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NSCPCurrents
FOR COMPLIANCE. BY COMPLIANCE. NATIONAL CONFERENCE EDITION 2021
A SNEAK PEEK
2021
NSCP
NATIONAL
CONFERENCE
©2021 National Society of Compliance Professionals, Inc.
1 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTS
In This Issue NSCP National Conference – A Sneak Peek 5 Preparation for Disasters and Other Unexpected Events 9 Financial Forensics – Show Me the Money!! 11 Insider Trading Trends and Evolving Compliance Best Practices 13 Performing Robust Testing of Policies and Procedures 15 Will AI Revolutionize the Financial Services Industry 17 Increase Your Effectiveness By Decreasing Your Stress 18 How To Detect and Prevent Misappropriation 21 What to Know Before Going Global 23 Converting Critical Enterprise Risks into a Usable Risk Matrix 24 Fundamentals of Anti-Money Laundering 26 Finding a New Paradigm: The Impact of Technology on Compliance Does Not Have to Mean a Choice Between Innovation and Disruption 27 Understanding the Ever-Changing Landscape of Alternative Investments 28 The Foundation of Any Great Business 29 Lessons in Cybersecurity – Regulatory Expectations 31 New SEC Marketing Rule Got You Down? Don’t Worry. NSCP’s Got You Covered! 32 Five Tips for National Conference Attendees 33 Continuing Education at the 2021 NSCP National Conference 34 Welcome to National Harbor 35 NSCP Conference Exhibitors 37 2 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTS
Platinum Sponsor Testimonials
“NSCP’s National Conference has provided me with practical
yet powerful content to help keep me on top of the regulatory
landscape.”
– Cathy Vasilev, Red Oak Compliance
“Attending NSCP’s National Conference has provided us key
educational experiences that have enabled us to provide great
value to our clients. We find the sessions informative and current,
and we appreciate the opportunity to engage with representatives
of the various regulatory bodies each year.”
– Michelle Abramowitz and Gary Fox, The SDDco Group
“We support NSCP because it is a ‘Society’ of like-minded
professionals and the only industry group that enables compliance
professionals from all types of firms to interact and exchange
ideas.”
– Louis Dempsey, Renaissance Regulatory Services, Inc.
3 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTS
Now That Our Sales Have Ended,
Take Advantage of Our Group Pricing
Maximize your savings and your educational opportunities
at the NSCP National Conference this year!
2021 NSCP NATIONAL CONFERENCE
Gaylord National Hotel in National Harbor, MD
November 8-10, 2021
Whether you’re new to the role or a seasoned industry veteran, the NSCP National
Conference provides an invaluable professional development opportunity for the
whole team.
Come one, come all – but if you come in a group of 3 or more, take advantage of our
significant registration discount of just $1,050 per person.
*Please note, to be eligible for these rates, groups must contain a minimum of three
attendees and register together.
REGISTER NOW
NSCP’s risk-free registration will provide a full refund if you need to cancel
for any reason before October 15th.
4 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTS
NSCP National Conference: A Sneak Peek NSCP is excited to give you a sneak peek of this year’s National Conference in National Harbor, MD. We hope you enjoy this preview featuring a wide array of conference information. Meet the keynote speakers, learn more about sessions through articles written by the panelists, obtain valuable tips, learn about Continuing Education opportunities, and plan your trip! Thank you to all our members, panelists, exhibitors and sponsors. We truly appreciate your commitment to NSCP and our compliance community. Please don’t hesitate to reach out to any of us here at NSCP. We’d love to speak with you and we look forward to seeing you at the NSCP National Conference! NSCP Staff info@nscp.org 5 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTS
Meet the Keynote Speakers
General Session with Keynote Interview (OPEN)
PROGRAM LEVEL: Keynote
DATE: November 8, 2021
TIME: 9:00 am - 9:45 am
In her interview with Brian Rubin, SEC Commissioner Caroline Crenshaw will address questions
from NSCP members on compliance topics ranging from CCO liability to the Marketing Rule, and
much more!
Commissioner Caroline Crenshaw
U.S. Securities & Exchange Commission
Caroline A. Crenshaw was appointed by President Donald J. Trump to the U.S.
Securities and Exchange Commission, unanimously confirmed by the U.S. Senate, and
sworn into office on August 17, 2020.
Commissioner Crenshaw brings to the SEC a range of securities law and policy
experience and a commitment to public service and the SEC’s mission. Most recently, she served as Counsel
to Commissioners Kara Stein and Robert Jackson, focusing on strengthening investor protections in our
increasingly complex markets.
Commissioner Crenshaw also served as a career SEC staff attorney in the Office of Compliance Inspections and
Examinations and the Division of Investment Management, helping oversee the institutions that manage millions
of Americans’ savings. In addition, Commissioner Crenshaw currently serves as a captain in the United States
Army Reserve, Judge Advocate General’s Corps.
Prior to government service Commissioner Crenshaw practiced law in the Washington, D.C., office of Sutherland,
Asbill and Brennan LLP. At Sutherland she represented public companies, broker-dealers, and investment
advisers on complex securities law investigations and enforcement matters.
Commissioner Crenshaw graduated cum laude from Harvard College and received a law degree magna cum
laude from the University of Minnesota. She is a native of Washington, D.C., where she currently resides.
Brian Rubin
Partner, Eversheds Sutherland (US) LLP
Brian Rubin is the leader of the Washington, DC litigation group of Eversheds
Sutherland (US) LLP and head of the SEC, FINRA and State Securities Enforcement
Team. Brian defends companies and individuals being examined, investigated and
prosecuted by the U.S. Securities and Exchange Commission, FINRA and states. He
also represents clients in litigation and arbitrations, and counsels them on regulatory
and compliance matters.
