Published on Nov 29th, 2023 |

SEC Exams Heightened Focus on Tech | Fred Teufel Insights

Vigilant Insights

Introduction

Vigilant Director, Fred Teufel, was quoted in a Board IQ article recently discussing important compliance advice for Fund Companies and Boards, with particular mention of how the SEC continues to focus on the use of technology during examinations.

The SEC has made numerous remarks about their intention to keep up to date with how technology affects the industry.

In addition to regulatory changes related to AI and Cybersecurity, the way data is analyzed by the SEC during investigations has changed due to technological advances.

Fred Teufel Insights

Fred Teufel’s Insights

The article discusses the increase in data requested by the SEC during examinations.

Entire datasets (e.g., trade blotters) are being requested and assessed whereas in the not-too-distant past, Fred pointed out how previous examinations might have requested a trade blotter and randomly picked a selection of trades to validate.

Analytical tools are now used to review entire datasets, such as cash and securities blotters, for outliers. Although Fred believes that the SEC Examiners are not using tools that are any more advanced than those available to the industry, he argues that Directors should make sure that management’s internal controls include procedures to analyze entire datasets (e.g., blotters) to identify and evaluate outliers in the normal course of business. Not only is this a best practice, but it will help prepare Firms for SEC examination inquiries.

When it comes to supervision, Fred commented that Fund Boards may struggle to ask all the relevant questions about the Firm’s use of technology not only as a risk but also as an opportunity, during their regular meetings. Fred discusses how a well-designed compliance checklist, or a questionnaire, can be an incredibly useful tool in guiding and documenting the Board’s discussion.

Vigilant's Conclusion

Vigilant’s Conclusion

In their oversight role, Boards should evolve their understanding of both ubiquitous as well as evolving technologies, and challenge management to not only continuously assess the risks associated with technology but also to leverage that technology to strengthen the design and operating effectiveness of internal controls.

Executive leadership with supervisory responsibility will have more success by ensuring their internal controls and standard operating procedures utilize all the tools available.

Vigilant offers an initial Gap Analysis and On-Going Compliance Consulting to help your Firm adjust to industry changes and help manage Regulatory Compliance.

Reach out to us today for any questions you may have.

Contact Us