TABB Group Report on Financial Chinese Walls Says Compliance IT Still Reactive (Not Predictive), Falls Far Too Short

Results in Billions of Dollars in Fines Levied by the SEC, NASD, NYSE and State Regulators Affecting Financial Firms’ Balance Sheets, Budgeting and Hiring

Westborough, MA, January 20, 2005 – According to a new industry report, "Chinese Wall Compliance: Plugging Holes and Keeping Firms Afloat", issued today by TABB Group, "We are witnessing the SEC and state regulators increase enforcement and raise the level of penalties in attempts to restore public trust in the financial markets."

Closing gaps in Chinese Walls is a daunting task, the Report states. Under today’s hyper-strict regulatory and litigious environment, higher volumes of electronic and discoverable communications and geographic expansion, it has become increasingly difficult for financial firms to monitor and police strict boundaries.

Unfortunately, C-level managers are being held directly accountable for breaches of compliance, explains Larry Tabb, founder and CEO at TABB Group. "They are frequently losing their jobs, reputations, financial incentives and even freedom."

The Report states that to adequately monitor Chinese Wall compliance, technology is needed to track patterns and connect relationships between touch points spread over millions of pieces of fast-flowing information. However, firms’ "heterogeneous technology infrastructures complicate implementation because tracking content requires importing, normalizing and interrogating data drawn from virtually all technologies, each providing continuous, real-time standardized output for the compliance engine."

According to Tabb, while today’s systems continue to be too reactive and not predictive enough, the current state of compliance technology is advancing. "New technology enables increasing throughput and can help firms manage larger and more complex datasets in less time."

Key forecasts in the Report include:

· Up to 12% of IT budgets in 2005 at top tier global firms will be spent on compliance technology initiatives.

· While the top 1000 global firms can benefit most from an active/predictive compliance solution, in 2005 less than 2% will implement this solution, rising to 5% in 2006.

· The marketplace will see a multilayered set of solutions implemented in tandem, with one system resident above the detail, the other analyzing content and searching for subterranean trading and business violations.

· By 2008, one if not two pairs of vendors will cooperate or merge, creating a more seamless enterprise solution.

"As we look into the future, it will be standard for firms to pursue both active / predictive monitoring of compliance infractions by electronically monitoring who you communicate with via email, IM, phone and even physical meetings within the confines of their offices," says Tabb. "While this may seem intrusive, it will unfortunately become commonplace as fines become too large, challenges to firms’ reputations too great and liability to management and boards of directors simply too burdensome to ignore.

This report also covers the history of Chinese Wall policy; the nature of a compliance checking system; corporate constraints to effective implementation, usage and change; the Financial Services Authority (FSA) in the UK and the SEC, NYSE, NASD and State regulators in the US; and product reviews covering eight of the top vendors in each of the four strata.

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