Before joining Eversheds Sutherland, Brian was Deputy Chief Counsel with the NASD’s Enforcement
Department, where he managed attorneys and examiners throughout the country. Previously, he was Senior
Counsel in the SEC’s Division of Enforcement. Brian received his J.D. and his M.A. in Economics from Duke
University and his B.S. degree from the Wharton School of Business of the University of Pennsylvania.
6 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTS
General Session Panel – Developments in ESG Investing (OPEN)
PROGRAM LEVEL: Keynote
DATE: November 9, 2021
TIME: 8:45 am - 9:45 am
As climate risk and other ESG developments continue to be a focus area for investors and the
capital markets, it is important for compliance professionals to ensure their firms align these
initiatives with their fiduciary duty and the evolving regulatory framework. This general session
will include a discussion on current regulatory expectations and ways to best implement and
manage ESG investing at your firm. Don’t miss this informative discussion among a panel of
experts.
David Curran
Chief Sustainability and Environmental, Social and Governance (ESG)
Officer Paul, Weiss, Rifkind, Wharton & Garrison LLP
Dave Curran is Chief Sustainability and Environmental, Social and Governance (ESG)
Officer at Paul, Weiss. In this role, Dave has dual responsibilities – to work with the
firm’s lawyers to lead its Sustainability and ESG Advisory Practice Group, and also to
develop and promote the firm’s internal ESG practices.
Dave is a recognized leader in helping complex organizations build resilience. In addition to his work in the ESG
space, he has more than 30 years of experience in legal, technology, compliance, risk and ethics roles. Dave
has led many popular Thought Leadership conversations with senior executives on a variety of topics where
business and technology intersect with the legal, compliance and risk ecosystems, including Transforming Law,
Big Data, #MeToo and many others.
Dave began his career as a media trial and appellate lawyer before moving to senior in-house legal, compliance
and regulatory affairs positions. He was previously Senior Vice President and Chief Business Officer at
FiscalNote, a legal AI/technology company, and held senior business and legal leadership roles with Thomson
Reuters, IntraLinks, Integrity Interactive, Havas, Vertis and Campbell Soup Company.
Dave serves as co-chair of the New York State Bar Association’s ESG Committee, which aims to educate and
engage New York lawyers, law students and faculty on ESG practices and developments through thought
leadership and robust educational programs.
Kelly Gibson
Acting Deputy Director of Division of Enforcement
U.S. Securities & Exchange Commission
Kelly L. Gibson is the Acting Deputy Director of Enforcement for the SEC. Prior to
starting in the Acting Deputy Director role, Ms. Gibson served as the Director of
the SEC’s Philadelphia Regional Office, overseeing a staff of approximately 160
enforcement attorneys, accountants, and specialists who investigate and enforce the
federal securities laws nationwide, and examiners who perform compliance inspections in the Philadelphia
region. Ms. Gibson joined the SEC in 2008 as a staff attorney in the Division of Enforcement in the Philadelphia
office, and joined the Market Abuse Unit when it was established in 2010. She was named Assistant Regional
Director in 2013 and Associate Regional Director in 2017. Prior to joining the SEC, Ms. Gibson was a litigation
associate at Ballard Spahr LLP in Philadelphia.
7 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTS
Bruce Karpati
Partner, Global Chief Compliance Officer
KKR
Bruce Karpati joined KKR in 2014, is a Partner of the Firm, and serves as Global Chief
Compliance Officer and Counsel. Prior to joining KKR, he was the Chief Compliance
Officer of Prudential Investments, the mutual fund and distribution business of
Prudential Financial. Mr. Karpati was previously the National Chief of the SEC’s Asset
Management Unit which he co-founded. In this role, he supervised a staff of 75 attorneys, industry experts, and
other professionals. Mr. Karpati joined the SEC as a staff attorney in 2000, was promoted to Branch Chief in
2002, Assistant Regional Director in 2005, and Co-Chief of the SEC’s Asset Management Unit in 2010. In 2007,
he founded the SEC’s Hedge Fund Working Group, a cross-office initiative to combat securities fraud in the
hedge fund industry. Mr. Karpati is on the Board of NSCP, and also serves as an adjunct professor at Fordham
University Law School. He began his career in private practice at Dechert LLP. Mr. Karpati earned his JD cum
laude from the University at Buffalo Law School, and his Bachelor’s degree cum laude in International Relations
from Tufts University
Eric Young
Founder and CEO
Young Enterprises LLC
Eric Young re-engineers Compliance & Ethics programs to enable regulatory health /
business growth. Eric teaches Corporate Compliance at the Fordham University School
of Law in New York City. He is also Founder and CEO of Young Enterprises LLC, an
enterprise compliance leadership forum, d/b/a “EthicalPebble Publishing”. He is also an
Advisory Board member of multiple technology companies including WebDoctors.com, HyperVerge, Inc. and AI
Data Innovations.
Eric has 40+ years’ regulatory, financial crimes and Chief Ethics & Compliance Officer (CCO) experience with the
Fed, JP Morgan, GE, S&P Global Ratings, and four foreign banks including UBS, and most recently BNP Paribas
(the large French bank). He therefore brings deep regulatory, financial services, and industrial compliance
experience at the enterprise, regional and divisional levels. He builds and sustains enterprise compliance
programs aligned with the US DoJ Sentencing Guidelines, Fed, NY State, UK Financial Conduct Authority, FCPA
and Basel standards.
Eric graduated from Columbia University at the age of 20, with a degree in Economics and has securities
licenses with FINRA and ACAMS-certified (exp 12/20). He is a frequent speaker/author, and featured in the
American Banker, Wall Street Journal, Forbes, and Reuters. He is presently completing his book, entitled
“Declaration of Independence” about the strategic partnership between the independent CCO and board of
directors to hold management more accountable.
