Compliance Policies

Having the right technology is only one component of what enables proactive, holistic compliance. Additionally, such technology must also know what types of questions you want answered. In great detail. At Panalytics, our team of experts has deep knowledge on the exact types of questions that compliance teams want answered. For instance, "who is attempting to share non-public information?" or "who is attempting to communicate 'over the wall'?" Panalytics Comply® makes answering these questions easy with built-in compliance policies that are designed to surface the answers to the questions important to you. Explore a sampling of the compliance policies that are included as part of Panalytics Comply®.

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Compliance Headaches
Customer Relations

Various rules from regulators such as FINRA outline how employees of financial services organizations should behave with respect to their customers and clients. These rules extend beyond how one would "naturally" interact with a customer, and as such, it's important that employees be made aware of exactly what to do - and what not to do. For instance, employees should be made aware of the rules that dictate how customer complaints should be handled and responded to, how advice should be given, what types of guarantees or assurances shouldn't be made, and what types and dollar amounts of gifts and entertainment are permissible. Of course, there will be occurrences in which employees do not abide be these rules, and in those cases compliance teams need to be proactively alerted.

The Customer Relations policies help ensure that compliance teams know when employees behave or communicate in such a way that would suggest that they are in violation of such rules..

Customer Complaints
FINRA rule 4530(d) requires firms to report quarterly statistical and summary information regarding written customer complaints. FINRA uses the information to identify and initiate investigations of firms, branch offices and associated persona that may pose a risk, and for the timely identification of other regulatory matters in line with their goal of enhancing risk-based approaches to regulation, investor protection and market integrity. This rule also requires firms to promptly file with FINRA copies of specified criminal actions, civil complaints and non-FINRA arbitration claims. Customer satisfaction, then, is of paramount importance and any case of customer dissatisfaction needs to be noted. However this dissatisfaction occasionally stems, not from the product or service, but from the employee who provided them. Through email surveillance attempts to prevent a customer from filing a grievance can be caught before it results in more severe penalties.
Customer Complaints: Response
FINRA rule 4530(d) requires firms to report quarterly statistical and summary information regarding written customer complaints. FINRA uses the information to identify and initiate investigations of firms, branch offices and associated persona that may pose a risk, and for the timely identification of other regulatory matters in line with their goal of enhancing risk-based approaches to regulation, investor protection and market integrity. This rule also requires firms to promptly file with FINRA copies of specified criminal actions, civil complaints and non-FINRA arbitration claims. While it does not specifically cover unprofessional responses, this rule covers the requirement to disclose customer complaints. Not only does responding unprofessionally to a complaint damage the general reputation of the company, but such responses could be a red flag to FINRA to launch an investigation into the matter. Using email surveillance, attempts to respond to a customer complaint in a negative, unprofessional, threatening, or otherwise aggressive manner, can be captured before resulting in potentially serious repercussions for the firm.
