Compliance

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How Broker-Dealers Can Avoid The Wrath Of Regulators

Here are 10 outsourcing best practices from Broadridge.

Regulators are increasingly strict about holding broker-dealers accountable for any missteps caused by third party vendors and are ready to hand out hefty punishment to those who aren't vigilant enough about their outsourced activities.

A proposed FINRA rule 3190, which is expected to be adopted by June, states that a firm must maintain a supervisory system and written procedures for any functions performed by a third party that are designed to ensure compliance and must conduct ongoing due diligence to ensure the vendor is capable of performing the functions in a compliant manner.

Broadridge recently interviewed several broker-dealers regarding their compliance practices.

As a result, it compiled a list of top 10 outsourcing best practices for broker-dealers:

1.Treat all outsourced activity with the same standards that you would use in-house.

2.Leverage new technology to help you stay in compliance

3.Carefully research any new vendor's reputation before deciding to use its services.

4.Identify unique situations you could leverage to trigger audits, and don't be afraid to dig into your vendor's work.

5.Know your vendor's compliance controls then review audits and other compliance documents.

6. Familiarize yourself with your vendor’s legal compliance reviews, then review the results.

7. Discuss your vendor’s data management and security policies and processes.

8. Know your vendor’s disaster management and recovery plans, as well as your own emergency back-up plans.

9. Aid each vendor in creating service benchmarks, then review their SLAs.

10. Maintain meticulously detailed records to adequately protect yourself in case of inquiry or investigation.

Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio

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