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Increased scrutiny in the financial services industry and how to prepare for it.

To say the financial services industry has seen little change over the last few years would be a gross understatement.

When I joined DiscoverReady in June of 2008, “toxic assets” and “bailout” were not household terms. On the heels of the economic downturn that spawned those terms, legislators, regulators and law enforcement agencies have advocated for regulatory reform of the financial services industry, culminating in the passage of the Dodd-Frank Financial Reform Act. Congress has not been the only governmental body to take action; the SEC revamped its enforcement division, and in the past few weeks, the FBI conducted raids on hedge funds.

Although rulemaking pursuant to Dodd-Frank will not commence until 2011, one thing is clear: increased regulatory scrutiny is the order of the day.

Data retention is not the same as discovery readiness

Most financial services firms have implemented robust retention policies and automated litigation hold procedures to address regulatory and litigation requests. The next step – which is often overlooked – is the creation of an equally effective process to allow companies to execute the discovery process in a timely and cost effective manner. Tools designed to preserve and maintain documents are not often best suited for culling, review and production of those documents, especially in the face of regulatory and litigation requests that demand high volumes of sensitive documents in a short timeframe.

In the face of Dodd-Frank, and in the general regulatory climate, we are encouraging our clients to actively address the following:

  1. Creation of process and selection of tools to manage the data from collection through production
  2. The development of a proactive early case assessment process (akin to the DiscoverReady Dynamic Data Analysis™ team) to rapidly identify potentially relevant files and to avoid the review of irrelevant data
  3. The need for consistent review processes, including automated and human means of identifying potentially privileged and personal / client information

At DiscoverReady, we have built a terrific team of discovery strategists, project managers and reviewers with deep experience in the financial services community. While the imposition of additional regulatory scrutiny may not be at the top of every financial services firm’s holiday wish list, with a little planning and the selection of experienced business partners, discovery can be treated as a standard business process and managed in an effective manner.

Maureen O'Neill