Oyster Consulting Blog

 

CONTACT:

        Ellen G. Resnick
        Crystal Clear Communications
        773/929-9292; 312/399-9295 (cell)
        eresnick@crystalclearPR.com

FOR IMMEDIATE RELEASE

Chicago-based Donald Horwitz Consulting Joins Forces with Oyster Consulting
Combined firms expand regulatory/compliance consulting practice with nationwide resources

RICHMOND, Va. and CHICAGO, Nov. 15, 2011: As financial services firms increasingly seek assistance to navigate a complex regulatory and business environment, Richmond-based Oyster Consulting, LLC and Chicago-based Donald Horwitz Consulting, LLC (DHC) announced today that they have joined forces to increase the depth and breadth of their individual service offerings. Led by Donald Horwitz, DHC’s addition to Oyster Consulting enhances the firm’s expertise in commodities, futures and options. Their combined forces also enable DHC clients to benefit from Oyster Consulting’s depth of resources and more than 40 consultants in seven cities nationwide.

Donald Horwitz opened DHC this fall, applying nearly four decades of expertise in senior regulatory, compliance and legal counsel roles in financial services and derivatives.

“We’re ecstatic about bringing someone of Don’s caliber and experience in the commodities, futures and options industries into the practice,” said Patrick Dennis, an Oyster Consulting Founding Principal and Managing Director.

Established in 2008, Oyster Consulting announced last month the opening of its Chicago office at 200 S. Wacker Drive. Horwitz will operate out of the new location, joining more recent firm additions, Mike Nolan and Pat Blackburn, former leaders at Terra Nova, The Chicago Corporation and Merrill Lynch.

 
Horwitz said: “Oyster Consulting has built an outstanding practice, and I’m thrilled to be able to offer clients the breadth of resources and related top-quality expertise that can augment the services I provide. In the short time since I opened my firm, I have seen significant demand for these services.”

ABOUT OYSTER CONSULTING

Focusing on creating simplicity in a complex environment, Oyster Consulting supports wealth management and asset-servicing firms with audit, regulatory, compliance, financial, strategic management, operational and technology consulting services. Its team of consultants brings over six centuries of combined experience as senior executives, program managers, developers, department managers, business analysts and subject matter experts. Oyster Consulting’s practical solutions help broker/dealers, investment advisors, hedge funds, mutual funds, ETFs and private equity firms protect and grow their businesses.

ABOUT DHC

Donald Horwitz Consulting was established in 2011 to provide regulatory, compliance and legal services to firms in the securities, futures and derivatives industries. Managing Director Donald L. Horwitz, formerly General Counsel and Chief Compliance Officer for some of the world’s most recognized financial institutions, is also Contributing Editor to MarketsReformWiki.

 

We are pleased to welcome industry veterans Michael Nolan and Patrick Blackburn to Oyster Consulting, LLC as we open a new office in Chicago, IL. Michael and Patrick will focus on operation and management consulting for trading and markets in Chicago.

 

Press Release

As of October 17, FINRA’s new requirements for the Order Audit Trail System (OATS) are live — is your firm ready for these regulatory compliance changes? 

 

Prior to the updates, the OATS recordkeeping and reporting requirements in FINRA Rules 7410 through 7470 only applied to orders for equity securities listed on the NASDAQ Stock Market and OTC equity securities. But now, FINRA is phasing in an expansion so that OATS Rules apply to orders for NMS stocks, as defined in Regulation NMS Rule 600(b)(47), including those listed on markets other than NASDAQ. 

 

To date, FINRA is implementing the OATS Rule expansion to all NMS stocks in three phases based on the security’s symbol. Key changes include:

• Creating standard values for Receiving and Originating Department ID fields. 
• Adding a new Order Origination Code. 

• Eliminating the Received By Desk ID. 
• Aligning the OATS Account Type Code with the NYSE Account Type Indicators. 
• Creating a new Exchange Participant ID field on all Route Reports identifying routes to a national securities exchange. 
• Generally requiring each reporting MPID to use unique Routed Order IDs and Branch/ Sequence Numbers each day. 
• Reducing the allowable clock drift from three seconds to one second, and requiring timestamps to be reported to OATS in milliseconds if the firm captures the time in milliseconds. 

 

Many of our clients have been working closely with their technology partners to test the regulatory compliance changes prior to implementation, but this initial work is not enough. Without a consolidated industry testing process, testing every possible scenario before implementation was impossible, so firms should carefully review their OATS reports over the next six weeks to ensure they are complete and accurate. Pay special attention to the new destination codes and account type code fields to make sure you report them accurately. 

