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OTC & compliance
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What does an OTC compliance
framework need?

An OTC desk is usually judged not only by volume or counterparties, but by whether the underlying process is disciplined and auditable. A workable framework generally covers onboarding, source of funds and source of wealth considerations where relevant, sanctions screening, transaction monitoring, escalation routes, approvals, disclosures, record-keeping and periodic review.

Where do OTC desks usually
create risk?
Risk often arises where:
  • 01 Controls are applied inconsistently depending on the size or familiarity of the counterparty;
  • 02 Documentation has not kept up with how the desk actually operates;
  • 03 There is no clear approval route for higher-risk transactions;
  • 04 Disclosures to clients are too thin for the nature of the activity; or,
  • 05 Record-keeping is good enough for the desk manager’s memory but not for audit, diligence or regulatory review; or,
What should be checked now?
A business operating or planning an OTC function should usually ask:
  • Who is permitted to approve a transaction and on what basis;
  • What information must be obtained before trading;
  • How exceptions are handled and documented;
  • Whether the client and counterparty agreements reflect the real allocation of risk; and
  • Whether monitoring and escalation are proportionate to the actual risk profile.
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