FIDLEG compliance: what helps in meeting FINMA expectations?

With FIDLEG already in place as a market standard you may be wondering where your organisation stands in terms of being compliant with this regulation. Within this article we would like to raise few key elements of regulation and comment on how features within WealthArc help in addressing those points.

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‍Integrated CRM Capacity

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You should not underestimate how important proper Client data management is for regulators and here FIDLEG is not an exemption. Being able to centralize and organize Client data including general information, KYC, risk profile and investment preferences is already a big benefit. However, combining both complex CRM with full context of portfolio and its transactions, provides a much better comprehension over Clients' affairs. Possibility to navigate easily between both a Client and Portfolio context creates great synergies and helps in effective workflow.

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It is also worth to mention that within WealthArc’s CRM you can:

·       Record and store any Client relevant documents.

·       Track full communication with a Client via notes and comments.

·       Document all rationales behind your investment decisions.

·       Freeze content of notes and documents for fully compliant audit tract.

·       Demonstrate compliance by exporting defined data sets either per Client or from PMS module.

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Client Segmentation and Risk Profile

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It is essential to record and track Client segmentation therefore an intuitive flow has been created for this within our CRM module. Process follows rules described in FIDLEG:  Art. 4 Client segmentation and Art. 5 Opting out and opting in.

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To correctly assess Client profile, user needs to fill in Client Segment and declaration towards opting in or opting out, also any relevant documents signed by the Client can be attached within the same section.

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Additionally, within our Questionnaires section you are able to run an assessment for Client’s risk, suitability and appropriateness. We allow creation of own custom methodologies within this process and upload of historical questionnaire results, where custom scores can be predefined according to internal methodology.

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Risk Assessment

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With risk profile available and recorded on Client-side, supplementary feature would be tracking and monitoring of risk on instrument level. In this area what might help in streamlining the process would be possibility to declare risk score per asset class or asset subclass via Asset Tree functionality or inputting risk score directly on instrument level within Back-office.

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This enables calculation of average risk score per portfolio and reviewing this measure against recorded Client risk profile.

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Monitoring Guidelines

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Another features that help in daily compliance workflows are possibility to create guidelines and alerts that come up automatically in case of a guideline breach. Guidelines can be assigned either as individual ones assigned on portfolio level or can be grouped in form of strategies that can be tracked on multiple portfolios.

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A wide range of measures allowed within guidelines will help you too keep track of the most important aspects of portfolio’s allocation and act whenever an intervention is required. This functionality has also been lately expanded with possibility to add notes to guideline results as well as possibility to approve or dismiss guideline breaches. Whole solution has been designed with main FIDLEG principle in mind which is to record and track primary compliance related processes.

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Trading Orders and Pre-Trade Checks

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Final component worth mentioning is our Trading module. Keeping track of all outgoing trades and reviewing any potential guideline breaches via pre-trade checks are the basics of proper order management under FIDLEG regulation. Maintaining full audit trail of all order-related activities provides additional transparency and reporting layer.  Automated checks also mitigate risk of executing trades that would be against aligned guidelines and prevent from simple operational mistakes that are much easier to catch up within well organized workflow.

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For those using FIX trading it is worth to mention that all of our Custodian connections have embedded Smart Order Routing (SOR) which scans markets in order to find the best place to execute your order, in terms of price and liquidity. This follows closely FIDLEG rule of “Best Execution” where EAMs are required to execute Clients orders in the best interest of their Clients.

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