Fair & Balanced Advice
FINRA Rule 2210 outlines the general standards for the content of advice that is disseminated. The rule states “All member communications must be based on principles of fair dealing and good faith, must be fair and balanced, and must provide a sound basis for evaluating the facts in regard to any particular security or type of security, industry, or service. No member may omit any material fact or qualification if the omission, in light of the context of the material presented, would cause the communications to be misleading.” The Fair and Balanced Advice policy captures company communications where employees, who are legally allowed to give advice, could be giving misleading, or otherwise inaccurate advice to a client.
Guarantees & Assurances
FINRA Rule 2150(b), which replaced FINRA Rule 2330(e), "prohibits members and their associated person from guaranteeing a customer against loss in connection with any securities transaction or in any securities account of the customer. The reason for the prohibition is that such guarantees create the expectation that the customer is insulated from market risk intrinsic in securities ownership and may induce the customer to engage in a securities transaction that is not otherwise appropriate for the customer." The aforementioned rule also incorporates NYSE Rule 352(a), which states that "No member organization shall guarantee or in any way represent that it will guarantee any customer against loss in any account or on any transaction; and no member, principal executive, registered representative or officer shall guarantee any customer against loss in any customer account or on any customer transaction. The prohibitions in this paragraph extend to the payment, in whole or in part, or a debit balance." Guarantees and assurances imply a set of financial promises that includes a set of associated risks, both financial and legal. This policy helps to ensure that only those authorized to provide guarantees and assurances do so, thereby reducing or eliminating this risk.
Gifts & Entertainment
FINRA Rule 3220, regarding gifts and gratuities, states “No member or person associated with a member shall, directly or indirectly, give or permit to be given anything of value, including gratuities, in excess of one hundred dollars per individual per year to any person, principal, proprietor, employee, agent or representative of another person where such payment or gratuity is in relation to the business of the employer of the recipient of the payment or gratuity. A gift of any kind is considered a gratuity.” The regulation also states that “A separate record of all payments or gratuities in any amount known to the member, the employment agreement referred to in paragraph (b) and any employment compensation paid as a result thereof shall be retained by the member for the period specified by SEA Rule 17a-4.” Non-compliance with FINRA's rules, as well as your own corporate guidelines regarding gifts and entertainment, can lead to fines, loss of reputation and professional respect, and possibly legal issues. This policy looks for language that indicates an exchange of gifts, either given or accepted, by the surveilled user. The policy also focuses on entertainment such as sporting events and keywords from professional athletic teams (MLB, NFL, NBA, NHL), NASCAR and other sporting events, clubs, parties, shows, tournaments, concerts, theater, and various other activities that may be viewed as disproportional or inappropriate.
Employee Relations

