Extreme Regulatory Scrutiny And What To Do

In 2012, I was hired by Getco (the number one algo firm at the time), a firm serving as a market maker for both the buy and sell side of the market, as their Chief Compliance Officer.  Getco had just been fined regarding large volumes of transaction misreporting.  After an FCA regulatory visit they were placed on the FCA Watch List with a big remediation “to do” list which included a section 166 market abuse review based around their controls, a Governance restructure, and an ongoing investigation regarding the legitimacy of their algos within the French market.  Depending on the day and the exchange, Getco would trade between 1-10 percent of the respective exchange volume hence raising the FCA’s concerns.  Often, I am asked why I took on the role; my answer is what I learnt in those two years was invaluable. In addition, I wanted the recognition of working in a high-risk challenging environment that very few people enter and realise the firm being removed from the Watch List. 

So, what should you do when faced with regulatory scrutiny?

Buy in from business – The number one thing is to get the buy in from the business leader(s). Operating in such a high-risk environment I cannot stress the importance of this enough.  I had three different CEOs in London during the firm’s regulatory scrutiny: their names were John Mueller, Steve Warr, Robert Smith, and they always listened, offered constructive feedback, and believed in me being the compliance expert.  The business consisted of developers and coders but not a lot of bankers, so I was fortunate when a traditional schooled banker, Daniel Coleman ex UBS Global Head Of Equites, was brought in by the owners to become the global CEO. This created stability in the business strategic direction, when previously Getco had lost competitiveness in the market, and the level of dysfunctional behaviour within the firm was also reduced as he hired market risk professionals. As a result, the new management structure gained confidence in me which allowed me to control, build and educate a team and obtain the resources I needed.

Have a strong relationship with the regulator – With this level of scrutiny you are going to be asked questions on a weekly basis; get used to it and build that relationship. This is equally as important as the buy in from the business. I had three supervisors during the scrutiny period. Change is common within the regulator so keep on top of the relationship.  Do not get frustrated with your regulatory contacts as many have not been in the industry, especially the day-to-day ones that you talk to.  If they ask you basic questions it is completely understandable. Remember they will become experts very quickly and start working the industry, as did mine.

Not everything is set in stone – Do not go in with any pre-conceived perceptions. For example, I always thought a section 166 was mandated with no negotiation.  With the correct buy in from the business and a decent relationship with the FCA I found I was able to present several firms to meet the independent review clause of the s166.  For me I favoured a team led by Patrick Storey, a senior partner at Grant Thornton, who I held in the highest regard. Patrick built a team that had the relevant exchange and market experience for our section 166 independent audit. The regulator does not always have the experience, understanding or answers within a specific developing business area particularly when there is little or no real regulation around it. The FCA were looking towards the business to explain actions and come up with the solutions and that helped me advise and negotiate.    

Having now worked in several “compliance crisis moments” and de-risked the businesses be it dividend arbitration, being part of a Casio de Cambio scenario or getting a firm removed from an FCA watch list, these three critical rules have always stood me well.  There are many more, but I have always viewed these as the most important.

AT GRC limited we share these experiences to demonstrate our distinct advantage over other consultancies and recruiting firms. We deliver compliance officers with substantial experience and expertise, who are happy to be hands on to deliver high level risk solutions.  GRC Limited a compliance services firm please do call us to see if we can help you. 

  • Dadmin
  • October 13, 2021

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