow the firm to contact a trusted other during this hold period. Where’s the flaw? No rule yet mandates that every financial firm and every individual advisor obtain information for a trusted contact person for every client. – Mikol S. Davis for Aging Capital 

Retirement accounts to be regulated by SEC and FINRA in 2016 – on ERISA, Andrew Welsch for On Wall Street

38% of the survey’s respondents said that compliance with TRID was their chief concern with the implementation of the new mortgage disclosure process – Ben Lane for Housing Wire

SEC observed that certain outsourced CCOs could not articulate the business or compliance risks of the registrant or, to the extent the risks were identified, whether the registrant had adopted written policies and procedures to mitigate or address those risks. In some instances, the risks described to the staff by the registrant’s principals were different than the risks described by the outsourced CCO. – on SEC’s warning about outsourced Compliance, Ethan Mark for JPSupra

Regardless of what or how many functions one chooses to outsource, it is the hiring firm that is ultimately responsible for its compliance program (not the fired firm) – Julie DiMauro from Regulatory Intelligence for Reuters 

Jobs in Compliance


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. 

BitCoin Founder Nominated for Nobel

nobelplaqueOkay, so, the Nobel Prize for Economics is not technically a Nobel prize since it is funded by the Swedish bankers, not the Nobel Foundation. Still, they call it that because the Nobel committee selects the winner. For 2016, Satoshi Nakamoto, the inventor of BitCoin, is being nominated.

Satoshi Nakamoto might not even be a real person, although BitCoin administrators say he is. He, if he is a “he,” is technically not the inventor of BitCoin but the inventor of cryptocurrency.

Cryptocurrency are any currency that exist digitally, uses a system of recording on a public registry record transactions and there is no central recorder. It is completely decentralized. There is one additional fact about Nakamoto’s invention that is unique: money supply. There is a finite amount of currency out there and it must be “discovered” by solving a mathematical problem in conjunction with taking on the server cost of recording BitCoin transactions. Basically, anyone can be part of the central bank because anyone can “create” money… kind of. They call it mining because it is more like mining for gold because the finite number has already been created.

There are many other cryptocurrencies out there, but BitCoin was the first to use Nakamoto’s system and it is the most prevalent.

Currently, a single BitCoin costs about $375, but it once was at $1,147.25. When I first heard about it, before all the craze three years ago, it was worth just pennies. I heard about it because it was a major crime facilitator. It allowed people to buy and sell drugs without leaving a financial trace. Of course, there is still the thorny problem of having to give/receive the drugs, but with BitCoin there was one less piece of evidence of it. It was safer than cash because the transactions can be tied to specific accounts, making it impossible to steal.

BitCoin and other cryptocurrencies are an experiment in decentralized banking. The current boom in payment technology are also decentralizing the banking system. While having control over our own financial transactions is good, a decentralized banking system comes with other problems we might not yet be ready to face. Such things as financing murder and terrorism, which does happen with cryptocurrency. The statistics are not out there to show how much of cryptocurrency is used for such transactions, but the intelligence agencies are doing their work to find it.

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. 

Yellen Tells Nader To F@#k Off

from LiveMint

Ralph Nader, the self proclaimed protector of the consumer, now wants to save savers. He accosted Janet Yellen, Federal Reserve Chairman, for the zero-percent interest rate monetary policy in The Huffington Post. In his An Open Letter To Chairwoman Yellen From the Savers of America, Nader also told Yellen to she “should sit down with your Nobel Prize winning husband, economist George Akerlof, who is known to be consumer-sensitive.”

from veooz

Yellen didn’t get to where she is now by being a shrinking violet. While she normally let’s idiots yap away, Nader is just influential enough with the right types of people… and since he implied her inferiority to her husband in what seemed to be a veiled attempt at commenting on the general inferiority of women to men, she decided to use her market moving voice to rip Nader a new asshole. (My phrasing, of course.) In her November 23, 2015 response letter from her desk at the Federal Reserve, Yellen politely schooled Nader on basic macroeconomics. Things like how low interest rate has kept the economy from complete collapse, a result that would have wiped out savers. Or how low interest rate has provide price stability, which is necessary for planning an economy, including planning for employment. Or how high unemployment means people needing to dig into their savings to fund everyday costs, making any meaningful interest rate increase a very temporary relief since interest rates would have to increase to the level of spending in order just to keep people’s wealth flat. If one thinks about it, is a very high interest rate since the median savings of a household with an average age of 65 is about $171,000. If people live on $11,770 per year, the line of poverty, interest rates would have to be about 15% per year just to have savers stay even. This is the reason why lowering the interest rate for borrowers to finance new economic-business activity and earning our way out of an economic collapse is far better than charging borrowers a high rate of return for savers. And let’s remember, net-savers are wealthier than net-borrowers, generally.