Employers must ensure that their employees conduct themselves in both a professional and a legal manner, and for financial services firms, proper employee conduct is of utmost importance. This means that firms need to take active steps to confirm that they have done everything possible to maintain an appropriate and non-hostile work environment. Language that is considered offensive, for example, is relative to the sensitivity of the listener; however, there are groups of words, phrases, and actions that are always considered offensive. Additionally, the Federal Communications Commission (FCC) has established a list of prohibited keywords that are considered a violation of federal law to broadcast at any time.

The Employee Relations policy analyzes employee behavior and communications for the presence of items that would suggest that an employee is conducting himself or herself in an unprofessional, hostile, or illegal manner.

Anti-Competitive Behavior
Anti-competitive behavior refers to a wide range of business practices in which a firm, employee or groups of firms / employees may engage in order to restrict inter-firm competition to maintain or increase their relative market position and profits without necessarily providing goods and services at a lower cost or of higher quality. Anti-competitive behavior includes unfair business practices that are likely to reduce competition and lead to higher prices, reduced quality or levels of service, or less innovation. Activities such as price fixing, group boycotts, and exclusionary exclusive dealing contracts or trade association rules are all examples of such. The FTC generally pursues anticompetitive conduct as violations of Section 5 of the Federal Trade Commission Act, which bans “unfair methods of competition” and “unfair or deceptive acts or practices.”
Coercive Behavior & Intimidation
Coercion and intimidation come in a variety of forms and as a result there are various regulations that ensure against the use of intimidation, aggressive force, or coercion. Such established laws include 24 C.F.R. 100.400 regarding housing and urban development, 25 C.F.R. 31.6 governing coercion with school district transfers, 39 C.F.R. 447.61 intimidation of postal service employees, 18 C.F.R. 706.210 regarding government employees using their position to coerce or intimidate, and 18 C.F.R. § 594 prohibiting voter intimidation. In the financial industry, FINRA Rule 5240 (a) states “No member or person associated with a [financial institution] shall: (3) engage, directly or indirectly, in any conduct that threatens, harasses, coerces, intimidates or otherwise attempts improperly to influence another [financial institution], a person associated with a [financial institution], or any other person. This includes, but is not limited to, any attempt to influence another member or person associated with a member to adjust or maintain a price or quotation, whether displayed on any facility operated by FINRA or otherwise, or refusals to trade or other conduct that retaliates against or discourages the competitive activities of another market maker or market participant.”
Discussion of Legal Proceedings
Maintaining the confidentiality of legal proceedings is critical to any firm. The dissemination of news relating to the case, or the participants of the case, can have devastating effect on the case itself, changing the outcome or causing a mistrial. The Discussion of Legal Proceedings policy hedges this risk by providing a solution that monitors and captures the electronic communications of a surveilled user who mentions, refers to, or disseminates information about the legal specifics regarding a court proceeding.
Inappropriate Language
It is the responsibility of the employer to ensure that their employees are not exposed to language that they may deem inappropriate or offensive in the workplace. This means that the employer needs to take active steps to make sure that they have done everything possible to maintain an appropriate and non-hostile work environment. Language that is considered offensive is relative to the sensitivity of the listener; however there are groups of words and phrases that are always considered offensive. Additionally, the Federal Communications Commission (FCC) has established a list of prohibited keywords that are considered a violation of federal law to broadcast at any time. Employees conducting themselves professionally is an imperative. Though there are no direct laws concerning employee deportment or harassment, every company is concerned with the image that their representatives convey.
Intent to Resign
Professional courtesy dictates that your boss should be the first to learn of your intent to resign. While it's understandable, and even advisable, to seek the counsel of a trusted colleague while making the decision whether or not to leave your position, it's proper that the initial announcement should be made to your direct supervisor. In addition to this, preventing information from leaving the company is of paramount importance to the integrity, reputation, and the operation of a business. Employees actively expressing a desire to leave a firm, whether due to general dissatisfaction or otherwise, should be considered to be high risk because of the sensitive nature of the company information that they handle.
Solicitations
Another policy designed to prevent the misuse of company resources for the purposes of non-work related activities, the Solicitations: General policy identifies employee actions and communications involving an attempt to garner support, time, or funds for a non-company related cause, group, or activity.
Inside Information
Inside information is a non-public fact regarding the plans or condition of a publicly traded company that could provide a financial advantage when used to buy or sell shares of the company's stock. Insider information is typically gained by someone who is working within or close to a listed company. If a person uses insider information to place trades, he or she can be found guilty of insider trading. Insider trading is illegal when the material information has not been made public and has been traded on. This is because the information gives those having this knowledge an unfair advantage. The Inside Information policy is intended to identify various instances of insider information transmission, as well as instances of individuals taking action on that inside information, as further defined below.
