Most firms and surveillance groups approach electronic correspondence reviews in three ways: percentage of review, key words to identify problematic correspondence, and internal investigations.
Thus far, regulators have not given firms much of a reason to do otherwise. Most of the regulatory fines and sanctions have been the result of lack of review, lack of storage, or not capturing all business units or forms of technology that create and receive electronic correspondence. Instead of leaning toward this practical, “check-the-box” exercise, firms should begin to think about ways to utilize correspondence reviews to assist them in identifying potentially substantive issues.
The holiday season presents the perfect opportunity for firms to conduct practical and preventive correspondence reviews. There is no better time to watch for inappropriate gifts and entertainment, and a correspondence review is the very best way to identify these activities within your firm. I am a proponent of utilizing the required electronic storage and review requirements and have some suggestions for trying out a proactive review.
For starters, add some key words to the review for the month of December. Words such as “gift” or phrases like “we (I) appreciate your business” are often used in emails surrounding the receiving and giving of gifts. Also look for attachments that confirm delivery or receipt. You may encounter correspondence that includes gift cards or restaurant gifts through Open Table. Flagging emails from UPS, Fed Ex, Open Table, or Amazon could provide some interesting results. Understand that you will likely capture some personal gift giving by your employees in the process. There is often a fine line in business between personal and professional, however. Seemingly personal gifts may in fact be professional gifts, so take a look at your client list as well as your firm’s CRM. Ask questions as they arise.
A targeted review is perhaps even more interesting than a key word review. Take a look at the sales force emails in addition to the trader emails. Focus on senior investment bankers and senior research analysts. Consider examining the C Suite too, but be sure that you have the backing of someone in legal or compliance. The large producers and senior executives at the firm are most likely giving and receiving gifts of substantial size.
It is important to remember in this review that the act of receiving or giving a gift is likely not a regulatory issue. Even with the FINRA rule requiring that gifts be under $100, there are multiple ways to “cure” a gift that has been given or received. The recipient can consider either sharing the gift with multiple staff members or returning the gift to the sender. If your employee sent the gift, it is a bit harder to cure, but often the receiver may be able to share it with his or her office or even pass the gift on to a charity. In terms of entertainment, you will see invitations to dinners, sporting events, and theater. Knowledge of the types of entertainment, and whether the entertainment is reasonable, is an important element of appropriate gift giving and receiving.
For those firms that do not have strict gift and entertainment rules and regulations, this is an important exercise to determine the amount and type of gifts and entertainment that your employees are exchanging.
It’s important to monitor entertainment and gifts to ensure that they do not begin to blur the lines and unduly influence the behavior of either your employees or your customers. In the extreme, this behavior could be considered bribery. Reviewing electronic correspondence in this manner will demonstrate to regulators and auditors that your firm is committed to monitoring questionable gift and entertainment practices outside of your expense policy. It is also a great way to test that your expense policy is being followed.
Elin is the CEO of Elinphant a financial compliance services firm. Elin ensures compliance officers who serve clients are skilled and knowledgeable in relation to the clients business and needs. Elin is known for looking at compliance challenges as well as marketing and sales in an innovative and direct manner.