Choose Your Own Agenda
The NSCP National Conference allows professionals to select the educational sessions that concentrate
in their fields of compliance whether it be Broker-Dealer, Investment Adviser, Investment Company,
Municipal Advisor or Private Fund. There are basic level sessions for newer compliance professionals,
as well as intermediate and advanced sessions for the well-seasoned compliance professionals. The
National Conference is the most valued conference for compliance education, providing many networking
opportunities and practical take-aways to enhance your compliance program.
We hope to see you there!
VIEW FULL CONFERENCE AGENDA >
REGISTRATION RATES >
8 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTS
Preparation for Disasters and Other Unexpected Events Did you imagine that more than 550 days would pass from the day that the world started shutting down for COVID-19 and we would still be primarily working in a remote work environment? That compliance programs would function, and firms could continue smoothly dealing with clients and the markets? Did you ever test your business continuity plan (“BCP”) for 72 hours or more? The simple response to these questions is most often, “No”. We are excited to facilitate a discussion on preparing for disasters and other unexpected events at the NSCP’s National Conference on November 8th at 11:30am. This session is designed for all members and is rated as “Intermediate”. Although this session is structured as a panel discussion, we envision and anticipate at least 1/3 of the session being dedicated to active sharing of your experiences. The panel’s focus will be to provide an overview of lessons learned and best practices related to: 1) Evaluating your firm’s BCP policy and procedures 2) Best methods for conducting tests and training for potential disasters 3) Changing regulatory expectations considering less focus on geographic location and more reliance on technology platforms 4) Other real life BCP events While we look forward to sharing our knowledge and experience that we have garnered over the past 18 months, we are most excited to hear from you. This topic is perfect for shared learning – we all went through (and quite frankly are still experiencing) likely the most disruptive BCP event in our professional careers. With the uncertainty of where COVID-19 goes from here, this is the ideal time to collectively discuss lessons learned from the COVID-19 pandemic experience. Topics that we believe will be the most engaging for sharing your experiences, good and bad, include: a) Your firm’s experience in adjusting to the COVID-19 pandemic in March 2020 b) Whether your BCP “held up” during the pandemic; was the plan as written helpful, or are you making changes to your BCP because of the pandemic? c) Best practices in managing your BCP: 1. Who is part of the business continuity committee or governance body? 2. How often is employee or vendor contact information updated? 3. How do you publicize access to the plan? d) BCP lessons learned: 1. What were the largest surprises that arose from recent BCP events (including but not limited to the COVID-19 pandemic)? 2. How did the COVID-19 pandemic change your view of disaster planning? 3. How did your employees address the transitions required to address COVID-19? 4. How has the COVID-19 pandemic experience impacted your firm’s BCP processes? 5. How have you had to pivot since March 2020 to continually address new issues? 6. How do you return to “normal” given the length of this event? 9 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTS
e) Future plans for your BCP
f) Best practices and struggles you have identified in testing your BCP
g) Best practices and struggles you have encountered in implementing a BCP training
program
h) Ideas for executing good tabletop exercises to identify valid outcomes
We look forward to reconnecting with you in November.
Session 2a. ALL – Preparation for Disasters and Other Unexpected Events
Panelists:
Lilly Farahnakian is the Global Chief Compliance Officer at GCM Grosvenor.
Robin Freeman is the Chief Compliance Officer at LaSalle Investment Management
Distributors, LLC.
Jeff Squires is the Founding Principal of Relativity Investment Management Consulting, LLC.
10 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTSFinancial Forensics: Show Me the Money!!
The story goes like this: A businessman was interviewing applicants for the position of manager
of a large division. He quickly devised a test for choosing the most suitable candidate. He simply
asked each applicant this question, “What is two plus two?”
The first interviewee was a journalist. His answer was, “Twenty-two”. The second was a social
worker. She said, “I don’t know the answer but I’m very glad that we had the opportunity to
discuss it.”
The third applicant was an engineer. He pulled out a slide rule and came up with an answer
“somewhere between 3.999 and 4.001.” Next came an attorney. He stated that “in the case of
Jenkins vs. the Department of the Treasury, two plus two was proven to be four.”
Finally, the businessman interviewed an accountant. When he asked him what two plus two was,
the accountant got up from his chair, went over to the door, closed it, came back and sat down.
Leaning across the desk, he said in a low voice, “How much do you want it to be?” He got the job.
Now, it can be enjoyable to poke fun at accountants and think that the firm’s books are some
sort of financial voodoo. That of course is not how the financials work. But for the compliance
professional, it may turn out that the CFO is one of the best resources when implementing a
compliance program.
Accounting records tell a story, and they are full of useful information. The good news is it doesn’t
take a CPA license to interpret financial records, but you do need some general knowledge of
financials to make them useful. It is also vitally important to your compliance program that you
have access to the financial records of your firm.
The basic financial reports are the balance sheet, the income statement, the statement of owner’s
equity, the cash flow statement, and the general ledger. We will look at three of these.
The balance sheet
The balance sheet shows your assets and liabilities. You want to look at trending changes in
balances and also for large changes. Also want to question old balances, especially in
payables and liabilities.
The income statement
The income statement shows your income and expenses over time. Ideally you would want
to look at a full year in monthly increments side-by-side. Look for large differences in income
and expense items as well as new categories of expenses.
The general ledger
The general ledger is where you can find details of all the financial transactions of your firm.
This is a great place to review periodically and dig into the dirt, if you will.