Front-Running
Front running is defined as the illegal practice of a stockbroker executing an order or a security for its own account while taking advantage of advance knowledge or pending orders from its customers. FINRA Rule 5270 states that "no member or person associated with a member shall cause to be executed an order to buy or sell a security or a related financial instrument when such member or person associated with a member causing such order to be executed has material, non-public market information concerning an imminent block transaction in that security, a related financial instrument or a security underlying the related financial instrument prior to the time information concerning the block transaction has been made publicly available or has otherwise become stale or obsolete" The rule was expanded to include "Related financial instruments" ("any option, derivative, security-based swap, or other financial instrument overlying a security, the value of which is materially related to, or otherwise acts as a substitute for, such security, as well as any contract that is the functional economic equivalent" as defined in Rule 5270(c)) in 2013.
NPI: Company Information
Standard II: Integrity of Capital Markets states “Members and Candidates who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on the information.” The regulation defines “material Information” as “if its disclosure would probably have an impact on the price of a security or if reasonable investors would want to know the information before making an investment decision. In other words, information is material if it would significantly alter the total mix of information currently available about a security in such a way that the price of the security would be affected.” Such information that is covered by this regulation “may include, but is not limited to, information on the following: earnings; mergers, acquisitions, tender offers, or joint ventures; changes in assets or asset quality; innovative products, processes, or discoveries (e.g., new product trials or research efforts); new licenses, patents, registered trademarks, or regulatory approval/rejection of a product; developments regarding customers or suppliers (e.g., the acquisition or loss of a contract); changes in management; change in auditor notification or the fact that the issuer may no longer rely on an auditor’s report or qualified opinion; events regarding the issuer’s securities (e.g., defaults on senior securities, calls of securities for redemption, repurchase plans, stock splits, changes in dividends, changes to the rights of security holders, and public or private sales of additional securities); bankruptcies; significant legal disputes; government reports of economic trends (employment, housing starts, currency information, etc.); orders for large trades before they are executed; and new or changing equity or debt ratings issued by a third-party (e.g. sell-side recommendations and credit ratings).”
NPI: Financial Information
FINRA rule 5280 states “(a) No member shall establish, increase, decrease or liquidate an inventory position in a security or a derivative of such security based on non-public advance knowledge of the content or timing of a research report in that security. (b) A member must establish, maintain and enforce policies and procedures reasonably designed to restrict or limit the information flow between research department personnel, or other persons with knowledge of the content or timing of a research report, and trading department personnel, so as to prevent trading department personnel from utilizing non-public advance knowledge of the issuance or content of a research report for the benefit of the member or any other person.” Disseminating non-public information relating to a company’s finances, can implicate not just the individual who conducted a financial transaction based on such information, but the source from which it was provided.
Rumors & Secrets
FINRA Rule 2030 defines a “rumor” as “a false or misleading statement or a statement without a reasonable basis” and the rule itself prohibits a member firm from “originating or circulating a rumor that ‘the member knows or has reasonable grounds for believing is false or misleading or would improperly influence the market price of a security’”. Rule 2030, established in 2009, replaces former FINRA Rule 6140(e). NYSE Rule 435(5) also prohibits the circulation of rumors of a sensational character “which might reasonably be expected to affect market conditions on the [New York Stock Exchange]”. FINRA Rule 2030 refers to rumors that may result in a change in the market price of securities, whereas NYSE Rule 435(5) covers rumors that may result in a change in the New York Stock Exchange listed prices.
Trading Ahead
FINRA Rule 5280 combines Section 19(b)(1) of the Securities Exchange Act of 1934 and NASD Interpretive Material 2110-4 (IM 2110-4), both of which outline the regulations around trading ahead of research reports. IM 2110-4 states "that it is conduct inconsistent with just and equitable principles of trade for a member to establish or adjust an inventory position in an exchange-listed security traded over-the-counter or a derivative of such security in anticipation of the issuance of a research report on that security. The IM further recommends - but does not require - that firms establish policies and procedures to develop and implement effective internal controls to isolate specific information within research and other relevant departments so as to prevent the trading department from utilizing advance knowledge of the issuance of research reports." When this rule was adopted by FINRA Rule 5280, it changed three aspects of IM 2210-4. The first revision extends the application of the IM to cover inventory positions with respect to any security or derivative, regardless of whether the security is exchange listed or not. The second change states that the rule would apply only to circumstances where a member establishes or adjusts its inventory based on non-public advanced knowledge of the content or timing of a report. Lastly, the rule eliminates the option to establish internal controls to manage the flow of information between research and trading departments, and instead mandates that firms implement policies and procedures to restrict or limit the information being exchanged between the aforementioned departments.
Market Manipulation

