Regulatory Compliance (Swap dealing in relation to Dodd Frank)

May 9, 2016 | Case Studies, Case Study - Data, Practice - Data

Under the Dodd Frank Act, UK swap dealing entities are required to report annually to the Commodities Futures Trading Commission (CFTC) in the US. The process to support this reporting involves a vast and detailed attestation process, whereby control owners are held accountable for their part in regulatory compliance, providing information on the processes they are responsible for and issues encountered during the year. The input process is managed through a central system, as is the sign off to each control by the control owner and their line management.

Brickendon was called upon to assist in managing this process for a leading London-based financial institution, which comprises several UK entities registered as Swap Dealers with the CFTC in the US.

The overall aim is to take the information provided in the central system, challenge it and consolidate it into a single informative annual report for the CFTC, whilst also offering new and valuable insights on compliance risks for the firm’s own board.

Key Challenges

  • A lack of continuity in resourcing, and therefore knowledge of the process, due to staff turnover and competing regulatory initiatives.
  • Large numbers of individuals based in various locations are involved in the attestation. This requires significant coordination to meet deadlines, particularly due to the lack of an automated workflow to prompt control description updates and signoff.
  • There is a lack of coordination and information sharing between compliance teams in the various regions and between other business areas and compliance.
  • Compliance training and testing is not coordinated between locations, exposing the business to compliance risks and making it unlikely that global compliance can be achieved in some areas before the report is submitted.

The Brickendon Solution

  • To provide a team with extensive backgrounds in legal and compliance roles, complemented by strong project management skills
  • Review the entire attestation process from scratch and examine in detail the control-ownership hierarchies to ensure they are appropriate. Where gaps are identified, a more robust attestation process should be set up.
  • To interview senior management to understand their key areas of concern and collate these findings to help reshape the annual report and give the client’s board a fresh view of compliance under Dodd Frank.
  • Review the regulations behind the attestations to determine what has been missed in prior years. To share the findings with compliance and General Counsel working groups to ensure any gaps or oversights are addressed.
  • Where gaps in regular compliance testing are identified, initiate, coordinate and oversee the necessary checks to remediate these issues.
  • To draft a separate, bespoke report for distribution to senior management that outlines the compliance risks that came to light throughout the report preparation process.

Client Benefits

  • A smooth report process, as managed by Brickendon, with minimal drain on compliance and General Counsel management time.
  • The provision of additional Brickendon resources, where necessary, to run checks, such as recorded lines for Associated Persons, when they have not been done and internal personnel are not available.
  • Provision of a team with specialist experience in the legal and compliance side of financial services enabled the team to appropriately manage every aspect of the process and communicate with senior management across the client’s business
  • Positive feedback from the board on the annual reports – described as being the best since the inception of the Dodd Frank programme – which reflected well on the client’s own legal and compliance team.
  • Delivery of a detailed and accurate report containing Brickendon’s observations of the compliance risks still faced and how best to manage these issues, enabling the client to refine its compliance programme for 2016.

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