Employee conflicts of interest can arise just about anywhere in an organization. Traditionally, compliance officers have handled the monitoring and tracking of potential conflicts manually, using spreadsheets and email. But in the age of Big Data, this has become a near impossible task. But beyond even just managing the volumes of data coming in from so many different sources, as businesses grow and more employees are onboarded the chances of potential conflicts and regulatory breaches occurring increase. That’s why it's critical for firms of any size to have in place software solutions that review information flows and surface potential conflicts before they materialize.
How Can Firms Better Manage Employee Trading?
Employee trading, also known as personal account dealing, is likely at the top of the list for any compliance professional looking to lock down potential conflicts. Modern compliance software makes this job far easier than it used to be. It all begins with pre-clearance: employees log in to the compliance platform, fill out a simple request form, and await an automated approval or denial. This decision is typically made within seconds. If for any reason the software can’t give a quick yes or no, the request is automatically escalated to a compliance officer for further investigation or review.
Good software also affords a single, easily accessible place for the compliance officer to record any necessary casework. It will also collect data from systems across your firm, integrating easily with them. This means more accurate conflict detection. Further, some compliance platforms can be configured to draw data from external sources, like news feeds. Cross-referenced with pertinent internal data, this puts even more investigative power into the hands of the compliance team.
How Can Firms Better Manage Outside Business Activity?
Like personal trading, outside business activity (OBA) is always on the shortlist of serious concerns for compliance departments when it comes to the potential for employee conflicts. Common situations of concern for compliance professionals include: family members or similarly connected individuals working at other organizations; the holding of board-level roles outside the organization; charitable donations; and directorships. As with personal trading, pre-clearance is the compliance officer's best friend when it comes to managing OBA: employees log in to the compliance platform, fill out a request form, and await an automated approval or denial on whatever it is they want to do. As with personal trading, good compliance software also affords a single, easily accessible place for the compliance officer to record any necessary casework if an OBA request is escalated for further review.
Certifications and attestations also go a long way toward helping compliance manage OBA, and good software allows compliance officers to tidily collate related employee data at regular intervals for such critical sends. They can also use such software to push out information to employees at every level of the organization, such as the latest firm policies and regulations, so everyone can confirm they've read and understand them. And, as always, such centralizing software can provide further proof your business is doing everything in its power to detect and prevent conflicts of interest when or if regulators come knocking, as it makes retrieving information necessary for audits easy and efficient.
How Can Firms Better Manage Private Investments?
Conflicts of interest can arise in many forms. Private investments that collide with a company's code of ethics or with regulation can cause problems for not just the firm but for individual employees, too. Pre-clearing this activity means that before any personal investment is made, that person must first check in with compliance to make sure it doesn't conflict with any rules or regulations. As has already been discussed, automated pre-clearing via the modern marvel of a compliance software solution is the key to making this part of your firm’s compliance program both more efficient and more effective.
Employees fill out pre-clearance request forms in the compliance platform and receive an automated yes or no, typically within seconds, based on how you’ve set the system up to respond. If a quick yes or no response can’t be generated, the system will automatically notify compliance of the need for further review. If for some reason you’d rather not use the automated response system, you can instead have all private investment requests routed through pre-set review channels you define. With good software–the kind designed for ease of use at every level of an organization–the choice for how you make decisions that affect the wellbeing of your firm and its employees should always be yours.
How Can Firms Better Manage Political Donations?
Since its adoption in 2010, the SEC's Advisers Act Rule (a.k.a., the pay-to-play rule) has prohibited investment advisers from receiving compensation for advisory services provided to government clients for a period of two years after any political campaign contributions have been made by the adviser or their covered personnel to certain officials of the government. This is intended to prevent the making of political contributions to candidates for public office who are in a position to influence the award of advisory contracts for things like public pension funds. The SEC continues to actively enforce this rule.
The pay-to-play rule specifically requires firms to monitor and pre-clear employee political contributions. As you might expect, the key to effective monitoring is automation. Paired with accurate and timely data, it can provide compliance teams with a single source of truth, from which they can identify and react to conflicts faster. Look for compliance software that allows employees to submit pre-clearance requests for the donations they’d like to make, with any request that can’t be handled by the software automatically escalated to compliance for further review and investigation.
Good software will also allow administrators to create custom profiles for each employee, as well as apply donation limits to specific user groups and set related review thresholds. Contributions data should also be updated frequently, with a system that automatically finds it in all the far-flung databases it might reside in. Since the pay-to-play rule requires improper donations to be identified and withdrawn no more than four months after the contribution is reported, this kind of timeliness—combined with exhaustive comprehensiveness—can make all the difference when it comes to reducing the considerable firm risk associated with employee political donations.
How Can Firms Better Manage Gifts & Entertainment Spending?
Wining, dining, and gift-giving are time-tested ways of conducting business, and can be crucial to maintaining good firm-client relations. But if not properly managed, all that schmoozing and boozing can result in conflicts with internal codes of ethics and external regulations. Once again, pre-clearance is the answer, with the firm's code of conduct programmed directly into your compliance software.
With good software, each request will be assessed individually, taking into account the role of the employee in the company, the individual’s gifting allowance, the nature of the gift, and the relationship of the giver or receiver to the firm. It will also collect and integrate data from other firm systems, and be automatically cross-referenced when any gifts-and-entertainment request is made. Look for easy integrations, so that information from other firm systems–like human resources–can be used for cross-checking. Good compliance software should also aggregate spending related to specific individuals or companies to ensure that limits for each client, supplier, or employee aren't exceeded.
For more information, read our blogs on how to manage personal trading, how to manage outside business activities, and how to manage private investments. You can also learn more about how enterprise financial firms can manage gifts and entertainment spending here.