by Craig Donner
The Depository Trust Company (DTC) is developing a new automated service that will allow regulators to request position reports of firms to provide third-party verification of their holdings during an audit or examination.
The new service is designed to aid in protecting the industry from “Madoff-like” acts of fraud and deception by allowing regulatory agencies such as the Financial Industry Regulatory Authority (FINRA) and others to independently compare the assets that a firm claims to have with their actual holdings at DTC.
“By providing this information directly to regulators through an automated system, DTC is helping to protect the stability of the capital markets and mitigate systemic risk,” said Susan Cosgrove, DTCC managing director, Clearance and Settlement/Equities. “Our customers are pleased with the service because it will create a safe, simple and cost-effective method for regulators to verify the existence and maintenance of their assets, which will make the audit and examination process more efficient for all parties. It will also help firms meet their regulatory obligations without having to dedicate significant resources or staff to prove the accuracy of their holdings at DTC.”
Preventing fraud and abuse
Authorities such as FINRA and the Securities and Exchange Commission (SEC) currently obtain position reports directly from firms during an examination or investigation to verify their assets.
Typically, a regulator will verify holdings during site visits by leveraging the firm’s internal resources. The new automated service will support the work of regulators by allowing them to compare position reports maintained by the firm with data provided directly by DTC. Firms will be able to obtain a copy of the position reports that were created for FINRA.
DTC plans to accept automated and browser-based requests from regulators or other third parties authorized by the firm to receive position reports. A user interface will provide regulators with an updated status of each request.
The service is expected to launch in January 2011 and will be flexible enough to allow for future enhancements to meet new regulatory data transparency requirements that clients may face. @