5 Challenges to Disclosing Financial Interests for Independence

With the PCAOB's approval of QC-1000, public accounting firms have increased their investment in having direct data integration with brokers and financial institutions. These integrations are commonly called "Broker Data Integration" (BDI) or "Financial Interest Integration" (FII), and they enable firms to receive files with updated employee holdings data each business day. These files are imported into a firm's personal independence system to enhance ease-of-use and robust disclosure. By automating the import of brokerage data, compliance is increased dramatically and user satisfaction with the process goes up dramatically. To the extent that a process can be put in place to reduce the need for a user to log into a system and accomplish the goals of that process, the better. Also, by automating the process, disclosure of financial interests are automated. No longer are there situations where a person forgets to disclose - the system does it automatically every day. Regulators have been pushing organizations to move beyond policy to automated controls that provide compliance with the policy. Automatically importing the data is a powerful response.

Top Disclosure Challenges

While FII is essential, it cannot solve all disclosure challenges alone. We have compiled the top five reasons for this situation.

• Accounts at Financial Institutions not enrolled: While some organizations are mandating certain financial institutions, others find this approach too difficult on a global basis. Therefore, FII does not provide comprehensive coverage of accounts.
• Uncooperative Financial Institutions: After on-boarding over 250 financial institutions around the world over the past several years, we have observed certain financial institutions being uncooperative. This uncooperative nature includes legal issues, technical constraints, and other factors that make them difficult to receive files. While the financial institutions seem uncooperative, these organizations simply do not have inducements in most cases to work with the public accounting firm.
• Incapable Financial Institutions: Antiquated systems, coupled with data that is difficult to extract and send, cause some financial institutions to be incapable of creating a file. The cost to resolve these challenges is simply too high, and therefore, the financial institution decides not to participate.
• Multiple types of financial instruments: While the focus has been on stocks, bonds, and funds, personal financial interests include bank accounts, loans, credit cards, insurance products, and others. These financial interests are not included in most files today.
• Jurisdictional Data Privacy concerns: In certain jurisdictions, financial institutions are limited by law or regulation to transmit certain information to third parties and/or outside of their jurisdiction. This situation creates significant challenges.

What can be done?

The good news is that every financial institution provides financial statements on a periodic basis. Kingland taps into these financial statements and routes the data to a common system where independence across the firm can be monitored for conflicts. Over the past decade Kingland has built relationships with hundreds of different broker-dealers and investment firms, giving new clients an even faster path to automating financial interest disclosure.

There is a smoother path to ensuring firm independence. Reach out to me and my team today at outreach@kingland.com to explore how broker data integration can help you meet your regulatory obligations today.