use of data analytics, "big data," has been "one of the most transformative things" of the last five years, according to the SEC's top cop. Yet the jury's still out on how much of those analytics the regulatory agency is prepared to share with those it regulates, like fundsters.
Speaking yesterday morning at the 2015 Investment Company Institute (ICI
) and Federal Bar Association Mutual Funds and Investment Management Conference
at the JW Marriott Desert Springs resort in Palm Desert, California, Securities and Exchange Commission enforcement division director Andrew Ceresney
told attending fundsters "tremendous amounts of data" are available to the regulatory agency now. He says they're "cross-pollinating," using the data and analytics across different parts of the SEC.
Ceresney shared the remarks on a general session panel, "OCIE and Enforcement: A Discussion of Roles and Responsibilities, Priorities, and Coming Attractions." The panel, moderated by Capital Research and Management Company
senior vice president and secretary Michael Downer
, also included SEC national examination program director Drew Bowden
and Wilmer Cutler Pickering Hale and Dorr
partner Randall Lee
. (Lee pinch-hitted for his colleague William McLucas
, who was absent due to a death in the family.)
"We are using people with quantitative skills, quantitative analytical techniques, ... [and more], beyond what the industry is capable of," Bowden said. "It's pretty rare to be ahead of the industry."
Ceresney described the SEC's data analytics efforts as a key piece of the puzzle for using minimal resources for the agency's "broken windows" initiative, championed by SEC Chair Mary Jo White and styled after the famous NYPD tactics of the 1990s. The SEC data analytics staff can go through data and find "patterns of activity" that seem aberrant or suspicious, Ceresney said. So far they've looked into insider trading, investment performance, corporate issuers, and clearing agents. And all that looking is leading to enforcement referrals, Ceresney said, referring to data from last year.
"it used to be the highest level was OCIE referrals," Ceresney said. "Now data analytics is trending up and in some cases challenging that."
Lee expressed fundsters' concerns that such data analytics-driven referrals lead to further questions that turn into enforcement investigations.
"For our clients the mere presence of an enforcement investigation can have big consequences," Lee said, wondering aloud if it's fair for a firm to be targeted solely as a statistical outlier.
"The first step is just a red flag," Ceresney replied, insisting that the SEC staff always "proceed in sort of a measured fashion" when following up on data analytics-driven referrals and do their own work to dig further into the referrals. "If we get something that allays concerns, we'll close the matter."
Fundsters who are waiting to see details of the SEC's data analytics will have to wait a least a little while longer. When asked about the agency's plans to share the fruits of its data analytics labors and the patterns that are triggers for possible enforcement investigations, Bowden said the staff is divided. He comes down in favor of sharing more with those the SEC regulates, as he predicts that giving fundsters and others "better tools" will lead to people doing "a better job" for everyone.
"We're looking into it. It's an interesting question," Bowden said. "I don't know where the ball will stop on that one."
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