This may all look overwhelming, especially for someone who does not have a financial
background. Hear from a CCO where this is the case. You will not need to be an expert, just spot
the red flags and use other resources to assist you.
11 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTSWhy do all of this?
As a CCO, you are tasked with many duties, and the ability to detect or prevent fraud, AML
issues, financial difficulties, unreported income, and conflicts of interest are just some of them.
Having the general knowledge to accomplish this will be half of the battle.
But what happens when you cannot get access to your company’s financial records? We will
provide other hints and tools to help you persuade the business that the firm’s financials are yet
another (valuable) means for uncovering compliance issues and potential fraud.
Come join us Monday, November 8, 3:30 to 4:45 just before cocktail hour, and don’t let the
Intermediate label scare you.
Session 4a. ALL – Financial Forensics
Panelists:
Scott Bennewitz is the Chief Financial Officer & Chief Compliance Officer at RK Capital
Management, LLC.
Maureen Kiefer-Goldenberg is the Chief Compliance Officer at The Mather Group.
Linda Shirkey is a Managing Director at Bates Group.
12 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTSInsider Trading Trends and Evolving Compliance Best Practices In this segment, we will discuss Insider Trading trends and evolving Compliance Best Practices. We are pleased to be in the presence of industry experts and regulators who will assist us in meeting our educational objectives concerning insider trading trends, recent enforcement actions and teachable takeaways from such actions, examination and enforcement trends, and best practices. Our segment will culminate in a discussion regarding tangible steps compliance folks may contemplate, based on their firm’s unique, specific considerations, in their efforts to develop or strengthen their firm’s and/or funds’ insider trading programs. We plan to impart information and provide a reference guide of sorts to which you may refer when contemplating and testing your insider trading policies and procedures relative to your firm’s operating environments/business models. This will also be helpful with the operation/ implementation and ability of the procedures to be tested for effectiveness in a meaningful manner. We welcome your comments throughout this discussion as we aim to cover the following: • Enhance existing frameworks of supervisory controls and surveillance to help identify and prevent insider trading – i.e., revisit requirements of MNPI programs • Discuss recent SEC enforcement cases and lessons learned/teachable moments. • Discuss recent Insider Trading-related trends and certain so-called best practices/expert networks and other consultants – in our aim to eradicate the increasing concerns in this space. • Review some of the tools and considerations utilized by compliance professionals and often reviewed and adopted by mutual fund Boards of Directors (and Fund counsel and counsel to the Independent Trustees) – which must also focus and essentially rely on a finding with respect to an Insider Trading Program being designed, effectively operating, and being fully and accurately implemented. Also particularly important is that compliance professionals assess (or revise) the disclosure set forth in their firm’s primary disclosure document—i.e., Form ADV Part 2A, Form CRS, and/or in other documentation). We will first discuss existing requirements that have direct application to the supervisory control environment and the roles those on the front lines play in preventing the materialization of a situation whereby MNPI may be perceived as having created an actual disadvantage to clients and with regard to causing a statutory violation. We will discuss the importance of a firm’s awareness of the ramifications of employing strategies that, by design, increase the likelihood of their coming into the possession of MNPI. We will then discuss the critical role education plays in mitigating the risks in this area. Specifically, we will discuss certain recent, relevant enforcement actions and what we can do to prevent our own firms from experiencing an examination with a result of that nature. Next, we will discuss elements commonly included in advanced MNPI programs—including in the design, operation, implementation, testing, assessments, and ensuring mandatory ongoing training. Finally, we will touch on the role compliance and other departments can play in the pre-engagement process to prepare the firm to address and mitigate potential insider trading related issues and meet requirements that arise as a consequence of taking on certain types of clients and/or managing certain asset classes within pooled vehicles. For example, tailored assessments may 13 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTS
be necessary if a new client will result in a strategy being managed differently than it has been
historically – since deviations from past or intended practice can heighten risk). In short, this initial
discipline may greatly impact the outcome of a firm’s risk profile in the insider trading space.
SEC Enforcement- Insider Trading Cases
Session 10b. ALL – Insider Trading Trends and Evolving Compliance Best Practices
Panelists:
Jena Bjornson is the Chief Compliance Officer at Kennedy Capital Management Inc.
Tito Pombra is the Founder and President of Adviser Compliance Consulting, Inc.
Robert Saperstein is the Senior Managing Director and Global Head of Compliance & Senior
Counsel at Guggenheim Partners, LLC.
14 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTSPerforming Robust Testing of Policies & Procedures Completing the annual compliance reviews can be a daunting task, regardless of tenure or complexity of the firm. Breaking the process into a list of tasks performed throughout the year can help make the process more manageable. Task #1 - Risk Assessment Most firms have established risk inventories that influence any number of decisions. As such, maintaining this inventory and helping ensure identified risks are appropriately calibrated is critical – more so given the ever-changing regulatory landscape. Keep in mind, you can’t mitigate a risk if you don’t know it’s there. Task #2 - Developing a risk based testing program and executing testing program Testing and monitoring takes the pulse of a firm’s compliance program, ensuring its ongoing health and is one of the most critical elements of an effective compliance program. Without testing, it is difficult or impossible to understand what is working and what needs enhancement. A robust testing and monitoring program can help ensure that the control environment is effective. The process begins with implementing appropriate controls, which should be tested and ultimately monitored and audited on a regular basis. While there is no one size fits all when developing your firm’s forensic testing program, it is always helpful to hear how your industry peers approach the development and execution of their testing programs. Task #3 - Identifying, Managing, Tracking and Communicating Issues Thorough reviews typically result in at least one exception, even for the most compliant firms with well trained personnel. When addressed quickly and appropriately, these exceptions can ultimately strengthen the firm’s compliance program. Exceptions should be logged and resolved in a manner that reflects the severity of the exception. For example, a late code of ethics certification warrants a reminder of the firm’s policy for the initial exception. What if that same person neglects repeatedly and violates other compliance policies? In an ideal scenario, if the firm’s annual compliance review is completed throughout the year, these exceptions would be addressed as they arise and used as an opportunity to provide additional training to the employee and discuss the importance of following the firm’s policies. The firm’s testing program should also identify systemic issues. Regardless of the type of exception identified by the annual review, compliance professionals should help formulate solutions to help their business partners remedy the exception. When a material exception is identified, the solution may be less clear, such as violation of the custody rule. What if you identify a custody rule violation and the firm has already passed the period in which it could resolve the issue through a surprise custody audit? In these cases, communication with key stakeholders of the firm is imperative. If you are interested in learning more about testing compliance policies and procedures or wanting to hear how other firms are completing their annual testing, consider attending this session at the national conference! In session 9b, you will hear from a panel of industry professionals discuss and share practical tips on maintaining and updating risk inventories 15 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTS
including, but not limited to: topics to consider, who to include in related discussions, and how the
inventory can influence your testing program. Additionally, the panel will discuss how to develop,
implement, and maintain a testing program while sharing tips and tools to help effectively and
efficiently test controls that draw on the panelists’ diverse backgrounds.
