Internal controls make the modern corporation succeed in meeting its compliance obligations. But lean too far into hard, technical controls and you risk alienating your people. Rely too heavily on soft controls and your compliance function may end up toothless. Oh, and you need to make sure your controls, both hard and soft, can integrate into your corporate culture.
S ometimes profound lessons about corporate compliance emerge from obscure places. Such was the case in ]ĔŕÕČÊÕİʞŖñÕč²ĴÕËŁİõļõÕĴţİČ was sanctioned for dabbling in a trading practice most compliance ĔêţËÕİĴñ²ŕÕĭİĔʲÊĆŘčÕŕÕİñÕ²İÑ of. ñÕţİČõčįŁÕĴļõĔčŖ²Ĵ²čăĔê ČÕİõ˲ÕËŁİõļõÕĴʞţčÕÑˇɿʁČõĆĆõĔč by FINRA, the principal regulator for ÊİĔăÕİʴÑÕ²ĆÕİţİČĴʣñÕõČĭİĔĭÕİ ËĔčÑŁËļŖ²ĴʼĴĭĔĔţčëʞʽŖñÕİÕ² trader places bogus orders he has čĔĭĆ²čĴļĔêŁĆţĆĆʞļĔÑÕËÕõŕÕĔļñÕİ market participants into trading at a time, price or amount that they otherwise wouldn’t. In this case, two Bank of America traders ŖÕİÕĴĭĔĔţčëļñÕČ²İăÕļêĔİʣʣ Treasury securities for years. Bank of America did have written policies and procedures against ĴĭĔĔţčëʨõļāŁĴļÑõÑčʿļõČĭĆÕČÕčļ proper surveillance or supervisory İÕŕõÕŖĴêĔİĴĭĔĔţčëêĔİŘÕ²İĴʣ¥ñÕč õļţč²ĆĆŘÑõÑʞļñĔĴÕĴŁİŕÕõĆĆ²čËÕ²čÑ review measures didn’t match how
employees could actually trade on Bank of America platforms. So what’s the profound lesson ñÕİÕʤEļʿĴčĔļ²ÊĔŁļĴĭĔĔţčëĭÕİ se but rather about how Bank of America had weak internal controls to enforce its policies and procedures. Time and again, in one industry after another, that’s the issue for ËĔČĭĆõ²čËÕĔêţËÕİĴʣ§ĔŁİËĔČĭ²čŘ has policies and procedures that look great (Bank of America’s did), but the controls to put those policies and procedures into force don’t work as intended. Maybe the controls were designed poorly. Maybe you have too many of one type of control and not enough of another. Maybe the nature of your transactions or technology raced ahead of what your controls can do. Regardless of the exact reason, internal controls are where ËĔČĭĆõ²čËÕĔêţËÕİĴčÕÕÑļĔêĔËŁĴ their attack. Internal controls are what makes the modern corporation succeed at its compliance obligations.
14 | March 2024
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