Focusing on Outcomes

The Practicalities and Opportunities of Harnessing Technology and Big Data in Regulatory Enforcement and Compliance Practices - Part 3.

Q: How do you move from a conversation about a problem area, say, a compliance deficiency or a potential violation, to a strategy for addressing it, and then to a team executing on it?

A:?Alex Russell, Bates Group Managing Director, White Collar, Regulatory and Internal Investigations:?Clients generally know what they want as an outcome: a working system doing what they want it to do, mitigation of downside risk, and specific information to limit damages. How sophisticated they are in the details of system architecture is less important to us than truly understanding their concern and the outcome they seek (which can, sometimes, evolve into something well beyond their initial request). There is no substitute for reaching that understanding with the client, and it is incumbent on our team to ask the questions of them necessary to design a strategy that can deliver the outcome they want.

But, it takes experience to know what to ask. And it takes a lot to build a team with the diverse data skills necessary to go from first conversation to the delivery of those outcomes.

Our team uses knowledge of system architecture and design, the latest in data analytics, and skills for compiling, cleaning, manipulating, and transforming data to create a strategy to produce what the client wants or needs. This may be opaque to many, but it is important to know that these tools, this capacity, is not the domain of one “good computer person.” It relies on the combined knowledge and experience of a deliberately assembled team, dedicated to dealing with regulatory inquiries, enforcement or litigation matters. Obviously, I am proud of the team at Bates, but at the end of the day, what we’ve found in our own experience, year-after-year, is that there really isn’t an effective substitute for human judgment and bringing background knowledge and skills-based expertise to bear on a particular issue.

What Do We Not Know?

Q: Clients come to you for your technology and analytical expertise. How do you bridge the gap in subject matter expertise?

AJR: Our best results come out of a clarity of purpose, which comes from knowing the subject, designing an effective method of inquiry and having the skills to execute on it. When we confront issues where there is a gap in our understanding and need additional expertise to be certain of our path, we are fortunate to be able to rely on our colleagues in different practice groups at Bates. For example, we might bring in anti-money laundering or compliance or litigation experts to ensure that we ask the right questions and attack a problem from all sides. We have nearly 200 financial industry experts at Bates, so it is quite the brain trust to be able to tap.

Similarly, if we are uncertain as to what the best practices today are in any given area of inquiry, like revenue sharing or 12b-1 fees, we can reach out to our compliance colleagues and say: “This is what we are seeing. How does it align with what you would expect?” They may wind up partnering with us to make sure that the client gets the best possible information that’s as current to the moment as possible for their particular inquiry. For example, we handled a compliance matter concerning the recalculation of certain aspects of fees and performance metrics for a firm. The client asked us a holistic question about what we thought of the level of fees that they were charging. It was, in essence, a benchmarking question on their fee rates and the components that went into those fees relative to the industry at large. We had a point of view on that because we see that kind of information regularly, but we don’t have as broad of a view as our compliance group does. So, we partnered with the Bates Compliance practice team to provide that benchmarking in addition to our own observations and experiences. That’s actually a very common occurrence for us.

The same is true for issues involving anti-money laundering where we’ve partnered with our AML & Financial Crimes team. One client had asked us to evaluate anti-money laundering monitoring systems and to do some fine-tuning related to transaction monitoring. The client asked, “Do you think we’ve got appropriate threshold programs? Is this the right point at which we should be triggering our reviews, or are we leaving opportunities for potential exploits of the system as it stands today?” Again, we have a view into that, but not nearly the breadth of view that our AML team can bring to the table, so we asked them to share their views and we bolstered our approach accordingly.

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Next: "Off-the-Shelf Compliance?"

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