Session 9b. ALL - Performing Robust Testing of Policies & Procedures
Panelists:
Amber Allen serves as General Counsel & Vice President at Fairview Investment Services.
Elton Chan is a Senior Compliance Analyst a Thrivent Investment Management, Inc.
Jodie Crotteau is the Senior Vice President & Chief Compliance Officer at Harbor Capital
Advisors, Inc.
16 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTSWill AI Revolutionize the Financial Services
Industry?
Understand Types of AI
What is AI anyway, and how does it relate to machine learning (ML)? How are different types of AI
being used by financial services firms? How do these AI types serve as unique “users,” and how
should firms supervise them? We’ll explore these questions and more from three perspectives.
Compare Leasing vs. Owning
Let’s get practical. Here, we’ll discuss how to get started on an AI project and the key questions
to ask at the outset. In particular, we’ll discuss the need to understand the behaviors you want
to address and the data you need to address them. We’ll also walk through the steps needed to
bring a project to life in a responsible, scalable manner. Finally, we’ll consider when you should
lease another party’s products, partner with another company to develop products, and build
your own products.
Discuss Potential Ethical Implications/Biases
Any AI project needs to carefully consider ethical concerns. We’ll discuss how regions around
the world are developing their own ethical standards, and what this means for cross-border
cooperation. Of course, we’ll focus on the current ethical framework in the United States, or the
lack thereof. Specifically, we’ll talk about how firms take ownership of AI and offer a framework
for monitoring against unconscious biases and other AI cancers.
Consider Implications for Compliance
We’ll wrap up the session by turning back to compliance. We’ll discuss ways for firms to ensure
they complete periodic testing by using independent systems, experts, and knowledgeable
personnel. We’ll also look at the need to include IT-generated test reports or other
documentation into the AI design process.
Session 6b. ALL – Will AI Revolutionize the Financial Services Industry?
Panelists:
Bo Howell is the Cofounder & Chief Executive Officer at Joot.
Andrew Siegel is the General Counsel & Chief Compliance Officer at Galaxy Digital.
Jane Stabile is the President & Founder of IMP.
17 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTSIncrease Your Effectiveness by Decreasing Your Stress It’s nearly impossible to make a brilliant or creative decision when we are frayed by stress and running on fumes. Yet, so many of us operate in this state more often than not. In part, that’s the nature of the compliance professional: ever vigilant, overextended, and under-resourced. But more broadly, the investment management industry and the larger economy perceive stress as a critical ingredient for success. This is a fallacy that leads to ineffective job performance, contributes to accelerating rates of burnout, and corrodes relationships. More importantly, it’s unnecessary and can be remedied – and reversed – through a few simple techniques. Stress can masquerade as a “go-getter” or “high achiever” mentality, but it’s really an imposter, a Trojan horse. Stress refers to a type of catalyst that triggers our fight-or-flight response and activates our sympathetic nervous system. It means our physiology is primed to respond to a life- or-death situation. Sitting at a desk in an air-conditioned office tapping away at email could not be farther from “a life-or-death situation,” yet the ethos of the investment management industry loves the “kill or be killed” dramatization. It makes the boring and mundane seem exciting and adventurous. Consistent with capitalist folklore that glorifies stress and our western culture which has created a fixation with competing levels of stress as a status symbol. All of this glosses over the true impact of operating from a stressed and activated state. When we are in this fight-or-flight activation of stress, our priorities are protection and perseverance. Consequently, our mental and physiological faculties are narrowed to redirect vital energy to only the functions that support the sole objective of survival. There is no energy allocated to growth, problem-solving, or even creativity. Therefore, when we are in a stressed state, we have difficulty recalling information from our memory, we have diminished higher- thinking and executive functions, and we are prone to making poor decisions. Understanding stress from this fundamental perspective reveals the risk and harm of casually thinking stress is simply an approach to working. Being stressed is not an earmark of success to come. Rather, the stress in this capitalist folklore is actually distress and is often a precursor to impending failure. Unfortunately, the role of the compliance professional is sandwiched between two separate stress agents: an inherit stressor and a conditional stressor. The compliance professional is a reactive role. The value of the compliance professional is best witnessed when they are dealing with an idea or situation that is instigated by another person, force, or action. Party A does something or wants to do something, and then the compliance professional reacts. The role does not lend itself to being proactive or an independent instigator. The role of the compliance professional connects to a flow of information where it is most valuable when it is downstream. This innate characteristic of the role is analogous to a grazing herd animal. It migrates to where food and water already is available, and it reacts early to perceived threats. The compliance professional is also subject to conditional stressors. First, there is the predator that hunts compliance professionals: regulators. Wearing a target while being stalked by large predator with limitless resources is stress inducing. It is similar in some respects to being a wildebeest trying to drink out of a watering hole while being watched by lions. It’s a bit hard to relax. Next, there is the natural resource constraint that comes with being perceived as a cost center within a business. Then, the combination of those two stressors manifests in having 18 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTS
