What’s On the Agenda?

Meeting the Heightened SEC Requirements with Innovative Technology

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While the Securities and Exchange Commission (SEC) has yet to release their official 2022 agenda, recent announcements and trends have made it clear they plan to heighten the pressure on regulatory compliance requirements across several areas, including what is now being referred to as a “novel approach” to insider trading.

With such arduous requirements, the onus has been placed on firms to act quickly and decisively, defining and integrating new policies and procedures to meet the SEC’s demands.

Part #1

Breaking Down the Agenda

While not a representation of the agenda in its entirety, these four key areas make up some of the most significant changes being brought by the SEC in 2022.

The Inside Scoop on Insider Trading

Thanks to a recent complaint brought by the SEC, shadow trading or “…trading the securities of a public company that is not the direct subject of the material, nonpublic information (“MNPI”) at issue” has created a new level of complexity as firms consider how to track information as it flows across their organization.

In addition, the SEC has  proposed amendments to Rule 10b5-1, further highlighting the SEC’s focus insider trading and the use of MNPI. Compliance organizations rethink how their Code of Ethics policies address the flow of information throughout their organization.

Let’s Get Digital: What Crypto Means for Compliance

As cryptocurrency, and the broader decentralized financial ecosystem, have continued to expand, so have the SEC’s enforcements and regulations surrounding it. We can only expect the same to occur over the next year as the popularity – and risk potential – of these types of investments continue to skyrocket.  

“In the absence of new regulation, Gensler can continue to define what is a registered security, which will determine whether the SEC has jurisdiction over coins, crypto exchanges or other parts of the crypto universe.” – CNBC

Cybersecurity Continues to Cause Concern

In August of 2021, the SEC “sanctioned eight firms in three actions for failures in their cybersecurity policies and procedures…” While a settlement was reached, the heightened level of scrutiny is merely one proof point the SEC is not taking cybersecurity lightly.

ESG: Three Letters, One Big Responsibility

In their April 9th risk alert, the SEC relayed the number of risk factors associated with the, “rapid growth in demand, increasing number of ESG products and services, and lack of standardized and precise ESG definitions…” which included the “variability and imprecision of industry ESG definitions” creating a lack of awareness and understanding on the side of the investors. The risk alert did specify how firms can go about improving their policies, which the SEC will most likely expect to see implemented throughout 2022.

Download our comprehensive checklist to ensure your compliance program meets the requirements of the SEC’s 2022 agenda.

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Part #2

A Closer Look at the “Novel Approach” to Insider Trading

The word unprecedented has become vastly overused in the past few years. However, in the case of the SEC’s view on shadow trading, there is no more apt terminology. Let’s break it down and see why shadow trading could prove to be one of the biggest clouds over your compliance team this year.

The History: To be clear, the misuse and abuse of MNPI has always been a top priority and strategic focus of the SEC. However, in the past, the SEC relegated the scope of their rulings and associated sanctions to only include the trading activity regarding the direct subject of the MNPI.

For example, an employee buying stock in Company X because they overheard critical information regarding Company X’s new product which is predicted to change the market would be subject to potential sanction and litigation.

The Case: The case behind the “novel” approach to insider trading?

“SEC v. Panuwat, an insider trading case accusing a former pharmaceutical company employee of trading in a competitor’s stock ahead of a merger. This novel US Securities and Exchange Commission (SEC) enforcement action involves “shadow trading”—using inside information relating to one company to trade the stock of a separate, but comparable, company.”

National Law Review

The Impact: By expanding the scope of their rulings, the SEC has broadened the definition of insider trading, leaving firms with the challenge of adjusting their policies and procedures – and potential investigations – to include both direct and indirect subjects of MNPI. Understanding how big of an impact this will have on your firm’s program will require an in-depth examination of your existing policies. A quick checklist includes:

  • What is currently classified as MNPI and does it include comparable organizations
  • The system you use to track who has access to what information within your organization
  • The level to which you monitor broker feeds for employee trading activity
  • The investigative process through which you ascertain whether a rule violation has occurred
  • Any reporting metrics or documentation the SEC may require from your firm
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Part #3

Compliance with ComplySci

Compliance team planning for 2022.

The ComplySci platform represents an integrated system of check and balances designed to help your firm mitigate risk. The automated workflows ensure any employee certification or attestation is verified against 200+ broker feeds – powering your compliance program to proactively protect your firm.

Control Room: Proactively identify instances of market abuse or other potential conflicts – including misuse of MNPI regarding both your direct organization and comparable organizations – with our integrated solution designed to verify attestations match activity.

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2022 SEC Enforcement Agenda Checklist

Download our SEC Agenda infographic and comprehensive checklist to ensure your compliance program meets the requirements of the SEC’s 2022 agenda.

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