The Future of Outsourcing and Vendor Management Tuesday ...

1 2016 Financial Industry Regulatory Authority, Inc. All rights reserved. 1 The Future of Outsourcing and Vendor Management Tuesday , May 24 1:45 2:45 Outsourcing is an activity or function that a third party service provider does to assist an organization. It is important to note, that it does not relieve firms of their ultimate responsibility for compliance with all applicable laws and security regulations. During this session FINRA staff and industry practitioners will discuss policies, procedures and resources to effective analyze new vendors and how to oversee the provider and their services. Moderator: Joseph Sheirer District Director FINRA New Jersey District Office Panelists: Allan Goldstein Chief Financial Officer, Chief Operating Officer and Chief Compliance Officer Trade Informatics LLC Demetrios Koutros Surveillance Director FINRA Member Regulation, Office of Risk Oversight and Operational Regulation Douglas Wright Chief Compliance Officer and AML Compliance Officer The Investment Center, Inc.

2 2016 Financial Industry Regulatory Authority, Inc. All rights reserved. 2 The Future of Outsourcing and Vendor Management Panelist Bios: Moderator: Joseph J. Sheirer is the Director of FINRA s New Jersey District Office. Mr. Sheirer oversees the Surveillance, Cycle Examination, and Cause Investigation Programs for member firms and associated persons located in New Jersey and New York (outside of the five boroughs of New York City and Long Island). Mr. Sheirer previously developed and oversaw FINRA s national Membership Application Program group and worked in varying capacities in a number of other FINRA departments including Risk Oversight and Operational Regulation, Continuing Education, Testing, and Qualifications and Registration. Mr. Sheirer is a graduate of Brooklyn Law School and Drew University and is a member of the Bars of the States of New York and New Jersey.

3 Panelists: Allan Goldstein is CFO, COO and CCO of Trade Informatics, and is responsible for all compliance and regulatory matters as well as day-to-day operational and financial Management of the firm. Mr. Goldstein has worked in the securities industry since 1985, when he began as a Specialist Trading Assistant on the NYSE trading floor. He later operated as an independent floor broker at the NYSE serving as CCO, CFO and FINOP with the floor based Direct Access institutional brokerage Safir Securities. Mr. Goldstein has additional experience as an Institutional Sales Trader in global equities and fixed income with Friemark Blair & Co., Chief Compliance Officer at Bear Hunter Structured Products, and Compliance Officer at Bear Wagner Specialists, as part of a team designing its electronic market making business on the Archipelago Exchange.

4 Mr. Goldstein earned his bachelor degree and MBA in Finance and Statistics from the Stern School of Business at New York University. Demetrios Koutros has been with FINRA since its inception in 2007 and was previously with the New York Stock Exchange in similar roles. In his role as Deputy Unit Leader within Member Regulation, Mr. Koutros has responsibility for the surveillance of approximately 200 firms compliance with financial, operational and sales practice rules. He is also involved with the rollout of FINRA s new Risk Platform Redesign, which is utilizing a new methodology and technology to advance the surveillance of member firms. Prior to his tenure at FINRA, Mr. Koutros worked in managerial roles at Prudential Securities, Citigroup and National Financial Services in the area of Regulatory Reporting and Operations Control. Mr. Koutros holds a bachelor s degree from Pace University. Douglas Wright is the Chief Compliance Officer and Chief AML Officer for The Investment Center, Inc.

5 Mr. Wright has been licensed since 1987, and has more than 28 years of combined experience in compliance, supervision of staff, retail securities sales, and Management . Mr. Wright joined The Investment Center, Inc. in 2001 as its Chief Compliance Officer. The Investment Center, Inc. has been an independent broker-dealer since 1986 (also a Registered Investment Advisor through an affiliated company) serving retail clients and has the distinction of being voted "Broker-Dealer of the Year" six (6) times by Investment Advisor Magazine. The firm currently has approximately 270 registered representatives and 187 branch offices located throughout the country. Mr. Wright is primarily responsible for overseeing and managing compliance within the organization, and ensuring that the company(s) and its employees are complying with regulatory requirements and internal policies and procedures.