ever-expanding responsibilities and risks to manage. Compliance professionals operate in an environment where they are anxious, under-resourced, and overextended. Recall, stress is a physiological response. In the case of wildlife, an animal evading a predator in a fully activated fight-or-flight stress mode does not use energy or faculties for non-essential functions (such as creativity or problem-solving); it is solely focused on not being eaten alive. After all, ain’t no problems to solve if you end up in the belly of a predator. However, once it successfully escapes a predator, it deactivates its sympathetic nervous system and switches back to its parasympathetic nervous system (the rest-and-digest system). In this non-stressed state, it can solve problems, such as locating a watering hole or getting leaves off a tall tree. If we were wildlife in nature, activating our stress response for survival to outrun or evade a predator would be a short-term response, which is why depleting energy and narrowing our faculties is not terribly detrimental. It’s a short-term solution, where everything comes back online once the threat has subsided. However, when the predator is not a physical or singular beast, and is instead time, money, resources, expectations, and every other fear or worry, those threats are inescapable and inexhaustible. As result, the stress response is prolonged and becomes the day-to-day operating state, all with diminished faculties and an elevated energy burn. Among the many consequences of operating in a constantly stressed state, there are two that have profoundly negative impacts on the quality of our profession and life: (1) the inability to solve problems creatively and effectively, and (2) the poisoning of relationships and systems. While stressed, we do not have the ability to think creatively, take advantage of opportunities, or solve problems. One of a compliance professional’s distinguishing attributes is being a creative problem solver. We find solutions that enable the business to operate competitively within the confines of the regulated world, as well as satisfy regulations within the confines of a business with limited resources. A compliance professional’s greatest asset is their ability to creatively apply their knowledge within very specific facts and circumstances of the business needs. Without creative problem-solving, a compliance professional is ineffective. By operating from a perpetually stressed state, not only do we overlook obvious solutions, but we also risk contaminating relationships and systems (such as family or professional teams) with the toxic byproducts of stress. Maintaining a stressed state over a long duration of time has numerous negative physical, mental, and emotional side effects. In that sense, stress is like radiation. In small doses, it might not be terribly harmful, but prolonged exposure can have disastrous consequences. People who are exposed to large amounts of radiation can be radically damaged by it, and they can also become a carrier of the radiation and contaminate others that were not directly exposed. Stress has similar properties as radiation. One way stress contamination can occur is when we carry stress home and into our relationships, where others feel the same stressors. When we are consumed with work stress and it becomes a conversational refrain, it can affect our family members. To revisit the wildlife analogy, it would be similar to an animal that is being chased by a predator leading the predator directly into the herd so the predator could begin to pursue other members of the herd. Another way stress contamination can occur – and it’s the way that can be more dangerous – is when the stress has contaminated us to the point where our perceptions and sense of reality mutate to reflect a constantly stressed state from an ever-threatening environment. Among high stressed compliance professionals, there seems to be no normal, unstressed state anymore; fight-or-flight mode is on 100 percent of the time, amped and ready for immediate action. This 19 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTS
stress mutates our personality and identity to such a degree that we can become the source of
radiation in a family or work system, poisoning relationships and the family or team dynamic. To
revisit the wildlife analogy, it would be similar to an animal that successfully evaded a predator
but is unable to deactivate and instead is perpetually skittish and unsteady, unable to eat or drink,
and constantly triggering the herd into a panic when there is no predator around; the herd’s
health and safety would be compromised by the one animal stuck in a stress response.
For nearly the last year and a half (or more), some of us have felt like we are in a prolonged state
of stress, always fighting or fleeing from something. We need to be able to shift out of the stress
response in order to solve problems creatively and effectively, and to avoid contaminating the
relationships and systems we value.
Shifting out of stress can be challenging, and our usual tools tend to numb the pain or
discomfort from stress (whether that’s essential oils, or Ol’ Grandad, or dark chocolate, or the
occasional affair). Truly shifting out of our sympathetic nervous system response and back into
a parasympathetic state requires deliberate attention to reconnect our mind and body (often
through our senses), allowing our body to inform our nervous systems that we are not actually in
a life-or-death situation.
Join us for a groundbreaking lab at the NSCP National Conference where you will learn how to
apply effective techniques to decrease stress and practice tools to spark creativity for improved
problem-solving. Sign up for session 8f, a lab on breaking the stress cycle for more effectiveness.
Session 8f. ALL – LAB – Breaking the Stress Cycle for More Effectiveness Lab
Panelists:
Melissa Loner is the EVP of Advisor Services at Premiere Wealth Management.
Robert Tull is the Managing Director of Progressive Compliance Advisors.
