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Regulatory & Internal Investigations

Mutual Fund Direct (current FINRA priority)

Bates has provided two types of support to our clients, in relation to the potential supervision failures associated with direct mutual fund business: a data review and a manual supervisory review. The data review is completed by Bates’ seasoned analysts who intake, standardize, and process trade blotter information from the mutual fund sponsors into the analysis environment, facilitating a comprehensive and consistent review of the underlying transactions. Data formats, column contents, and client information are standardized, and often enriched with additional relevant data from the firm (for instance, household information). Duplicative data and erroneous records are removed, along with cancellations and correction records, in order to ensure that subsequent analysis focuses on only relevant activity. The data itself is further analyzed by the team for specific characteristics relevant to particular areas of inquiry, such as: holding periods on A-shares, share class selection, the application of front load breakpoints, etc.

This preliminary data analysis generally identifies areas for further analysis, at which point in time the alert parameters in place at the time of the activity are replicated in the analysis environment, and the trade activity is then flagged according to those parameters. This can often entail combining trade data from the firm into the analysis, in order to create a complete picture of client activity alongside the activity done direct. After a complete review of all relevant factors, the Bates team calculates remediation and applicable prejudgment interest for the firm to make repayment.

The supervisory lookback is then completed by senior industry professionals who were previously responsible for this type of supervisory review, who can then review any inconclusive transactions remaining after the data analysis steps. This is done after direct training with internal personnel, to ensure that the same standards and processes are used to evaluate the direct transactions as would have been applied had those same trades been made within the firm’s systems.

Additional information necessary for the supervisory review can be collected by the reviewers via access to internal firm systems, or through additional data merges within the analysis environment.
Custom review interfaces are developed in conjunction with each firm and their outside counsel, such that review conclusions are determined according to a preset list of conclusion options, and all needed data points are tracked, cataloged, and databased for future reporting. Reports detailing the steps taken and conclusions reached (inclusive of the data analysis work) are then provided.

Bates is uniquely positioned to assist in this area as result of the composition of our Regulatory Response Team, which is comprised of both programming-fluent data analysts and former senior level compliance personnel, both of which bring with them years of industry expertise. This team structure allows for a seamless transition between the data and manual reviews, as well as iteration between the two, as the need for additional analysis is uncovered during the course of the manual review or where the expertise of the manual reviewers can help target and direct the data analysis. The team combination also creates a consistent experience for the regulator, as they evaluate and react to the work being done. As in other industrywide matters, Bates is well positioned to provide information to our clients as to how the regulator has responded to certain facts, assumptions, and approaches on prior matters involving direct mutual fund business.

Case Examples

Contact Bates Group

Bates Group is with you every step of the way. Contact us today for more information on how our End-to-End Solutions can help your firm.

Contact Bates Group