Failing to adequately manage Material Non-Public Information (MNPI) remains a high risk area for compliance, as evidenced by recent actions in the U.S. and the U.K. A private equity firm paid $1 million to settle SEC charges for failing to implement effective Insider Trading compliance policies. The FCA published a Decision Notice fining a former CEO £658,900 for market abuse and banning him from future roles linked to regulated activity.
To avoid hefty fines and actions, firms must have comprehensive and actionable policies and procedures around the management of MNPI and insider lists to minimize risk.
The firm paid to settle SEC charges that they allowed an employee to be placed on a portfolio company’s board while continuing to participate in trading decisions regarding the portfolio company. “Investment advisers and private equity firms that place employees on the boards of public companies bear heightened risks that they will obtain nonpublic material information through their representative occupying dual roles,” said Anita B. Bandy, Associate Director in the Division of Enforcement. “It is critical for firms to have proper policies and procedures in place to address these risks and prevent the misuse of information obtained under these special circumstances.”
The SEC has served notice that firms must continue to make monitoring for insider trading a priority. With many employees working remotely, “a greater number of people may have access to material nonpublic information than in less challenging times.”
Amy Lynch and Giselle Casella from FrontLine Compliance spoke about the importance of managing MNPI and Insider trading in the webinar Maintaining Market Integrity in Today’s Regulatory Environment. “Insider Trading risk is very high right now, and the SEC is aware of it. Firms should be monitoring employees to see what kind of access they might have to MNPI. This becomes very important if you are a firm that has a large research desk, publishes your own research, or where your analysts are regularly talking to corporate insiders.”
In the recent Risk Alert Observations from Examinations of Investment Advisers Managing Private Funds the Office of Compliance Inspections and Examinations (OCIE) of the SEC noted policies and procedures relating to MNPI as a general deficiency commonly seen during examinations of registered investment advisers that manage private equity funds or hedge funds.
OCIE staff found deficiencies under Section 204A of the Advisers Act in the establishment and enforcement of MNPI policies and procedures including failing to address the risk of the exchange of MNPI when employees interact with outside entities, the risk of employees obtaining MNPI though access to office space and systems, or employees who periodically had access to MNPI about issuers of public security. Read more about the OCIE Risk Alert here.
The recent FCA Decision Notice also reflects regulator focus on market abuse and the management of MNPI. To be in compliance with Market Abuse Regulation (MAR), firms must have controls in place to manage conduct risk and reduce the risk of market abuse. For more information on FCA expectations around Conduct Risk and Market Abuse mitigation including current enforcement trends and heightened risk arising from remote work, watch our webinar Managing Conduct Risk and Protecting Against Market Abuse During the COVID-19 Crisis with Gowling WLG.
MyComplianceOffice can help your firm manage regulatory guidelines around the sharing of MNPI among corporate insiders in advance of trading and investment deals. Our software can help you identify and mitigate potential Conflicts of Interest from the activities of employees, third parties and the company and automate your MNPI and Insider Trading policies & procedures and embed them within your business.
Our Insider List Management solution enables users to create insider lists, complete with individuals and roles/rights assignments, timeframes when individuals can access inside information as well as a cross-referenceable hierarchical database of securities listings and company information on tens of thousands of entities. The automated solution supports standardized data management formats for sharing insider lists in accordance with regulatory guidelines.
Let us know if you’d like to learn more.