20 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTSHow to Detect and Prevent Misappropriation Misappropriation, theft of funds, diversions; these things tend to come in waves and seem to be uncovered more often when markets are in decline. Warren Buffet said, “Only when the tide goes out do you discover who’s been swimming naked.” Many times, discoveries have been triggered by a customer inquiry, missing mail, or tip. These events prompt firms to focus on policies and procedures for identifying such unscrupulous activities, but by then, it may be too late. What if you could identify thefts of funds before they get too big? Bernie Madoff, Stanford Financial, Frank Gruttadaria: these names are synonymous with the largest thefts of customer funds in our industry’s history. While Madoff and Stanford were frauds that were executed from the top levels of their firms, Gruttadaria’s misappropriations were orchestrated from a branch office. Misappropriation of investor funds can impact both broker- dealers and investment advisers. They may be initiated by internal employees or contractors, or externally by fraudsters who utilize legitimate brokers to further their scams. There are common ground and key indicators in each of these cases that could have prevented these frauds from running so long and becoming so large. Perhaps, they could have been prevented altogether. Surely, someone knew something - saw something, but did not say anything. Postmortem investigations frequently uncover related parties who actively participated in the schemes, employees who were afraid to report their superiors, and those who thought something was wrong, but didn’t want to get involved. Maybe it was the BIG producer that no one could question or the low producer that no one noticed or even thought was smart enough to commit a fraud. These fraudsters not only ruined the lives of many investors whose hard-earned savings were wiped out virtually overnight, but they also scarred this industry for years. These very few bad actors taint the whole financial services industry. To outsiders, they represent the financial services industry not the millions of hard-working advisers, brokers, legal, compliance and operational professionals that make up our industry. The erroneous views of a poorly enlightened public are perpetuated by overzealous politicians seeking to gain the limelight and regulators seeking to advance their careers. Not to mention a news media that overemphasizes the isolated bad acts of a few and underreports the good that our industry does for investors every day. In addition, they tend to prompt broad regulatory changes, adversely impacting the entire industry, by imposing draconian rules on firms across the industry regardless of their size or business model, thereby increasing costs to firms and reducing available services to the investing public. Chief Compliance Officers are charged with developing the tools to monitor for these types of activities and must be vigilant to the broad range of resources available to firms. To ensure firms are prepared to prevent and detect such activities, compliance professionals must develop and implement a broad range of internal controls and supervisory procedures that are reasonably designed and adequately implemented. Technology plays an important role and has provided valuable tools compliance professionals, risk officers, and supervisory personnel can leverage to identify and prevent misappropriation at their firms. These valuable tools include internal controls and practices to alleviate the risk of misappropriation. In support of these efforts, firms must implement adequate training programs both internal and externally. That is, training for employees as well as enhancing customer awareness of the available regulatory educational resources, and firm policies, practices, and contacts. 21 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTS
So how does a compliance officer develop a program to identify thefts of funds before it gets too
big and to help ensure that their firm has established adequate controls to prevent and detect
misappropriations, thefts, and diversions? Join us at the NSCP’s National Conference in National
Harbor, Maryland this November where we will explore the various tools available for detection
and prevention Compliance Professionals can put into practice at their firms.
Session 7f. ALL – LAB – How to Detect and Prevent Misappropriation
Panelists:
Tracy Abbott is the Chief Compliance Officer at Seavest Investment Group, LLC.
Louis Dempsey is the Founder and President of Renaissance Regulatory Services, Inc.
22 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTSWhat to Know Before Going Global
The business team wants to accept clients or investors who are outside the United States. Have
you been asking the right questions in order to understand the risks and how to mitigate them?
Violation of foreign laws can lead to criminal penalties in some jurisdictions, as well as questions
and sanctions by US regulators.
Licensing requirements and marketing restrictions differ by jurisdiction regardless of whether
the adviser or its representatives are acting cross-border, on business trips to a foreign country,
or personnel are located abroad on a permanent basis. There’s no “one size fits all” approach in
terms of adviser licensing or in terms of offering financial products.
Moreover, adviser licensing and product registration (and potential exemption requirements) are
only one part of the equation. When considering whether to accept foreign clients or investors,
advisers must look beyond licensing. Risks abound in many other areas such as foreign privacy
and data protection laws and foreign tax laws, among many others. Foreign advisers and foreign
fund managers often operate under different business models than their US counterparts, and
there are bodies of foreign law that have no US equivalent that should be considered.
Whether meeting with investors virtually through today’s technology or by travel to foreign
jurisdictions, additional foreign rules may be triggered depending on how such meetings are
structured. Many other risks can be easily overlooked, such as where the laws of more than
one foreign jurisdiction may be applicable to a single client or investor, or where engaging third
party distributors. Provisions in distribution agreements and arrangements with distributors
and placement agents should carefully address foreign legal and regulatory risks when foreign
resident investors will be permitted.
Implementation of a compliance program that addresses the attendant risks through an ongoing
assessment of the local laws, proper training, additional documentation and disclosures, and
appropriate internal (and potentially external) approvals are key factors to mitigating risks, as well
as to defending your actions if ever necessary.
In addition to the risks, the economics of going global must be considered. There are both initial
costs and ongoing compliance and maintenance costs to be considered. Of course, the cost of
getting it wrong may far outweigh all other costs.
Please join us for “What to Know Before Going Global (Intermediate)” on Monday, November
8, 2021 form 2:15 pm – 3:30 pm where these topics and more will be addressed (for Investment
Advisers and Fund Managers)
Session 3c. IA/PF – What to Know Before Going Global
Panelists:
James Downing is the Global Chief Compliance Officer at Morningstar, Inc.
Rebecca Leon is a Partner at Baker & McKenzie, LLP.
Selwyn Notelovitz is the Global Chief Compliance Officer at Dimensional Fund Advisors.
