When It’s Business…and Personal

The Case of Raymond James 

In the month since FINRA announced total of $17 million in fines against financial adviser Raymond James and its financial services affiliate, two threads have circulated through social media.  The first took note that broker-dealers were now squarely in the enforcement sights of regulators.  The second focused on the piercing of the corporate veil and the penalties administered to James’ former AML Compliance officer.

And while each is worthy of a careful ‘unpacking’  (see previous and future posts for more), I want to suggest that there’s a deeper message for all financial services providers in the FINRA announcement.  It’s located in the second paragraph (following) of the Authority’s May 18th press release.

“RJA and RJFS’s significant growth between 2006 and 2014 was not matched by a commensurate growth in their AML compliance systems and processes.  This left RJA and [Linda] Busby, as RJA’s AML Compliance officer from 2002 to February 2013, and RLFS unable to establish AML programs tailored to each firm’s business, and forced them instead to rely upon a patchwork of written procedures and systems across different departments to detect suspicious activity.  The end result was that certain “red flags” of potentially suspicious activity went undetected or inadequately investigated.  These failures are particularly concerning given that RJFS was sanctioned in 2012 for inadequate AML procedures and, as part of that settlement, had agreed to review its program and procedures, and certify that they were reasonably designed to achieve compliance.”

Four key points in those 129 words.  First, successful growth wasn’t accompanied by growth in the systems and procedures for assuring compliance.  Just as the child that grows more rapidly than a parent’s ability to re-stock their wardrobe shows ankles or wrists, RJA and RJFS ended up revealing serious gaps.  The message is simple – as business grows, so does the responsibility for extending its compliance capabilities.  Key concept – scalability.

Second, instead, the firms chose to rely on “…a patchwork of written procedures and systems…”.  Patch-worked solutions, especially those involving substantial volumes of data, typically lead to the institutionalization of ‘data silos’ – discrete, difficult-to-combine evidence repositories; a recipe for undetected or inadequately investigated transactions.   Key concept – data unification.

Third, “red flags”, not yellow or green were missed – suggesting that systems and procedures were in the hands of investigators who were either poorly or inconsistently trained to recognize them.  Hiring and training compliance investigators is an all-too-common problem.  When coupled with a ‘patchwork’, the result can be incendiary.  Key concept – consistency.

Finally, RJFS had agreed to audit and certify compliance procedures as part of an earlier reprimand.  In failing to address these issues earlier, RJA and RJFS were betting that earlier mistakes would be forgotten.  When enforcement came to call, they could not demonstrate any progress to resolve the previous three points.  Key concept – audit-readiness.

Technology Can Close Procedural Loopholes 

Those four concepts – scalability, data unification, consistency, and audit-readiness – are important for every financial institution covered by the Bank Secrecy Act of 1970 and associated regulatory legislation, not just for Raymond James.  Growth, fragmented solutions, staffing, and archiving are now listed in the AML enforcement playbook as dimensions for potential shortcoming.

Is there a solution that efficiently scales with growth (organic and M&A-led), which integrates existing evidence solutions, establishes consistent investigative procedures, and generates an audit-worthy narrative automatically?

There is.  Several prominent banks are using a solution that targets the complexity of the tasks they’re asking AML investigators to perform.  Instead of consulting dozens of screens to collect evidence with bearing on the case they’re investigating – then, compose a case summary and prepare an audit narrative to document its disposition, they are delivering a single, interactive screen.  The screen auto-formats all relevant evidence into a suggested investigative workflow, supporting faster, more consistent analysis and disposition.  At disposition, the solution automatically generates a complete evidentiary narrative, and archives it for future review.

In one global bank, analyst productivity has increased three-fold (four cases close in the time it took to close one).  Analysts spend MORE time analyzing evidence, increasing the likelihood of a more accurate assessment and improving the certainty of the investigation.  Silos are integrated, consistency is enforced, and efficient scaling is supported.

That’s a solution that can meet the expectations of regulatory enforcement – addressing each of the challenges front-and-center in the case of Raymond James.

Most importantly, the solution is compatible with any existing combination of transaction monitoring, case management and KYC solutions you deploy.  And it can generate substantial time savings, as well.  Here’s a link to an eBook that outlines the solution.


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