In the latest of Global Relay’s regular hedge fund compliance roundtables in London, senior figures from across the sector gathered to exchange opinion on some of the pressing issues of the moment.

Trust in AI

The use of AI is gaining popularity as a compliance tool, especially when used to search through large amounts of data and summarize reports. One participant commented that the quality and accuracy of the report was better than achieved by an outsourced human-based service.

Joking aside about losing compliance jobs to machines, AI was perceived as a positive tool for compliance. It will allow compliance officers to focus on the issues rather than getting bogged down in the grunt work. AI works when the prompt is written with the right level of insight and detail. This will be an area where compliance can upskill.

DORA

DORA remains a talking point amongst the participants, especially in relation to the supply chain.

There’s often confusion from the supply chain with CCOs having to explain: “The UK doesn’t comply with DORA but we’ll give you what you need to comply.”

Overall responsibility for implementation tended to be with the IT department. However, it was queried whether IT staff had understood or even read DORA. So compliance usually ends up indirectly “responsible” by providing advice.

Recent US censures of note

Confidential information

The SEC settled charges against registered investment adviser Marathon Asset Management LP for failing to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material non-public information relating to its participation on ad hoc creditors’ committees.

The SEC’s order found that Marathon Asset Management violated Sections 204A and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7. Without admitting or denying the SEC’s findings, Marathon Asset Management consented to a $1.5m penalty, a cease-and-desist order, and a censure.

CAT reporting failures

Citadel Securities was censured and fined by FINRA for alleged CAT reporting failures. The firm inaccurately reported certain fields for approximately $42.2 billion equity and option order events to the consolidated audit trail.

AI washing

The SEC has charged the founder of the AI hiring start-up Joonko with fraud. The SEC is eyeing bold claims made by AI startups and investors about AI capabilities, and this AI-washing case is a prime example. See also SEC and SDNY signal eyes on AI-washing fraud as AI firm founder charged.

Change of guard following US elections

SEC Chair Gary Gensler is expected to resign soon. His term is scheduled to expire in 2026 but with political pressures circling, this departure could be hastened. Gensler’s tenure has been defined by his firm stance on cryptocurrency regulation, attracting both praise and criticism. (As an aside, there was a recommendation to watch Office hours with Gary Gensler by the SEC on YouTube.)

A leading Robinhood attorney, and various Republican regulators, are being considered for the Trump financial agency short list.

FCA updates

FCA’s ‘name and shame’ proposals

It was generally thought that the FCA would tone down plans to publish names of firms under investigation in light of both industry and political backlash. There was some sympathy for the FCA, that this change could be used as a tool to speed up the enforcement process but this was a minority view.

The UK regulators told the House of Lords select committee last week to expect an update on the FCA’s plans within a week or so.

FCA rumored to start looking more closely at off-channel communications capture

Currently, this questionnaire has only gone out to large firms and banks but there is concern from asset managers that they may be next. Whether this will result in the FCA taking enforcement action remains to be seen.

FCA CrowdStrike observations and advice

The FCA had good intentions with providing this “lessons learned” style publication but participants in the discussion asked how, in reality, can you have a back-up plan if Swift, Bloomsberg or Microsoft fails? For further information on the FCA’s advice, please see the news report CrowdStrike outage: FCA publishes lessons for operational resilience.

Recent UK censures of note

AML failures

Metro Bank was fined over £16m ($20m) for AML failings stemming from data problems. The FCA final notice highlighted how data problems can have serious consequences unless dealt with promptly.

The FCA fined Starling Bank £29m ($38.5m) for financial crime failings relating to “shockingly lax” screening controls. The FCA final notice said Starling had also repeatedly breached a pre-existing regulatory requirement not to open accounts for high-risk customers.

Systems and controls failures

Together with the PRA, the FCA fined Citigroup £61.6m ($82.5m) for failures in the firm’s systems and controls. The Citi case highlighted compliance deficiencies compounded by human error.

Jersey update

There are reports of a shortage of compliance officers in Jersey.

The Jersey Financial Services Commission has published a Green Paper which aims to explore and seek feedback on the status of the compliance function in Jersey.

Failure to prevent fraud

The new offence will come into effect on September 1, 2025. Organizations therefore have nine months to review new guidance and implement any changes that may be required to their fraud prevention procedures before the offence comes into force.

The framework will be familiar as it’s similar to the other failure to prevent offences: failure to prevent bribery offence (section 7 of the Bribery Act 2010) and the failure to prevent the facilitation of tax evasion offence (the Criminal Finances Act 2017). 

It was also noted that the scope of fraud has been extended to include anti-greenwashing.

For further information, please see news Failure to prevent fraud to be a criminal offence in UK – will this be an effective deterrent?

EU CSDDD

Not much interest in the room at present as clients are predominantly from the UK and US. There was however, a lot of interest in the new US administration and its climate rules (yet to be announced).

Complete venue coverage

There was some discussion of the JP Morgan fine case in which the data from ICE had been missed off the reports for between seven and nine years. The problem here was that compliance was checking the data they knew about and were not aware of what they didn’t have.

Markets can get fragmented as the front office don’t generally worry about what isn’t captured.

Voice recordings

Taking voice records of meetings and recordkeeping rules were discussed. AI was hailed as a useful tool to make accurate voice recordings and produce transcripts.

However, it was thought that some firms in the US may want to hold back from producing transcriptions of voice recording meetings as the more information you keep, the more the SEC can request!

Full disclosure – GRIP is Global Relay’s specialist digital information service.