Here’s a little advice from me to you, whoever is reading this: don’t mess with Yellen on intellectual grounds unless you know you are as smart as she is. And if you know you are as smart as she is, then you are not.

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. 

Which Star Wars character would be the best Compliance Officer?

Star Wars is about a rebels who are seeking to reinstall a democratic system from an empire. It has brought some iconic characters. Let’s take a look at the characters and see what kind of compliance officers they’d make.

Han Solo: A go-it-alone type of guy, though he does have his trusty sidekick/partner, Chewbacca. He makes decisions based on his own understanding of the world. He is not extremely open new ideas without seeing some sort of evidence. He doesn’t like taking orders, though, which is fine for small investigations, but Compliance is a team effort with an organizational structure around it. – 6/10

Luke Skywalker: Naive but willing to learn. Persistent but most of that comes from his personal reasons, which isn’t something that comes up very often in Compliance. He learns to think more systematically, but his wisdom is learned at the cost of his right hand. Pretty steep cost for education. – 7/10

Princess Leia: Has a strong moral compass, but it comes with stubbornness and not very resourceful. She is stubborn and prideful, which doesn’t serve a cause, it just serves her ego. She isn’t resourceful in that she doesn’t take advantage of her uniqueness as the only woman among men, believing that it isn’t appropriate. She is right, of course, but that’s the two sides of morality and resourcefulness. – 7/10

Chewbacca: All instinct, no forethought, his decisions often lead to more damage. He is good at execution, however. He gets things done. He doesn’t get distracted very often. on the other hand, he often does not understand humans, which is a problem in Compliance. Both in terms of managing the business and complying with regulations, he would have to learn to shore up this weakness. – 2/10

Darth Vader: He is deluded into thinking that has chosen the correct path. Once doing so, he is dedicated, competent, and strategic. His management style is a bit of a concern. He kills people when they do not perform. Murder isn’t a management technique a Compliance Officer can condone. – 5/10

C-3PO: Incredibly knowledgeable about protocol, but completely oblivious to applying that knowledge. A serious deficiency that leads him to trouble and many times leads his team into trouble. He only seems to make right decisions under perfect conditions, which, in reality, there is no such thing. – 4/10

R2-D2: Feisty, persistent, exact, stubborn, dedicated, he makes the right decision all of the time. His only limitation is his physical being. But in Compliance, that should not be a problem. One problem, though, is his inability to acquire human language. That’s a problem since managing Compliance on all front require good communication skills. – 8/10

Obi-wan Kenobi: Hermit, once capable, dedicated, persuasive, he would be very good for AML, financial crimes, investigations, or advisory, but he doesn’t really have the best management skills. He is incredibly persuasive, but that does not mean that he can solve every problem that way. Still, he is incredibly adaptable, which is a good skill to have in an ever changing regulatory environment. – 8/10

Boba Fett: Rugged, independent, resourceful, and is a good detective. But he really only works for himself. This is a problem, of course. Compliance is a team effort with an organization and a division of labor. He isn’t likely to fare well trying advise people. He is more likely to get impatient and kill them. – 3/10

Lando Calrissian: A gambler, good at reading people, has his head on straight, is a charismatic leader of a city, he has many connections, he is a very good businessman. He is a well-rounded professional, adaptable. I wouldn’t trust his technical abilities, though. He doesn’t seem like a kind of person who would know how to fix things. – 9/10

Jabba the Hut: Good natured, albeit, deadly. Powerful, leads a very diverse organization with a wide reach. However, he is impatient and likes to be entertained. Compliance is not usually entertaining. Also, he wouldn’t do well being part of a team unless he was leading. He is also vengeful and keeps score. A Compliance Officer has to be able to let go because not everything can be solved right away. – 6/10

