Code of Ethics/Personal Trading Technology – Understanding the Three Key Benefits

November 1, 2018 by Jordan Schwartz

The adoption of RegTech is rapidly becoming business as usual for an increasing number of compliance teams. Nearly 70% of financial services firms reported using automation/ compliance technology, according to the IAA and ACA Compliance Group’s (ACA) 2018 Investment Management Compliance Testing Survey. Over half of survey respondents anticipated increasing their use of technology to assist with managing their compliance programs.

Personal trading/code of ethics compliance is one of the most significant areas of RegTech adoption. According to the IAA/ACA survey, more than three-quarters of financial services firms that employ technology are using a tech solution for personal trading/code of ethics compliance.

For U.S.-based firms, this turn toward technology is driven by a variety of factors. First, the regulations around personal trading/code of ethics are detailed, so compliance teams have real clarity on what is required, and feel comfortable purchasing technology as a result. Secondly, the scale of this task for many firms is now significant – compliance teams know they would be simply overwhelmed by the task of reviewing brokerage statements if they tried to do this manually. Third, more compliance teams are getting bigger budgets to allocate towards RegTech solutions – boards and senior management at financial services firms are seeing the value in employing technology to sustainably solve compliance challenges, rather than just adding headcount.  

Evolving Your Approach to Compliance

The use of RegTech indicates a larger trend toward a more strategic approach to compliance by boards and senior management. Compliance teams – as well as their stakeholders – are discovering that the use of technology can transform the way they deliver on their own goals, as well as on the firm’s overall strategic objectives.

Three important ways in which RegTech for personal trading/code of ethics can change a firms’ approach to compliance are:

  • Compliance becomes easier for employees – Harvesting personal trading/code of ethics information from employees is a significant challenge for any size firm. The right RegTech solution can make it very intuitive for employees to supply their personal trading information. This boosts the likelihood that employees will comply, and makes it easier for compliance teams to insist on the provision of the information – overall enhancing your firm’s compliance culture.
  • Compliance assurance comes with the click of a button – Of those IAA/ACA survey respondents who had detected material compliance issues over the past year, nearly 47% had found them in the personal trading/code of ethics area (up from just over 20% the previous year). It’s hardly surprising that 27% of respondents had increased the type, scope, and/or frequency of compliance testing since January 1, 2017 in this area, according to the IAA/ACA survey. Regulators are focusing on this area as well – they want to see a personal trading/code of ethics program that is commensurate with the size and scope of the organization. Having a technology solution means that monitoring employee compliance is quick and simple – as is producing reports for examiners during audits, as well as board reports. 
  • Automation makes room for adding value – Internal compliance personnel represent 20% or more of total compliance costs for nearly 84% of the IAA/ACA survey’s respondents. The people cost associated with manually collecting personal trading information by email and spreadsheet, as well as reviewing brokerage statements, can be significant. Manual reviews of records can also lead to operational risks due to human error. Employing RegTech to automate personal trading/code of ethics compliance greatly reduces operational risk, and frees compliance teams to perform tasks that will add more value to their organization, such as analysis and communication.

In short, RegTech solutions for personal trading/code of ethics compliance are being adopted by more and more financial services firms today. Outdated manual approaches are disappearing as firms seek to reduce compliance risk, enhance their compliance culture, and redeploy compliance team members to more value-adding tasks. Increasingly, boards of directors and senior management teams are understanding that compliance should be a strategic partner to the firm that can help deliver on overall business goals.

How ACA Can Help

ACA’s Compliance ELF (Employee Level Filing) platform provides an integrated solution for managing your firm’s code of ethics compliance activities related to employee personal securities trading monitoring, attestations, reporting on gifts, political contributions, outside activities, and more. In today’s complex technology landscape, ACA’s Compliance ELF provides the robust security, reliability, and disaster recovery elements that financial services firms need from a RegTech solution. ACA can support your firm’s entire personal trading/code of ethics program – from designing policies and procedures through to implementation, helping your firm transform your compliance program.

Additional Resources 

  • On Demand Webcast: Personal Trading - Rule vs. Best Practice - Rule 204A-1 under Investment Advisers Act of 1940 is a cornerstone of every registered investment adviser’s compliance program. In this webcast, we discuss the Code of Ethics Rule and the industry’s best practices in dealing with the personal trading requirements under the rule.
  • Blog: How RegTech Can Enhance Your Firm's GRC Program: A 4-Step Approach – Chief compliance officers (CCOs) and risk and compliance teams know they need regulatory technology to meet ever-increasing regulatory obligations as well as establish best practices for their firm’s governance, risk, and compliance (GRC) program that reduce operational risk and increase operational efficiencies. While the value added by a RegTech solution is clear, understanding the full scope of a GRC technology implementation can be a significant challenge. This blog post explains four steps for enhancing the effectiveness of your firm’s GRC capabilities using technology.
  • Blog: Planning Your 2019 Compliance Budget Part One: Building the Foundation – As year-end nears, compliance teams are beginning to plan for 2019. To assist with the annual budgeting process, ACA has compiled tips for helping firms stretch limited resources and keep pace with the regulatory developments shaping next year’s compliance efforts.
  • Blog: Planning Your 2019 Compliance Budget Part Two: Top 5 Budgeting Tips from ACA's Former Regulators and CCOs – This blog post contains tips from the many former regulators and CCOs on ACA’s staff on the most crucial components of building a compliance budget.

About the Author

Jordan Schwartz is a Partner with ACA Technology. He focuses on ACA’s GRC Platform and Code of Ethics tools and oversees the ComplianceAlpha Customer Success Team. Jordan came to ACA through its acquisition of Cordium, which he joined in 2003. At Cordium, Jordan was responsible for the advancement, growth, and marketing of the firm's global software offerings and overseeing the operation of the development and client support teams. Jordan actively participates in ACA’s sales and marketing efforts, often spearheads internal projects, and is a frequent guest author and speaker for industry publications and conferences.

Jordan holds a B.S. in Applied Economics Management from Cornell University.