Matryoshka approach to controls

Matryoshka dolls are those nested Russian wood dolls, where smaller ones are inside the larger ones. Sort of how the controls on information risks/hazards are aligned.

So, you’re a business that advises clients how to invest. There’s the chance that one of your employees will do something naughty to make more money, at the expense of your client. Impact on the client can be huge; impact on your company is nothing to be sneezed at, either.

So what controls are in place to prevent this from happening? Lots. And do they still fail from time to time? of course.

“Stockbrokers Fail to Disclose Red Flags to Investors,” Wall Street Journal, March 6, 2014 A1 http://on.wsj.com/1niNxST

Here are some of the controls in place (no doubt in addition to management oversight); can you spot any weaknesses?

  • Background checks on brokers. Check, sort of.
  • Monitoring activity. Check, sort of.
  • Voluntary Industry Association. Check.
  • Industry Association requirements, and fines for violations. Check.
  • Compliance meeting, annually. Check.
  • Training, annually. Check.
  • Fingerprints to FBI. Check.
  • FBI background check. Check, sort of.
  • Require brokerage to disclose what it knows (or should know) about certain bad acts by brokers to Industry Association. Check, sort of.
  • Require brokers to disclose their own bad acts to the brokerage. There’s a requirement.
  • Industry Association website on brokers. Check.
  • Verification that brokers actually disclose their own bad acts to brokerage. No.  Let the Wall Street Journal do it for you.
  • State regulators who approve/disapprove of brokers. Check, sort of.
  • Doesn’t the SEC do this? No.
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Filed under Business Case, Compliance, Controls, Data quality, Governance, Information, Internal controls, Knowledge Management, Risk, Third parties, Value

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