5 Signs Your Compliance Infrastructure Is Defective

It’s important for all broker-dealer firms, large and small, to have compliance and surveillance software in place. But simply having a compliance solution isn’t enough to meet the vast number of compliance standards; having an outdated solution is no more effective than relying on manual processes.

Similar to the life cycles of other IT solutions, trading surveillance and compliance software holds its relevancy for no more than a few years. Keep a lookout for signs that your compliance infrastructure might be in need of an update.

1. It doesn’t play nice with others. In order to effectively track clients’ trading activity, broker dealers’ compliance infrastructure should be able to extract order and execution information from other programs. A compliance system that is incompatible with other programs in your office will require more manual work, which increases the probability of mistakes. That defeats the purpose of having a digital solution in the first place. If your compliance system doesn’t play well with other back-end systems, it’s time for an upgrade.

2. It’s not customizable. It’s likely that your compliance officer may want to look at a specific client’s trading activity or a specific trader’s actions, depending on their day-to-day tasks. A compliance solution should be capable of tailoring information to the compliance officer’s specifications, rather than just showing a general overview of all trading activity. Your compliance system should allow for seamless customization (across a number of metrics) to give you a full window into all aspects of your business.

3. It’s hardware heavy. Any aspect of a business’ infrastructure that is bogged down by an excessive amount of hardware means extra maintenance and upgrade costs could be required over time. On-premise systems require more physical space as well as more staff to troubleshoot and monitor their health. As the capital markets industry becomes increasingly off-premise, both for trading and trade monitoring, your compliance system should evolve similarly.

4. It can’t adapt. The capital markets’ regulatory environment is constantly changing, meaning your compliance infrastructure should be equipped to adhere to those fluctuating rules. If quickly adapting your infrastructure to meet the latest rules set by the SEC and FINRA is a tedious or near-impossible project, it’s time to overhaul your compliance system.

5. It won’t track trends. At a minimum, a brokerage’s compliance system should be able to cite specific red flags or one-off instances of manipulative trading. However, the real benefit of implementing compliance software is its ability to identify long-term patterns of suspicious behavior. To keep your business above board, ensure that your compliance system has the power to track historical trends rather than just single occasions of malicious behavior.

When you periodically assess your compliance system, make sure to watch for these signs of potentially defective infrastructure. The unyielding regulatory nature of the trading markets and the crushing consequences of failing to adhere to compliance standards mean your business’ compliance systems need to be in fighting shape at all times.