Utilizing Change Management to Evidence Monitoring
As the SEC arrives to the technology party in a very public manner, investment advisers and broker dealers, who have already been operating in a needs-driven and best practice environment, must now open their programs for scrutiny. Current SEC and FINRA exams are already extending the interview and examination process into the technology arena, starting with the Chief Compliance Officer’s methods for touching base with and monitoring tech processes with regulatory ramifications. There are very few tech processes without direct ramifications for the compliance function. Consider Rule 204-2 and the maintenance and archiving of firm records on systems, file servers, and in the cloud; Regulation S-P and the protection of client information through secure networks, VPN’s, and the utilization of encryption; FINRA Notice to Members 11-39 (August 2011) in conjunction with Rule 17a-4 regarding the retention of business communications extending to personal devices like phones and tablets. The list goes on indefinitely as all of our business models have become intertwined with enabling technology. The registered adviser’s fiduciary responsibility to clients has been inextricably snared in the ability to manage, maintain, and deliver services through systems, networks, outsourced applications, and third parties.
Perhaps equally important to the potential for regulators connecting your compliance monitoring duties to technology, investors, both private and institutional, expect evidence of your firm’s ability to secure data and provide continuous services. The final critical consideration in vetting your technology program in general is the growing threat of breach and corresponding business risk. I have heard the words many times “our perimeter is secure.” Industry surveys, daily reports in the media, and our own experience teaches that this is a special form of hubris.1 Are you, the Chief Compliance Officer, working to validate such statements?
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