Former SEC acting chairman and commissioner Laura Unger says companies should adopt cutting-edge technology and a best practices approach if they want to keep ahead of the regulators and avoid costly fines."You should not wait for the regulators to tell you what to do," says Unger, SEC commissioner between 1997 and 2002, and SEC acting chair during the transition to President George W. Bush's administration.
"There are expectations from regulators that you're looking to implement cutting-edge technology for compliance, depending of course on your company's budget. The expectations are definitely there," she underlined, speaking at last week's Actimize Client Forum in New York.
Of course, even the best compliance systems can potentially miss something like microstructuring. The practice, used to launder money in the U.S., involves small deposits being made into bank accounts in the U.S., and funds being withdrawn at ATMs abroad.
Criminals might deposit $100 at a time, an amount that is often small enough to bypass detection. Regulators are aware of these difficulties, Unger said, but they still want to know that you are doing your best to uncover any irregularities.
"You need to prioritise your internal controls. And you need to constantly ask yourselves, where are the soft spots in your organization?" she said.
Of course, you should never develop compliance standards you cannot enforce - or that too will put you in trouble with the regulators, added Unger, who is regulatory expert of CNBC.
But she pointed out that the SEC relies on having "compliance people in the front line".
"The SEC really expects you to tell them if there is a problem," she told the packed audience of Wall Street executives and technology experts.
In addition, regulators are "not particularly forward-thinking," Unger said. "They are reactive, not proactive. The SEC is a lagging indicator of the markets. It's playing catch-up."
Regulators are therefore slow to adopt rules. But if you already adopt best practices - credible ones - you are mitigating your risk of falling prey to regulatory anger, Unger said.
In the meantime, if you do uncover any unusual or suspicious patterns, "you need to self-report," Unger urged the audience, suggesting that companies might uncover some industry-wide problems that regulators don't even know about. "In that case, it's in your best interest to look into them and report them, for your reputation as well," she said.
Regulators now often carry out industry-wide sweeps, she said. "Before, if your competitor got fined, you'd just think, 'too bad.' Now, it usually means you could be next. If the SEC is in doubt about an industry problem, it will carry out a Street sweep," she warned.
In the meantime, it is important to remember that when the markets are up, everyone is happy and the regulatory hammer is unlikely to fall.
"Regulatory action often follows a market downturn and a loss of investor confidence," Unger said.Former SEC acting chairman and commissioner Laura Unger suggests that to keep ahead of the regulators and avoid costly fines, Wall Street firms should adopt cutting-edge technology and.... 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