6 Additionally, Mr. Wright is responsible for establishing standards and implementing procedures to ensure that the compliance programs throughout the organization are effective and efficient in identifying, preventing, detecting and correcting noncompliance with applicable rules and regulations. As the Chief AML Officer, Mr. Wright s responsibilities include managing, coordinating, and monitoring the day-to-day Anti-Money Laundering (AML) Compliance Program. He also manages all aspects of the firm s AML Know Your Customer (KYC) compliance including adherence to applicable AML and the Bank Secrecy Act (BSA), USA PATRIOT Act laws, and regulations as pertaining to anti-money laundering. In 2011, Mr. Wright attended and completed the FINRA Institute at Wharton's CRCP program. Starting in 2015, Mr. Wright was elected to the FINRA District 9B Committee. Mr. Wright received a bachelor s degree in Finance and Economics from the University of Arizona and holds the following securities related licenses: Series 7, 63, 24, 4, 27, and 65.

7 He is currently an active member in the National Society of Compliance Professionals. In addition, he is also a volunteer firefighter in New Jersey and has served in the past as a FINRA arbitrator. FINRA Annual Conference May 23 25, 2016 Washington, DC The Future of Outsourcing and Vendor Management FINRA Annual Conference 2016 FINRA. All rights reserved. Moderator Joseph Sheirer, District Director, FINRA New Jersey District Office Panelists Allan Goldstein, Chief Financial Officer, Chief Operating Officer and Chief Compliance Officer, Trade Informatics LLC Demetrios Koutros, Surveillance Director, FINRA Member Regulation, Office of Risk Oversight and Operational Regulation Douglas Wright, Chief Compliance Officer and AML Compliance Officer, The Investment Center, Inc. 1 Panelists FINRA Annual Conference 2016 FINRA. All rights reserved. Click on the schedule icon on the home screen Choose The Future of Outsourcing and Vendor Management session In the lower right there is an icon: iPhone Bubble with a bar graph Android Thumbs up Click on that to see polling questions and responses.

8 2 To Access Polling SUGGESTED ROUTINGJULY 2005 GUIDANCEKEY TOPICSO utsourcing Members Responsibilities When Outsourcing Activities to Third-Party Service ProvidersExecutive SummaryNASD is aware that members are increasingly contracting with third-party service providers to perform certain activities and functionsrelated to their business operations and regulatory responsibilitiesthat members would otherwise perform themselves a practicecommonly referred to as Outsourcing . NASD is issuing this Noticetoremind members that, in general, any parties conducting activitiesor functions that require registration under NASD rules will beconsidered associated persons of the member, absent the serviceprovider separately being registered as a broker-dealer and sucharrangements being contemplated by NASD rules (such as in thecase of clearing arrangements), MSRB rules, or applicable federalsecurities laws or regulations. In addition, Outsourcing an activity orfunction to a third party does not relieve members of their ultimateresponsibility for compliance with all applicable federal securitieslaws and regulations and NASD and MSRB rules regarding theoutsourced activity or function.

9 As such, members may need toadjust their supervisory structure to ensure that an appropriatelyqualified person monitors the arrangement. This includesconducting a due diligence analysis of the third-party serviceprovider. Questions/Further InformationQuestions or comments concerning this Noticemay be directed toPatricia Albrecht, Assistant General Counsel, Office of GeneralCounsel, Regulatory Policy and Oversight, at (202) and Compliance Operations Senior ManagementDue DiligenceOutsourcing Supervisory ResponsibilitiesThird-Party Service ProvidersNotice to MembersNASD NTMJULY 2005105-48 BackgroundThe practice of contracting with third-party service providers/vendors to perform certainactivities and functions on a continuing basis ( Outsourcing ) is not new to the securitiesindustry. For example, NASD Rule 3230 (Clearing Agreements) has long permittedmembers that are introducing broker-dealers to enter into contracts with registeredclearing broker-dealers that allocate certain functions and responsibilities, such asproviding execution services, custody, and margin; maintaining books and records; andreceiving, delivering, and safeguarding funds.

10 Over the years, however, members Outsourcing activities have grown beyond the use of clearing agreements. Now,members regularly enter into Outsourcing arrangements with entities other thanbroker-dealers. These entities may be unregulated, such as providers of data services, orregulated, such as transfer agents. Additionally, members increasingly are outsourcingactivities other than those traditionally performed pursuant to clearing better understand their members Outsourcing activities, NASD and the New YorkStock Exchange (NYSE) conducted a joint survey in October 2004 of a select number ofbroker-dealers. The survey sought to determine whether broker-dealers had proceduresin place to determine the proficiency of service providers, whether outsourced businessfunctions were properly monitored, and whether broker-dealers were in compliancewith applicable regulations pertaining to the privacy of customer information inconnection with such Outsourcing arrangements.