Earlier this year, Interactive Brokers was fined $11.5 million by the SEC, $15 million by FINRA, and another $706,000 in disgorgement by the CFTC, all resulting from BSA and books and records violations. This is a significant amount of money, and when you add up the additional reputational damage as a result of a highly reported case in the media, it’s easy to see why firms should take anti-bribery and corruption compliance seriously.
It’s clear that this could have been avoided. When Interactive Brokers started to rapidly grow in 2013, compliance was unable to review reports in a timely manner. One compliance manager at the time warned of being “chronically understaffed,” and the firm didn’t have the resources to monitor, detect, escalate, and report suspicious activity.
There are a lot of lessons to learn from this case, as well as other high-profile cases that have made headlines recently. We highlight a number of tips & tricks below to help CCOs maintain anti-bribery and corruption compliance.
Tip #1: Avoid a “Check-the-Box” Approach to Compliance
If there’s one thing your firm should avoid, it’s a “check-the-box” approach to compliance. That’s a major lesson we can learn from Interactive Brokers, a firm that had basic written policies in place, but lacked the mechanisms for monitoring and reporting.
Now’s the time to take a fresh look at your program. A clearly defined policy against corruption and a code of conduct are of course important, but even more necessary are proper monitoring and reporting procedures to confirm employees are following the rules, complete with an audit trail for regulators.
To ensure the effectiveness of your program, one suggestion is to support ongoing anti-bribery and corruption training and conduct regularly scheduled risk assessments.
Tip #2: Don’t Outgrow Your Compliance Program
As Interactive Brokers grew, its compliance program couldn’t keep up. The firm didn’t have strong enough compliance procedures in place to handle the rapid growth.
However, the firm’s compliance team knew this and tried to sound the alarm. For CCOs, a first step to get ahead of growing pains can be to bring in a seasoned consultant to help implement best practices and provide strategic insights around program success or gaps. It’s better to be proactive and do this voluntarily, versus having regulators force it upon your firm as an added penalty after a violation.
Consultants can help CCOs create a culture in which compliance is treated as a priority as opposed to an afterthought.
Tip #3: Use Technology to Alleviate the Burden
In the case of Interactive Brokers, the SEC states that the firm failed to file more than 150 suspicious activity reports flagging potential manipulation of microcap securities. Another issue was an inability to combine the information generated by various reports and identify patterns over time.
Many firms can achieve the above goals by implementing cost-effective technology that automates compliance workflows, such as tracking trading activity against rules and regulations, as well as generating reports as needed and storing them in a central place. This makes it easier to see trends and comprehend the full scope of activity.