Nine Cases and Scenarios Involving Retail Financial Compliance

This article discusses retail financial compliance from the perspective of nine cases and scenarios. First, the paper defines financial compliance, a fiduciary, a fiduciary’s standard of care, and a broker/dealer. It then describes under what conditions a broker/dealer is a fiduciary. Next, the Consumer Protection Rule is explained and its application to Merrill Lynch’s misuse of customer funds, where the company did not deposit customer cash in a reserve account, thereby putting customer money at risk in the event of bankruptcy. The five Anti-Money Laundering pillars are listed, including designating a compliance officer, completing risk assessments, building internal controls and AML policies, monitoring and auditing an AML program, and performing customer due diligence. Third, the Stanley Smith Barney, LLC and the UBS Group AG subsidiaries UBS Financial Services, Inc. and UBS Securities, LLC anti-money laundering cases are evaluated. Fourth, a fictitious scenario illustrates the consequences that may occur when a registered representative for a broker/dealer uses their personal email to communicate with customers about business-related matters, including potentially violating Financial Industry Regulatory Authority rules. Fifth, three financial compliance surveillance cases are highlighted, demonstrating that financial compliance can be breached inadvertently or because of the seeming incompetence of a Chief Compliance Officer. Sixth, a fictitious scenario is portrayed, where a fake retail account is discovered and what should be done to rectify the situation. Seventh, the Société Générale scandal is outlined, and whether Jérôme Kerviel was a culprit who was formatted and distorted by the company. The facts indicate that both issues were involved in the scandal. Eighth, a fictitious scenario is provided, where an individual with 30 years of experience working for a broker/dealer decides to become an investment adviser. The section explores the advantages and disadvantages of hiring such an individual. Finally, a fictitious scenario is given in which three possible unauthorized trades occur. The article explores the conditions under which the trades were genuinely unauthorized. These cases and scenarios remind us that things should be taken at a different level than face value. A certain amount of disbelief is essential to certify fairness and justice. Retail financial compliance cases and scenarios usually contain many shades of gray, where doubt can be effectively employed to expose material facts. Only then can an accurate picture of a situation be evaluated.