The concept of Chinese walls has existed since the 1929 stock market crash when Congress first seriously discussed regulatory barriers separating investment bankers and brokers. Read the PDF or visit us for full blog about Information Sharing at https://bit.ly/3xZioOM

1. INFORMATION
SHARING
CHALLENGES
Shield

2. INFORMATION SHARING
CHALLENGES AT
SHIELD
Recently the Financial Industry Regulatory Authority hit independent broker-dealer
Cambridge Investment Research and Merrill Lynch with fines totaling $850,000 for
failing to properly supervise employees who were involved in the sale of mutual
funds, and not properly monitoring the exchanges between retail marketers and
exchange-traded note traders.
Notably, although Merrill Lynch did have a flagging system in place, built around a
general lexicon search, it reportedly didn’t have sufficient reviewing practices
organized — including no process for escalating reviews of private-public side
communications that contained potential material information, or for enforcing
required measures for separating traders and marketers in the global wealth and
global banking and markets divisions.
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Building the Chinese wall
This highlights a major challenge when it comes
to compliance — particularly when it comes to
the public and private side employees in
financial institutions. The problem comes down
to the fact that financial services firms
frequently receive and handle information that
counts as confidential or “insider” information
(also known as MNPI – or Material Non-Public Information).
To maintain this divide, firms must erect information barriers around proper
control of the flow of non-public information from one department to another.
This is frequently called a Chinese wall, or informational firewall, referring to a
virtual barrier that’s in place to stop the exchange of information that could result
in illegal or ethically dubious activities.

3. The concept of Chinese walls has existed since the 1929 stock market crash when
Congress first seriously discussed regulatory barriers separating investment
bankers and brokers. However, the need for such divides has greatly increased over
the past couple of decades, following the enacting of the Gramm-Leach-Bliley Act
of 1999 (GLBA). This law, which helped empower many of today’s biggest financial
powerhouses, repealed previous regulations that stopped firms from carrying out
combinations of investing, banking, and insurance services.
Today’s firms must be diligent in their stance on information sharing, ensuring
that this happens only where absolutely required and lawful. As the Merrill Lynch
example shows, having protective measures in place when it comes to monitoring
isn’t enough. Lexicons, referring to a simple keyword or phrase searches, are
massively outdated tools that can cause more problems than they solve. Lexicons
yield a massive number of false positives (FPs), inundating system operators with
high numbers of erroneous flagged messages, making them virtually valueless.
At Shield, we know that the world of detection doesn’t stay still. It’s not enough to
simply set up lexicon-based models and hope that they will catch any potentially
violating behavior that’s thrown at them. With that in mind, we continually add to,
modify, and otherwise improve the detection models we used to provide updated
coverage regarding the latest risk areas, along with new products, areas of
business, mandated lines, and comments from regulators.
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A brief history of informational firewalls
Have the right tools in place