Bank managers should make like Sherlock Holmes and don deerstalker caps on a regular basis to ferret out wrongdoing in their investment sales units, industry experts advise.
"All areas should be periodically inspected," said Philip J. Hoblin, a lawyer with Parker Chapin Flattau & Klimpl. "Management must put itself in the shoes of someone who is going to attempt to evade procedures."
Mr. Hoblin, speaking at a compliance conference in New York, said detective work can be invaluable, allowing a bank to uncover and deal with problems before regulators do.
Information can be found through periodic self-policing or through tips by internal and external sources, attorneys said.
"Answering customers' questions can lead to investigations," said Richard Biegen, assistant general counsel at Prudential Insurance Co. of America, Newark, N.J.
In the course of asking questions, customers may indicate that a sales representative is not returning calls. Talking with customers also can turn up unusual activity in an investment products account.
Banks should never just ignore someone's concerns, hoping the matter will fade away, speakers said. "That's the worst thing youcan do," Mr. Biegen said. "These things have a tendency to come back and haunt you."
Once an investigation is underway, managers should move quickly, lining up all potential witnesses and safeguarding all relevant information.
"It's very important for you to get it before others do," Mr. Biegen said.
Managers also should recognize that a thorough investigation may require offering amnesty to those who cooperate.
"It's a tough decision," Mr. Biegen said. "But it can allow you to get to the bottom of what's going on."
Instead of pardoning an employee who violated rules, managers could agree to suspend or reassign him as an alternative to dismissal, Mr. Biegen said.
Investigators should have at least two officials in the room for all interviews, so suspects can't later deny their statements, Mr. Biegen said. Interviewers also should keep detailed notes and corroborate every fact, he added.
If wrongdoing is uncovered, managers must decide if the matter was grave enough to warrant
telling outsiders, including regulators.
Certain clients also may warrant a call, before word gets out. "You could lose a client, but the result is goodwill," Mr. Biegen said.