 

As you work to ensure a smooth OATS implementation, now is the time to review your written procedures related to trade reporting to make sure they are in synch with regulatory requirements and your business practices. Oyster is fortunate to have key resources to help firms evaluate their trade reporting platforms and practices — if you have any questions about trade reporting or Oyster Consulting, call me at 804.965.5403. I might not always be by my phone, but I will always call you back. 

 

I hate to be the bad news monger, but summer is over. The calendar (and thermometer!) might say we have a few more days before fall begins, but for financial professionals, Labor Day is the unofficial end of summer vacation season and beginning of annual requirement season. Of course, most people would rather be beach lounging than conducting an AML review or worrying about regulatory compliance. But, addressing these tasks now can help ensure you complete them thoroughly and on time — with as little pain and frustration as possible.

With less than four months left in the year, now is the time to finish required annual tasks and plan for 2012, including:

Broker/Dealer Annual Requirements

• Deliver annual training/annual compliance meeting.
• Conduct independent Anti-Money Laundering reviews.
• Begin supervisory control testing, including FINRA Rule 3012 and Rule 3130.
• Complete annual branch audits.

 

RIA Annual Requirement

 

• Review Policies and Procedures against business practices and regulatory requirements.

Firm Responsibilities

On top of regulatory requirements, both broker/dealers and RIAs must:

• Complete the annual renewal process. Annual renewals take time and effort, but they can be a great way to save money by removing unnecessary state registrations.  
  

• Finalize their annual budget and plans for 2012. A massive number of proposed regulation and legislative changes could affect your business in the near future, so you must make sure you are up to speed with what may come and adequately budget your resource needs.

If you’re wondering how you can possibly complete these tasks in time, Oyster Consulting is here to help. Unlike most people, we love analyzing minutiae and wading through regulatory compliance language to ensure we address each requirement efficiently and effectively. (How could that not sound fun?!) Whether you have a quick question or need complete advice and planning, call me at 804.965.5403 — I’m happy to help. I might not always be by my phone, but I will always call you back.

Oyster Consulting has grown significantly over the past three years — and as a result, we simply ran out of room to fit all of our experienced consultants. So, after months of preparation, we’re moving our headquarters down the street into a bigger Oyster space located at:

4405 Cox Road, Suite 150
Glen Allen, VA 23060

Our new office is large enough to house Oyster’s growing team of consultants who dedicate their time to supporting our clients’ complete financial consulting needs.
The move is mostly taking place on August 17 and 18, and we may experience some disruption in email and phone service Wednesday night and early Thursday. We expect the down time to be limited, however, thanks in large part to Rob Ketch at Comverge and Bret Westphalen at MABC.

Remember our last blog about business continuity planning, and how you never know what challenges your company might face? We prepared for transferring our phones, Internet and servers during the move, but certainly didn’t anticipate a major strike by our service provider in the process. Rob and Bret’s creativity, client focus and problem-solving skills have been critical to ensuring our team is available to clients — even when Verizon is not.

We look forward to using our new office after we complete the inevitable final scramble that comes with moving — and would like to thank our loyal clients, because without you, we would have no space to fill. In appreciation, we plan to host an open house in early October to formally thank our clients, consultants and friends who have supported Oyster Consulting over the years. Additionally, we will hold a CCO roundtable soon to discuss best practices for reporting and resolving issues. Please let me know if you would like to attend.

I also would like to personally thank Lacy Hatton, Cheryl Brown and Gladys Robinson for leading this project and coordinating the move. Oyster is fortunate to have consultants who are experienced transition managers, which has allowed everyone to stay focused on our clients and avoid distractions. We look forward to our next phase of growth and remain dedicated to providing the highest quality advice and support to our clients.

If you have any questions about our new space or Oyster Consulting, call me at 804.965.5403. I might not always be by my phone, but I will always call you back.

 

When was the last time you assessed and tested your business continuity plan? This month? This year? A few years ago? Never?!

You see, unexpected emergencies happen all the time, from headline-grabbing events (the Japanese tsunami) to more localized, personal calamities (a key employee’s death). No matter an emergency’s magnitude, they always disrupt and challenge a company’s ability to survive and serve their clients — and an effective business continuity plan is essential to avoid devastating losses.

In the financial services industry, stakes are higher: Your business protects investors’ financial livelihoods, and failing to thoroughly plan affects much more than the business or employees’ futures. Your clients are relying on you — and compliance regulations demand you deliver the service you promise.

