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Securities and Derivatives

In an increasingly complex marketplace and changing regulatory environment, it is essential for financial institutions to develop sophisticated practices and policies that allow for profitability and compliance amidst shifting regulatory expectations.

In particular, securities and derivatives products continue to undergo significant regulatory change, with the creation of new regulatory agencies and the redistribution of oversight jurisdiction among existing regulators and supervisors. Regulators are using their new, increased authority to impose tighter control on the securities and derivatives markets. Ensuring compliance with this body of regulations is one key to building a competitive advantage for your firm.

Promontory’s Securities and Derivatives Practice area focuses on the regulatory and compliance challenges facing companies regulated by the SEC, CFTC, FINRA, NFA and securities and derivatives regulators worldwide. Our team has extensive experience tailoring solutions to meet the individual needs of our clients, while adhering to regulatory requirements and expectations. We also specialize in conducting internal fact-finding investigations and assessing the effectiveness of corporate governance structures, corporate regulatory and compliance-related controls, risk-management systems, and financial reporting systems and related internal controls. Our professionals enable clients to achieve best-practice standards through designing, evaluating, and managing regulatory, surveillance, and compliance systems.

Areas of Expertise:

Securities Regulatory Reviews and Assessments
Dodd-Frank Act Title VII Reviews and Assessments
Futures Commission Merchant Compliance Reviews and Assessments
Internal Fact-Finding Investigations
Corporate Governance and Controls Assessments
Independent Compliance Consulting and Monitoring
Enterprise-wide Risk Management Systems

Types of Clients Served:

Broker-Dealers
Futures Commission Merchants
Investment Advisers and Investment Companies
Central Clearinghouses
Credit Rating Agencies
Exchanges and Self-Regulatory Organizations
Swap Dealers and Major Swap Participants

Representative Engagements

In response to a rogue trading incident, Promontory was retained by the independent directors of a global financial institution—registered as a broker-dealer (BD) and future commission merchant (FCM)—to review and assess the risk management program and controls infrastructure at its operating subsidiaries in the U.S., Canada, and the U.K. Promontory made far ranging recommendations designed to assist the institution in strengthening its risk management program and controls infrastructure with an eye toward meeting industry best practices. The recommendations related to enhancements around governance, risk, compliance, internal audit, and operating and other controls.
In connection with another rogue trading at an FCM/BD, Promontory conducted a global review of the institution’s business and operations in connection with the trading incident. Promontory performed a global review and assessment of market, credit and operational risk management systems and internal controls and provided recommendations to enhance and strengthen risk management systems and internal controls. The review focused on business and operations in the regional centers of New York (US), London (Europe), and Singapore (Asia Pacific). At the client’s request, Promontory’s review was provided to the CFTC. Following the CFTC’s institution of an enforcement action against the institution, Promontory was engaged to review (i) the effectiveness of the institution’s implementation of Promontory’s recommendations and (ii) the institution’s compliance with undertakings imposed by the CFTC.
For a BD, Promontory conducted a compliance and supervisory controls review, focusing on governance and risk management practices, as well as relevant policies, procedures, and systems. As part of that review, Promontory assessed key policies, procedures, controls, and systems related to the BD’s trading, sales and marketing, and operations. Promontory also assessed the BD’s risk management policies and procedures, including controls around operational risk. Based on the review, Promontory provided advice to the BD on strengthening its compliance, supervisory, risk management, and governance controls in light of SEC and FINRA requirements and expectations and compared with industry best practices.
For a global credit rating agency, Promontory conducted comprehensive reviews of the agency’s control infrastructure around governance, compliance, quality assurance, and risk management. The review was done with a view toward meeting regulatory requirements and expectations in the U.S., EU, Japan, and Hong Kong. In addition to providing recommendations for enhancements to the control infrastructure, Promontory assisted in the implementations of those recommendations by, among other things, drafting a code of conduct as well as policies, procedures, and control documentation. Promontory also assisted the agency in preparing materials to support its registration in various jurisdictions, including, for example, helping with risk assessments, documents describing those assessments, and the drafting of risk management plans.
Promontory was retained by outside counsel to perform an independent, fact-finding investigation into whether a public company used or sold structured finance products that improperly affected the timing or amount of revenue recognized, or expenses incurred, on its or counterparties’ financial statements. Promontory’s team conducted a comprehensive analysis of dozens of complex structured finance transactions. The review entailed searching and reviewing millions of pages of documents and conducting extensive interviews of dozens of current and former company employees. At the request of the company and its counsel, Promontory briefed staff from the SEC and U.S. Attorney’s office on its internal investigation.
Promontory reviewed the compliance systems and written compliance policies and procedures of an investment adviser to multiple hedge funds. The review included an assessment of the operational effectiveness of key compliance policies, procedures, and systems. Promontory made recommendations on how the adviser could improve and enhance its controls to fulfill regulatory requirements and meet industry best practices. Throughout the review, Promontory professionals provided real-time advice to the client on compliance and regulatory issues. In addition, Promontory provided guidance to the client and its attorneys on effectively working with the SEC staff during investigations and examinations.
For a quantitative investment adviser, Promontory conducted a comprehensive review of the policies, procedures and processes designed to detect and prevent regulatory and compliance breaches. This review included how the firm represented its quantitative investment approach in disclosures and its approach to identifying, resolving, and documenting model errors. The review also included a comprehensive review of the adviser’s compliance program.
Promontory was separately engaged by two major banking organization to (i) conduct a gap analysis comparing and mapping proposed and final rules issued by the CFTC, SEC and the Prudential Regulators under, and the self-executing provisions of, Title VII (Derivatives) of the Dodd-Frank Act against their existing policies and procedures, monitoring, testing, training and other controls, and (ii) identify any deficiencies or required remediation. As part of this process, we assessed the adequacy of each firm’s human and technological resources and their sufficiency for compliance with Title VII. Promontory delivered a report outlining findings and recommendations on the organization, structure, staffing and responsibilities of the firm’s compliance function and derivatives business model, and assisted the firms with implementation of these recommendations.
Promontory was engaged by the CFTC to review its market surveillance program, including its systems and technological capabilities, data storage and sharing processes, and practices for overseeing futures and related markets. We compared the CFTC’s surveillance practices to domestic and international regulators’ and exchanges’ practices, and provided a report with recommendations for enhancing the market surveillance program, many of which have been or are in the process of being implemented.
Promontory advised a national securities exchange on the effectiveness and comprehensiveness of its regulatory program. Promontory reviewed the surveillance and examination approaches and methodologies of the regulatory program in light of current regulatory requirements and expectations and industry best practices. We drafted materials describing the regulatory program for submission to the SEC.
Promontory assessed a publicly traded bank holding company’s corporate governance, enterprise-wide compliance, and internal audit programs. We presented our findings and recommendations to the company’s board of directors, and delivered to senior management detailed action plans to implement our recommendations. At the request of the client, we also presented our findings and recommendations to the SEC and the company’s banking regulators.
Promontory served as the independent compliance consultant for one of the world’s largest financial institutions in its settlement of SEC enforcement actions alleging late trading and market timing through mutual fund complexes. We conducted a comprehensive review of the fund complexes’ supervisory, compliance, and other policies and procedures designed to prevent and detect: (1) conflicts of interest, (2) breaches of fiduciary duty, (3) breaches of codes of ethics, and (4) violations of the federal securities laws. As required by the SEC settlement, Promontory submitted reports to the client and SEC that outlined findings and detailed recommendations to strengthen the company’s supervisory, compliance, and other policies and procedures.

Securities and Derivatives

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