SEC Requiring More Data — Firms Need to Refocus on Compliance

Examiners with the Securities and Exchange Commission (SEC) are poring over much more data from advisory firms, and are able to use predictive analytics to identify warning signs of a likely violation.

This was the essence of a speech given by John Walsh, a partner with Sutherland, Asbill & Brennan, at a recent Schwab Impact conference in Denver, Colo. Walsh spent 23 years at the SEC before entering private practice.

Examiners are using a new analysis tool that looks at 27 different areas of data from advisory firms. According to a securities lawyer, the use of ‘big data’ has fundamentally changed the compliance picture for financial advisers.

Prior to the era of ‘big data,’ SEC examiners would walk into an adviser’s office armed only with a firm’s Form ADVs. But according to Walsh, today’s examiners know a lot about the firm before they walk in, often because someone reported signs suggested improprieties.

Walsh said that while the commission used to look only at small amounts of data — such as one month’s worth — today, they’re more likely to look at three years’ worth of information. Also, examiners expect that the additional data requested be provided quickly and in a clean format.

Regulators’ use of data will only increase. One SEC official said he wants to “raise the bar” on how compliance uses data. And Walsh noted that the use of ‘big data’ will affect firms of all sizes.

This is due in part to the fact that the SEC is pursuing cases that involve relatively small amounts of money. For example, an adviser was ordered to pay $702 in prejudgment interest.

Walsh added that whistleblowers are playing an increasing role in reporting questionable practices. In fact, about 20 percent of SEC examinations are driven by whistleblower tips.

The team of investment fraud lawyers at Starr Austen & Miller LLP handles cases involving securities arbitration misrepresentation, overconcentration, broker fraud, negligence, broker churning, breach of trust, as well as malpractice.

Source: Investment News