Truly effective Business Continuity Planning (previously known as Disaster Recovery) addresses every aspect of your company and how each department will continue providing critical services to your clients. 
                                                                                                        
To help our clients plan effectively, we engage them in the following steps:

1. Assess the types of risks your company faces, such as:

• Connectivity

• Servers crashing
• Phone system failure
• Power outage
• Weather/natural disaster
• Fire
• Pandemic
• Key person loss

                                                                                                                   
2. Identify how an unexpected emergency could impact every member of your organization, including:

• IT
• Operations
• Trading
• Customer Service
• Sales
• Finance
• Compliance
• Executive Sponsor

3. Build your business continuity plan by prioritizing how each risk could affect your organization and determine:

• Generic scenarios
• Probability of occurrence
• Severity of impact
• Expected duration
• Cost of work around
• Acceptable risks

4. Most importantly, test the plan. Here, the Boy Scouts have some simple advice that we believe every organization should follow: Be prepared. Find out what works and what you still need to address — so you aren’t left scrambling should disaster strike.

Business Continuity Planning takes careful attention and foresight. At Oyster Consulting, we’re lucky to have Barbara Bower, a Certified Business Continuity Planner, on our team helping companies prepare for and protect their futures. If you have any questions about your Business Continuity Plan or Oyster Consulting, call me at 804.965.5403. I might not always be by my phone, but I will always call you back.

Are you prepared for the Whistleblower Rule?
Starting August 12, 2011, individuals who discover and report securities law violations can be eligible for significant financial rewards, under Section 922 of the Dodd-Frank Act. And in order to maintain regulatory compliance, firms must have a documented, independent investigation process to address the new rule.

According to the SEC, this new program “is primarily intended to reward individuals who act early to expose violations and who provide significant evidence that helps the SEC bring successful cases.” In other words, they are basically trying to prevent the type of shenanigans that contributed to the recent recession by offering financial compensation to individuals who proactively expose them.

Prior to the new rule, only insider-trading whistleblowing was eligible for reward. Now, virtually any financial misdeed is eligible. And since people who report a case to their employer will more than likely alert the SEC, too, firms must immediately address any potential whistleblowing.

Firms must also be wary of any proven retaliation against an employee who makes a report of a violation, as there is a provision in the anti-retaliation section of the rule for two times back pay relief (and other costly sanctions) if the firm retaliates.*

To help firms protect themselves and address their regulatory compliance requirements, we at Oyster Consulting are working with clients to: 

• Establish firm processes and procedures.
• Conduct training on rules and the escalation process.
• Create an independent internal approach.
• Serve as the investigation team, when necessary.

Even if your firm is the most ethical, rule-following business in the country, the reality is that false allegations are possible, too. If you’re wondering what happens — and what to do — when someone blows a whistle they shouldn’t, be sure to visit our blog again in two weeks. In the mean time, if you have any questions about the Whistleblower Rule or Oyster Consulting, call me at 804.965.5403. I might not always be by my phone, but I will always call you back.

*  ‘‘(C) RELIEF.—Relief for an individual prevailing in an [retaliation] action brought under subparagraph (B) shall include— (i) reinstatement with the same seniority status that the individual would have had, but for the discrimination; (ii) 2 times the amount of back pay otherwise owed to the individual, with interest; and (iii) compensation for litigation costs, expert witness fees, and reasonable attorneys’ fees."

 

True to the financial services industry, the regulations keep on coming.

Starting July 9, 2012, new FINRA rule 2111 will replace rule 2310, creating suitability requirements for broker/dealers designed to ensure financial professionals serve clients to the best of their ability. Whether recommending a security, a hold or an investment strategy, the broker/dealer will now have to prove they have taken into consideration the following items (new details are in bold):

• The customer’s age
• Other investments
• Financial situation and needs
• Tax status
• Investment objectives
• Investment experience
• Investment time horizon
• Liquidity needs
• Risk tolerance
• Other information the customer may disclose

And Rule 2111 includes not one but THREE separate suitability obligations:

1.    Reasonable Basis Suitability focuses on the security or strategy.

A broker/dealer must have a reasonable basis to believe, based on reasonable diligence, that the recommendation is suitable for at least some investors. This requirement ensures financial professionals are familiar with every security or strategy they recommend.

2.    Customer-Specific Suitability focuses on the particular customer.

A broker/dealer must have a reasonable basis to believe their recommendation is suitable for a particular customer based on that individual’s investment profile. [Note: there is an exception to customer-specific suitability for institutional customers in certain circumstances. Call me if you have additional questions.]

3.    Quantitative Suitability focuses on the customer’s entire portfolio.

A broker-dealer must have a reasonable basis for believing that a series of recommended transactions are not excessive and unsuitable for the customer in light of their investment profile. This requirement looks at the customer’s entire portfolio, as well as at turnover rate, cost-equity ratio and in-and-out trading. The rule is violated if the rep does not have a clear understanding of both the product and the customer.
Thankfully, my colleague, Hank Sanchez, has been closely following Rule 2111 so Oyster can help broker/dealers comply by following these steps:

• Update procedures to comply with the rule.
• Update account documentation to cover the new required items.
• Train reps, supervisors and compliance staff.
• Review and update surveillance reports to capture the new requirements.
• Document whether and how the institutional clients meet the customer specific obligation.
• Update documentation with institutional investors to specify whether they affirmatively acknowledge that they are exercising independent judgment and document who controls the account (rep or client).
• Document suitability of strategies.