Market manipulation is a deliberate attempt to interfere with the free and fair operation of the market and create artificial, false or misleading appearances with respect to the price of, or market for, a security, commodity or currency. Market manipulation is prohibited in most countries, in particular, it is prohibited in the United States under Section 9(a)(2) of the Securities Exchange Act of 1934, in Australia under Section 1041A of the Corporations Act 2001, and in Israel under Section 54(a) of the securities act of 1968. The Act defines market manipulation as transactions which create an artificial price or maintain an artificial price for a tradeable security. Market manipulation is also prohibited for wholesale electricity markets under Section 222 of the Federal Power Act and wholesale natural gas markets under Section 4A of the Natural Gas Act.

The Market Manipulation policies are designed to proactively identify and alert to the possibility of the manipulation of a security, commodity, or currency by analyzing an individual's actions against patterns indicative of certain manipulation tactics.

Collusion
Collusion is a non-competitive agreement between rivals that attempts to disrupt the market's equilibrium. By collaborating with each other, rival firms look to alter the price of a good to their advantage. The parties may collectively choose to restrict the supply of a good, and/or agree to increase its price in order to maximize profits. Groups may also collude by sharing private information, allowing them to benefit from insider knowledge.
LIBOR Manipulation
In light of the relatively recent events regarding the London Interbank Offering Rate (LIBOR) manipulation and in response to the new LIBOR regulations established by the UK Financial Services Authority, and the general supervision of benchmarks, the Benchmark Interest Rate policy was created. The BIR policy covers not only LIBOR rates, but other rates that have been, or could potentially be, subject to manipulation. This policy identifies individuals in the firm who are not designated rate setters discussing and/or acting in the context of big rigging, LIBOR manipulation, the manipulation of other interbank offering rates (i.e. TIBOR, EURIBOR, JIBOR), or general discussions of the manipulation of any of these various rates.
Painting the Tape
Painting the tape is a form of market manipulation whereby market players attempt to influence the price of a security by buying and/or selling it among themselves so as to create the appearance of substantial trading activity in the security. Painting the tape is an illegal activity that is prohibited by the Securities and Exchange Commission because it creates an artificial price for a security.
Pump and Dump
Pump and dump is a scheme that attempts to boost the price of a stock through recommendations based on false, misleading or greatly exaggerated statements. The perpetrators of this scheme, who already have an established position in the company's stock, sell their positions after the hype has led to a higher share price. This practice is illegal based on securities law and can lead to heavy fines.
Spoofing
Spoofing is a disruptive algorithmic trading entity employed by traders to outpace other market participants and to manipulate commodity markets. Spoofers feign interest in trading futures, stocks and other products in financial markets creating an illusion of exchange pessimism in the futures market when many offers are being cancelled or withdrawn, or false optimism or demand when many offers are being placed in bad faith. Spoofers bid or offer with intent to cancel before the orders are filled. The flurry of activity around the buy or sell orders is intended to attract other high-frequency traders (HFT) to induce a particular market reaction such as manipulating the market price of a security.
Wash Trades
Wash trading is the process of buying shares of a company through one broker while selling shares through a different broker. Wash trading can also make a stock's volume appear to have a lot of activity resulting from the repeated buying and selling done by an individual or firm when, in fact, the shares have never changed owners.
Media and Regulator Relations

In financial services organizations, employees often communicate with various media outlets, say, to discuss a public company's financial performance. Those same employees sometimes communicate with regulatory and government agencies. While these types of communications are usually part of normal, day-to-day business, sometimes they're not. Furthermore, not every employee is authorized to speak with non-customer external parties. As a compliance officer, it's important that these types of communications are monitored and reviewed, such that unauthorized discussions are identified and subsequently acted upon.

The Media and Regulator Relations policies are intended, as the name implies, to monitor and capture unauthorized users from sending electronic communications to members of the press or individuals employed in a regulatory authority.

Communications with the Media
Companies often hire people specifically for public relations. These individuals have been trained to interact with news organizations in an effective and efficient manner and understand how to best portray the image that the company desires. Most importantly, these individuals understand what information should and should not be released to the public. It is therefore in a company's best interest to prevent unauthorized individuals from communicating with news organizations.
Communications with Regulators
In a financial services organization, there are individuals whose sole purpose is to communicate with and to maintain a positive working relationship with the regulators. Any information that is sent to them is reviewed extensively to ensure accuracy, relevance, and to promote a positive relationship between a firm and the authorities. This policy does not monitor for whistle blowing, but strictly ensures that only authorized individuals communicate with any regulator or government authority.
Regulatory Monitoring Requirements

Various regulations and rules exist from a plethora of regulatory authorities that require the constant and consistent monitoring of risks and violations of certain types. The Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010, for instance, brought the most significant changes to financial regulation in the United States since the regulatory reform that followed the Great Depression. Dodd-Frank enumerates a variety of rules designed to improve accountability and transparency in the financial system, to end "too big to fail", to protect the American taxpayer by ending bailouts, and to protect consumers from abusive financial services practices. Similarly, the abundance of regulatory organizations that recently have underscored their commitment to additional areas such as anti-money laundering, suitability, and know your customer (KYC) suggest that the ability to proactively identify and manage these types of risks is paramount to a compliance team's effectiveness.

The Regulatory Monitoring Requirements policies are intended to assist firms in adhering to the provisions of various rules in this context from a variety of regulatory authorities.