Palpatine: Knowledgeable, powerful, learned, patient, strategic, tactically sound, leads a very compliant organization. Considering he was the person who corrupted the senate and took over as emperor, he is willing to break all rules to create his own. He would be a terrible Compliance Officer. – 1/10

Yoda: Wise, funny, knowledgeable, but is impatient and cranky. Patience is a requirement in a function that requires the partnership of other control functions. He has a history of working with other leaders, willing to debate and listen. A very good trait to have in a Compliance Officer. – 7/10

Okay, so, if you want to be a very good Compliance Officer and need a Star Wars character to look up to, look up to Lando Calrissian.

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: IRS is after rich people

News In Brief

non-complianceIt’s Time to Focus IRS Audits on the Superrich, Inspector General Says by Richard Rubin for Wall Street Journal

“HR departments get a bad rap. That’s because, for better or worse, they tend to excel at enforcing compliance.” by Lisa Nirell for Fast Company 

Common Interview Questions for Compliance Officers by Stella Osoba for Investopedia 

The top 6 Governance, Risk and Compliance certifications by Kim Lindros and Ed Tittel for CIO 

Advisors Take Note: Compliance Officers Are Watching by Bernice Napach for ThinkAdvisor 

3 Tips for Smarter Use of Compliance Technology by Rebekah Mintzer for Corporate Counsel

Banks need to invest more on tech for Basel III compliance: Report from India Times

“Regulatory Compliance LLC, based in Londonderry, is merging with National Compliance Services” by Eli Okun for Union Leader 

Is Compliance Keeping Up With Your Automated Advisory Tools? by Carlos Guillen for Financial Planning

“A new survey from Compliance Solutions at Charles Schwab finds the role of the compliance officer is evolving and growing in scope across corporate America.” by TMC News 


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. 

Pope, the Chief Compliance Officer


The Vatican bank, yes, the Vatican has its own bank, has the notorious reputation for being run like the Mafia. For that matter, it has always been run by Italian cardinals, usually the chief of the Curia, the Vatican government. Last year, its chief, Cardinal Bertone, was forced to step down under charges of financial crimes. Luckily for him, the Vatican is its own micronation and it answers to no one. To make sure Italy does not take over, it is guarded by the Swiss, another secretive organization.

In order to combat this reputations, which seems deserved, Pope Francis put together his person curia of sorts to oversee all aspects of the Vatican, including the Curia of the Holy See. The team of nine cardinals are all non-Bertonians, five of them are not even European… GASP!

I bring this up because November is a time when the Pope goes into his residence and often ruminates on the issues of the people. In 2013, he published his most famous Apostolic Exhortation, which focused primarily on refocusing the church from social issues to socio-economic issues. He did not support contrary views to his predecessors, but he did emphasize that the Catholic Church is not pro-capitalism, and that it should seek ways to help the poor and the sick. He was so clever to avoid changing the established viewed that he even combated the idea of science-vs-religion, and that he believes science explains somethings but it does not and will not ever explain everything, and it is in that knowledge of the unknown that he knows there is a place for God. In 2014, he shook up the Holy See more than the rest of the world by ordering the Vatican to install showers for the homeless. What will he do this  year?

I bring this up because I want to point out something he’s doing that compliance officers can learn from. He is staying well within his powers, explicit and implicit, to make changes. Compliance departments has to be sensitive to the needs of the business, obviously, because ultimately the business exists to help clients. Compliance have to balance that with satisfying regulators that the business has been doing everything its power to stay diligent on maintaining a culture of compliance, strong oversight and controls, and a responsive financial crimes units. Without these, the alternative will be a regulator in every financial institution, and no institution will be able to differentiate itself.

Things you can do:

  1. change the tone of the interactions with the lines of businesses,
  2. talk to regulators more frequently than requested,
  3. don’t make the letter of the law rule decisions.

All of these things do not replace what Compliance Departments have to do, but they do provide a way to make it easier for lines of businesses to deal with Compliance issues, get regulators to understand that you are doing more than defending yourself, and refocus Compliance to the goals of rules, not the technical rules of them.