FINRA says the new rule isn’t about documentation, but did you notice how many of these steps require documentation? From my perspective, the requirements express the sentiment, “If it’s not in writing, it doesn’t exist.” In other words, if you’re making a recommendation, including a “hold”, you’d better document the reasons why.

July 2012 may seem far away, but Rule 2111 has the potential to fundamentally change the way you document — or make — recommendations. To learn more about the Oyster Consulting approach to Rule 2111, call me at 804.965.5403. I might not always be by my phone, but I will always call you back.

When financial professionals hear the phrase compliance training, most people instantly cringe at the thought of dry presentations, speeches ripped from manuals and nitty-gritty details. Despite compliance training’s unpopular reputation, however, presentations don’t have to dry or boring! In fact, on June 14, the Wall Street Journal covered the Funniest Compliance Officer competition, where compliance professionals nationwide competed in a stand-up comedy contest in New York City. (And yes, I’ve already booked my flight for next year.)

The reason compliance training is typically so boring is because the presenters often focus too much on sharing all the necessary information while forgetting their number one responsibility is to actually engage their audience!

So, to help all you compliance professionals, below are three steps I follow to create a colorful presentation that captures my audiences’ attention (call me if you want more insight on my “colorful” approach):

1. Address the specific audience.

Any information can be compelling or dull — it’s all about how you communicate the concept. Understanding your audience is the first step in creating compelling presentations. Define their interests, distractions and priorities. How are you going to grab their attention and ensure they remember what you said?

2. Find creative ways to share your message.

Rather than recycling the same phrases or concepts, choose ideas that will surprise your audience. One of the most engaging ways I use to capture their attention is using examples of real-life, bonehead behavior that memorably illustrates the topic. Have a funny or crazy story about a professional making the mistake you’re discussing? Use it.  Remember, you’re competing against a multi-media environment designed to capture your audience’s attention. Stale, lecture-driven presentations just don’t cut it anymore.

3. Don’t hold back.

Be blunt.
Avoid over-edited or boiled-down content from a manual. This approach is BORING and will ensure your audience gets lost or is inattentive, preventing your message from being effective.

For compliance training to be successful, you must make the audience care. Presenters have to show why compliance is an important requirement — as well as a relevant, powerful tool directly related to the bottom line. And when you put your audiences to sleep with boring delivery, you will never accomplish your goal. To learn more about the Oyster Consulting approach to compliance training, call me at 804.965.5403. I might not always be by my phone, but I will always call you back.

Over the past few weeks, I’ve written about the potential opportunities, threats and regulations guiding broker/dealers’ and RIAs’ use of social media. But one glaring question remains unanswered: With numerous channels and participants, how on earth do you stay on top of all the social media content created by or on behalf of your firm?

Thankfully, technology is on your side to help you.

Social media tools designed specifically for financial professionals can help you embrace new communication channels — while complying with FINRA and SEC regulations. Several products currently exist, and I believe the offerings from Smarsh, Global Relay and SunGard Protegent are worth a look. Their capabilities vary, but each of these tools is designed to help you monitor and archive your firm and employees’ interactions on social media, including Facebook, Twitter and LinkedIn.  

Global Relay and Smarsh have worked in the email archiving and content filtering space for years, and many of our clients have used their products for email and instant messaging compliance. SunGard, on the other hand, is a technology and compliance software company that has focused on surveillance, supervision and trading — their Protegent Social Media Surveillance for financial professionals is their first foray into electronic communications, but archiving has been a core offering for many years. Despite being new to the electronic communication arena, Protegent is worth careful consideration, too.

According to Suman Garhwal, SunGard’s vice president of business integration, they developed Protegent to “leverage their experience providing compliance solutions, helping organizations with a proactive approach to monitoring and our bandwidth to partner with clients to build a product that meets their needs.”

Garhwal believes financial firms realize the urgent need for automated tools that help fulfill their regulatory obligations with social media, but they’re unsure how to best manage their communications. And if my experience at their recent compliance summit in Miami was any indication, Garhwal is right on: Of all the breakout meetings offered, the social media compliance session was by far the best attended.

Because each social media tool’s services differ, I can’t say which will best address your firm’s needs. But after conducting research and before making your selection, I highly recommend you talk to their current and former clients to learn more about their experiences and perspectives. And as always, call me at 804.965.5403 with any questions. I might not always be by my phone, but I will always call you back.