FINRA understands that our employees are investors. So how do we avoid conflict of interests? We have rules around employee investments and an office, the Code of Conduct Group, that reviews employee trading activities.
This oversight, however, wasn’t always easy. Previously, the system in place for the Group only enabled bulk-exports of transaction alerts into Excel spreadsheets that required significant review by compliance analysts to remove false positives, before identifying alerts that required investigation. To track and administer the investigations of potential violations, the Group relied upon multiple systems and storage locations. This included Outlook, a third party case-management system, and network shared files. To see the whole story at any given time, an analyst would be required to access information from these multiple systems.
In addition, false positive alerts were commonly presented by the system. Much of their work required time to whittle down alerts to the actual transactions that needed investigating. Intensive manual work meant the process was slow and time consuming for the Code of Conduct staff.
The Code of Conduct Group was ready to streamline and make this work more efficient and to conclude investigations more quickly. The product and development teams believed they could streamline the workflow as well as make the process auditable and traceable.
While the Code of Conduct office has a long tenure, there wasn’t one cohesive existing system to process and investigate potential violations. “It was effectively a greenfield project” Tom Fonseca, Senior Director overseeing the development team, explained. The development and product teams worked closely with the Code of Conduct staff to understand what the business was trying to accomplish in its surveillance and investigative work. This was foundational to understanding what tools would be required to support them.
With so much flexibility, the development and product teams decided to focus on creating a strong foundation by creating a solution for one Code of Conduct rule at a time. They began by focusing on the 30 day minimum hold rule: the rule that requires FINRA employees to wait 30 days before selling or closing a position in certain types of securities.
The teams leveraged agile development to keep the business involved throughout the product development process. Agile development meant faster iterations, multiple opportunities for feedback, and closer collaboration with the end users. Embracing continuous delivery allowed the team to rapidly and frequently deploy changes to production, even as users were using the product. Multiple iterations helped business users see the new system evolve. It also kept the development and product teams tailoring the system to fit business needs.
A key item for the project was how well the system would identify transactions for investigation and support their review. Previously, analysts could spend weeks on manual comparisons and look ups to eliminate false positives and to identify those transactions needing further investigation. Today, stronger algorithms and effective use of securities reference data filters out almost 70% of those false positives. Less false positives frees analysts to find potential issues more quickly and spend more time on them.
Another major benefit came from centralizing the review and investigative workflow into one system. Previously, analysts needed to use multiple systems, including Excel, Outlook, and network shared files to support the process. The system, “makes processing faster, not only because of what it’s achieving but also because of its central design” Pramit Das, Assistant Director, explained.
“Analysts now have all the information received and recorded in one place, making it easier to access that information and pick up where they left off the day before” described Natalie Norris, Director overseeing the Code of Conduct Group. “This has been a seed change for our group; the use of multiple systems has significantly decreased.”
More than the day to day investigation, the central design also makes it easier to audit and track the progress of the investigations. “It’s all recorded in the system” Brett Clawson, Director in charge of the product management team said. “We maintain an audit trail for every change.” All in one system, record keeping has become even easier.
In addition, the business and technology teams moved away from a focus on transactions and towards presenting alerts to analysts, at the employee level. Analysts can now see related transactions in one organized place. This shift breaks the work into smaller and more manageable chunks.
The transition to alerts at the employee level helps analysts have context and deeper insights about the transactions under review. This is making it much easier for Code of Conduct staff to quickly perform its analysis and commence its investigations.
With the first part of the new system in production, the Code of Conduct team is already seeing improvements. They’ve dubbed the system, ‘The Red Ferrari’ because it has made, “processing of alerts in a timely manner so simple as to make it downright enjoyable for our staff”, explained Tom Selman, Executive Vice President and Legal Compliance Officer. Initial evaluations of transactions that once took an entire week can now be finished in 1-2 days.
While the new system has provided great benefits, there is more work to be done. With only an automated workflow for one Code of Conduct rule so far in production, other rules and capabilities are in development to be added over the next year. Ultimately, “The Red Ferrari” will support all Code of Conduct core functions.