Of course, if you are intent on doing the least bit possible, I can’t help you. And I would imagine Pope Francis wouldn’t want to help you either.

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. 

Let’s help marketing departments and regulators at the same time

I don’t normally discuss other blogs, but I recently spoke with Jack Kelly, famously from ComplianceX. He reached out to me because he noticed this blog. He shared with him his ambition for his media presence and why he has been so active in social media when his primary business is in Compliance Recruiting.

This post is about Kelly’s Social Media (SoMe) mistake, and how compliance officers can learn to help marketing departments and think from the regulator’s perspective.

NOTE: this is NOT a paid post. However, I can honestly say that I’ve known about Jack Kelly for years and he is reputable. For your firm’s recruiting needs, Kelly’s Compliance Search should be among the top sources. Candidates should also flock to him.

Jack Kelly’s primary business is in recruiting compliance officers for financial institutions. He also has started doing a podcast, has a blog, and has a book. ComplianceX is the blog, Compliance Jobs is job board, but Compliance Jobs TV is on ComplianceX and many of the jobs on the Compliance Jobs is for positions Compliance Search is trying to fill. And his book is a product of what? Him as an expert? Him but published by his recruiting firm? Or is it published by his job board? See the confusion here?

He proliferates his businesses everywhere. This strategy is great for getting awareness, but does not do much else. The transaction cycle for marketing begins with awareness, but it must ultimately lead to a transaction of some sort. That’s why Facebook is a great place to get your products noticed but you would use Pinterest as a possible point of sale. His content allocation is also confusing. While much of Kelly’s material deals with recruiting, about half of what I have been exposed to does not. For this reason, I wasn’t sure if he was fully in the recruiting world anymore when I recently left my firm. I thought maybe he was really just a job board. Plus, his strategy might reach HR professionals, but it does not really reach Chief Compliance Officers. HR professionals reach out for candidates and help with the transaction but the transaction ultimately is made by CCO’s and other compliance leaders.

In order to fix this, he would have to:

  1. make a clear delineation between his media presence and his recruiting work,
  2. hone in convincing clients, firms and candidates alike, to use his recruiting services,
  3. tackle his media ambitions separately.

Convincing clients to work with him for recruiting purposes requires him to share stories about recruiting struggles and successes, his recruiting process, etc. This channel should be embedded into Compliance Search, Kelly’s recruiting firm. The job board can sit separately but does not produce media related to recruiting, which kind of makes it a company that doesn’t produce any media, but at least it wouldn’t be confusing.

Then he can pursue his media ambitions in a variety of ways. He can promote himself as a compliance recruiting expert. He can focus his ComplianceX blog on compliance related issues, opinions, etc. anything but recruiting.

This strategy presents his value proposition in three or four products. Each product targets different needs.

If you work for a small firm where everyone is essentially part of the marketing department, this delineation strategy will help you to create more revenue sources and target the specific needs of potential clients. Sadly, this might also mean that your current clients might only find some of your products useful and stop buying the rest. But as with any strategy, you must give up some of the status quo for the much bigger future.

But this is also important for regulatory compliance. All of the financial regulators have opinions about financial products and they all are suspicious of product bundling. Pooled products used to be a way to reduce costs, making the market more liquid. Now, liquidity is not a concern for regulators. Opportunities for abuse in pooled products are just too big. Just think about the Volker Rule. The purpose of it is to separate transactions depending on the type of client and/or the firm. I provide an example below.

Not all financial products need to be unbundled. Even for Jack Kelly, his activities need not be clearly delineated. Obviously, he is doing quite well without doing so.

The point is this, for business, clear delineation of value propositions sets up the business in a ways that is easily comprehensible for both clients and regulators. It reduces regulatory risk while potentially growing the business.

So, there you have it: Compliance Officers can help revenue centers.

Volker Rule Example: If Client X wants to sell 100 shares of Global Sources and my firm also wanted to sell 100 shares of the same, it would reduce cost to just sell 200 shares at once as a single transaction. Volker Rule does not allow the broker-dealer to pool the shares. The reason for this is that while the sell order goes out as 200 shares, but the actual sales might take place is smaller blocks at various price points, which requires some complicating account to figure out whose shares sold at what price, and so on. 

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.