Anti-Money Laundering (AML) / OFAC Violations
“Money Laundering” is defined as the process whereby the proceeds of crime are transformed into ostensibly legitimate money or other assets, or the process by which the true origins of money is concealed in order to make it appear legitimate. FINRA, the SEC, the NYSE, the CFTC, as well as numerous acts such as the Bank Secrecy Act and the Patriot Act have all established regulations around the prevention of money laundering activities for various reasons. To enforce these regulations, FINRA Rule 3310 states that “Each member shall develop and implement a written anti-money laundering program reasonably designed to achieve and monitor the member compliance with the requirements of the Bank Secrecy Act (31 U.S.C. 5311 et seq.) and the implementing regulation promulgated thereunder by the Department of the Treasury.” In addition, the Office of Foreign Asset Controls (OFAC) administers and enforces economic and trade sanctions against foreign entities based on US foreign policy. Currently, these sanctions, of varying degrees, have been imposed on Cuba, North Korea, Iraq, Iran, Burma, Sudan, The African Diamond Trade, The Balkans, Zimbabwe, Syria, Côte D’ivore, Belarus, The Democratic Republic of Congo, and Somalia. Based upon requirements set forth by OFAC, the Anti-Money Laundering - OFAC policy is designed to identify trades, transactions and electronic communications concerning the countries and cities enumerated on the OFAC Sanctions and Country list, in combination with language and actions indicative of an illicit transfer.
Dodd-Frank: Disclosures
The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law in July of 2010 and is a continuing work in progress today. There are many mentions about disclosure requirements in Dodd-Frank such as Title XV Section 1052 and 1503 and 1504. These sections outline the requirements for financial institutions that deal in mineral, mine operations, and natural gas commodities respectively, to provide form disclosures regarding the firm’s activity in these areas. Section 404 covers disclosures around swap counter-parties for special entities and broker dealers. Section 919 requires investor disclosures before the purchase of investment products and services, conflicts of interest disclosures, whistleblower disclosures. Section 932 covers disclosures for credit rating methodologies. Section 942 covers the disclosure and reporting requirements for asset-backed securities. There are numerous other disclosure requirements throughout the Dodd-Frank bill as one of the intentions of the act is to increase the transparency of financial instructions. The Dodd-Frank: Disclosures policy is an all-encompassing, general blanket policy that monitors surveilled users’ communicating the intention of omitting information from the required disclosure forms.
Dodd-Frank: End User Clearing
The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law in July of 2010 and is a continuing work in progress today. Section 723 of the Dodd-Frank Act amended the Commodity Exchange Act (CEA) by adding Section 2(h)(1), which provides that “it shall be unlawful for any person to engage in a swap unless that person submits such swap for clearing to a derivatives clearing organization that is registered under [the CEA] or a derivatives clearing organization that is exempt from registration under [the CEA] if the swap is required to be cleared.” The Dodd-Frank Act also added Section 2(h)(7) to the CEA, which provides that “the clearing requirement of Section 2(h)(1) shall not apply to a swap if one of the counter-parties of the swap is not a financial entity, is using swaps to hedge or mitigate commercial risk and notifies the Commission in a manner set forth by the Commission, how it generally meets it financial obligations associated with entering into non-cleared swaps”. The exception provided in Section 2(h)(7) is known as the “End User Exception."
Dodd-Frank: Influencing Clearing
The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law in July of 2010 and is a continuing work in progress today. Section 726 states “In order to mitigate conflicts of interest, not later than 180 days after the date of enactment of the Wall Street Transparency and Accountability Act of 2010, the Commodity Futures Trading Commission shall adopt rules which may include numerical limits on the control of, or the voting rights with respect to, any derivatives clearing organization that clears swaps, or swap execution facility or board of trade designated as a contract market that posts swaps or makes swaps available for trading, by a bank holding company (as defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841)) with total consolidated assets of $50,000,000,000 or more, a nonbank financial company (as defined in section 102) supervised by the Board, an affiliate of such a bank holding company or nonbank financial company, a swap dealer, major swap participant, or associated person of a swap dealer or major swap participant.” As of 2012, this rule was finalized as part of CFTC Regulation 1.71. This rule outlines the restrictions on relationship with the clearing organization and states “Non-research personnel may not direct a research analyst's decision to publish a research report or direct the views and opinions in the report; Research analysts may not be under the supervision, control (including with respect to performance evaluation and compensation) of employees of the firm's business trading unit or clearing unit.”