23 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTSConverting Critical Enterprise Risks into a Usable Risk Matrix Currently the sixth richest person in the world and perhaps one of the few billionaires in the top ten without plans to travel to space (that we know of) Warren Buffet, CEO of Berkshire Hathaway, famed value investor, and “Oracle of Omaha” provides a veritable buffet of options when it comes to pithy quotes illustrative of the value of risk management. Mr. Buffett’s common-sense, no-nonsense views provide a common-sense, no-nonsense lens through which we might view our planned session on converting critical risks into a usable risk matrix. “Risk comes from not knowing what you are doing.” On a fundamental level, strong risk management begins with a thorough understanding of your firm, it’s people, processes and products. Without this understanding of your business, your risk exposure is difficult to quantify. Risk mitigation then begins with identifying the risks within your firm. Getting your firm’s theoretical arms around its risk matrix is a necessary element in developing and maintaining a strong risk management framework. In our session, we will explore the practical aspects of creating a meaningful and usable risk assessment, and the benefits that the assessment can provide to a firm’s compliance, operations and other functional areas within the firm. Using case studies and real-world examples, our session will focus on providing a framework with which to tackle your firm’s unique risk management framework no matter the size of your organization or the maturity level of your risk program. You will leave the session not only with tips from your peers, but also with tools and worksheets that other firms have found useful in their own questions to manage enterprise risk. “What we learn from history is that people don’t learn from history.” We do not need an independent news source or white paper to corroborate that the last two years or so have provided unprecedented challenges and stresses to our risk programs and business resilience plans. The question remains though, what have we learned from all of this disruption? In our session we will examine how our recent history has impacted our risk planning in addition to the risks that we have been aware of for some time, we have had to make room for the including the not so obvious risks, and new risks due to remote working environments, hybrid arrangements and shared workspaces as well as litigation depending upon your firms’ stance on mandatory vaccination and testing. “If you want to soar like an eagle in life, you can’t be flocking with the turkeys.” As an attendee at the National Conference, you are certainly demonstrating your commitment to your compliance and risk program as well as your attention to your development of shared best practices and commitment to the very real rise of the discipline of compliance and risk work. In our session we will help you to further finetune your program by examining a workable risk rating to assist with identifying and prioritizing the most consequential risks that your firm faces. Join us as we explore ways to use your matrix to increase visibility of risks across the organization, assist management in making effective decisions, and map to your overall policies and procedures. Our discussion will also highlight best practices in reassessing and communicating your risks with management and the regulators. 24 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTS
Our common-sense, no-nonsense plan is to help you to strategize around your risk planning.
Our goal though is a bit lofty in that through our shared conversation (throughout the entire
conference) is that we elevate our individual programs and the discipline in general through
shared best practices and great conversation about a topic we are all passionate about. Come
and join us on November 10th! Because after all, “the important thing is to know what you know
and know what you don’t know.”
Session 10a. ALL – Converting Critical Enterprise Risks into a Usable Risk Matrix
Panelists:
Barbara Boehler is a Product Marketing Director at Aravo Solutions, Inc.
Janice Powell is a Senior Compliance Consultant at Core Compliance & Legal Services, Inc.
Brian Woldow is the Chief Compliance Officer for Betterment.
25 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTSFundamentals of Anti-Money Laundering
The Fundamentals of Anti-Money Laundering session held during the NSCP National Conference
in November 2021 will provide participants with a basic understating of an effective Anti-Money
Laundering (“AML”) program. The session will explore the essentials of detecting and reporting
money laundering, including effective controls and prevention. The panelists will delve into
key considerations in creating and managing a risk-based program and discuss the emerging
importance of cybersecurity as a consideration in an AML program.
The session will provide a discussion of the SEC and FINRA’s focus on broker-dealers’ AML
programs. Both regulators continue to examine broker-dealers’ AML programs to ensure that the
programs are tailored to each broker-dealer’s business and risks. Consequently, broker-dealers
must regularly update and adapt their AML programs to meet regulatory requirements and
expectations and to best suit their unique businesses as they evolve. Moreover, both the SEC
and FINRA have increased enforcement actions against broker-dealers for AML deficiencies. The
session will also cover AML requirements and best practices regarding registered investment
advisers. The session will address the status of impending AML obligations for registered
investment advisers. Finally, the session will address the SEC’s no-action letter where it continues
to allow broker-dealers to rely on registered investment advisers for customer KYC requirements.
The primary AML regulations promulgated by the SEC and FINRA require broker-dealers to
establish and implement a risk-based AML program, which must include, at a minimum; policies
and internal controls to ensure compliance with the Bank Secrecy Act (“BSA”); designation of
a AML Compliance Officer (“AMLCO”) to ensure day-to-day compliance; independent testing
for BSA/AML compliance; ongoing training for personnel; and including appropriate risk-based
procedures for conducting ongoing customer due diligence, to include, but not be limited to,
understanding the nature and purpose of customer relationships for the purpose of developing
a customer risk profile and conducting ongoing monitoring to identify and report suspicious
transactions and, on a risk basis, to maintain and update customer information. Additionally,
broker-dealers should have appropriate risk-based procedures for ongoing customer due
diligence; establish and implement a Customer Identification Program (“CIP”); and monitor for,
detect and file suspicious activity report (“SAR”) with the Financial Crimes Enforcement Network
(“FinCEN”).
Learning Objectives:
• Become acquainted with the fundamentals of money laundering and anti-money laundering
programs
• Understand which regulatory regimes, rules, and reporting requirements apply to your Firm
• Explore how regulators view the intersection between fraud surveillance and AML
• Consider the importance of cybersecurity in your AML program
Session 2b. ALL – Fundamentals of Anti-Money Laundering
Panelists:
Christy Moccia is the Chief Compliance Officer at Clear Street, LLC.
Robert Moreiro is a Partner at Practus LLP.
Katherine Spence is an Audit Manager at Jackson.
26 NATIONAL CONFERENCE EDITION 2021 NSCP CURRENTSYou can also read