Dodd-Frank: Non-Associated Persons Discussing Swaps/Trades
The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law in July of 2010 and is a continuing work in progress today. 17 CFR 23.22 of the Dodd-Frank bill states that “No swap dealer or major swap participant may permit a person who is subject to a statutory disqualification under section 8a(2) or 8a(3) of the Act to effect or be involved in effecting swaps on behalf of the swap dealer or major swap participant, if the swap dealer or major swap participant knows, or in the exercise of reasonable care should know, of the statutory disqualification; Provided, however, that the prohibition set forth in this paragraph (b) shall not apply to any person listed as a principal or registered as an associated person of a futures commission merchant, retail foreign exchange dealer, introducing broker, commodity pool operator, commodity trading adviser, or leverage transaction merchant, or any person registered as a floor broker or floor trader, notwithstanding that the person is subject to a disqualification from registration under section 8a(2) or 8a(3) of the Act”.
Dodd-Frank: Non-Eligible Contract Participants
As defined in Section 1a(18) of the CEA The term “eligible commercial entity” means, with respect to an agreement, contract or transaction in a commodity, a financial institution, insurance company, a commodity pool that has total assets exceeding $5,000,000, a corporation or other entity with assets exceeding $10,000,000, an employee benefit plan subject to the Employee Retirement Income Security Act of 1974 that has assets exceeding $5,000,000, a government entity, a broker dealer that is subject to US regulations, a futures commission, an individual who has investments in excess of $10,000,000 or $5,000,000 if they enter into a contract in order to manage the risk associated with an asset owned by the individual, an investment adviser, or any other person that the commission determines to be eligible in light of the financial qualifications of the person. Parts of the Dodd-Frank act modify the existing Commodity Exchange Act (CEA). In Section 2(e) of the CEA it states that it is unlawful for a person that is not an eligible contract participant to enter into a swap, even if for hedging purposes, unless that swap is entered into over a board of trade that has been designated by the Commodity Futures Trading Commission as a contract market.
Dodd-Frank: Political Contributions
The Political Contributions policy was designed to address the pay-to-play rules that are covered in 17 C.F.R. §23.451(b)(1) in the Dodd-Frank Wall Street Reform bill, that states “As a means reasonably designed to prevent fraud, no swap dealer shall offer to enter into or enter into a swap or a trading strategy involving a swap with a governmental Special Entity within two years after any contribution to an official of such governmental Special Entity was made by the swap dealer or by any covered associate of the swap dealer”. This is an expansive policy covering not just Dodd-Frank but also § 130.6 of the International Traffic in Arms Regulations for Defense Contractors. The design of this policy requires that some type of deceptive or quid pro quo language is present in the communication along with language, such as an email address or a title, identifying the recipient or sender as an elected official such as “Your Honor, Mr. Mayor, Mr. Vice-President etc.”. The policy focuses on such language that would indicate trading a below-the-table deal for a donation to an elected official whether that donation is a gift, a sum of money, or an in-kind donation.
Dodd-Frank: Special Entities
A "special entity" is defined as a state or local municipalities, state or federal agencies, pension plans, governmental plans, and endowments. Section 1a(18) of the Dodd-Frank Wall Street Reform Bill refers to swap dealers' responsibilities with respect to special entities. A swap dealer that acts as an adviser to a special entity has a duty to act “in the best interests of” the special entity. These swap dealers, or MSPs, that perform a swap with a special entity must comply “with any duty” established by the swap dealer's regulator, the foremost being that they are “to have a reasonable basis to believe” that the special entity is advised by a qualified independent representative.
Know Your Customer (KYC) / Suitability
Know your customer (KYC) is the process of a business verifying the identity of its clients. The term is also used to refer to the bank regulation which governs these activities. Know your customer processes are also employed by financial services organizations of all sizes for the purpose of ensuring their proposed agents, consultants, or distributors are anti-bribery compliant. Banks, insurers and export creditors are increasingly demanding that customers provide detailed anti-corruption due diligence information, to verify their probity and integrity.Related procedures also enable banks to better understand their customers and their financial dealings. This helps them manage their risks prudently. The Know Your Customer policy incorporates the following four key elements as part of its analysis: Customer Policy, Customer Identification Procedures, Monitoring of Transactions, and Risk Management.