SEC and firms up email scrutiny

The US Securities and Exchange Commission has been asking for a greater number of emails when inspecting fund advisors, according to delegates at the Private Fund Compliance Forum, which took place this week in New York.

If a private equity firm is inspected by the SEC, it’s certain that the regulator will ask to review the firm’s emails so the firm should constantly monitor those as well, the delegates said.

Some chief compliance officers speaking on background at the Forum said they conduct the reviews on a weekly basis, “getting into a zone,” and themselves perusing through hundreds of emails from employees.

“I’m a huge advocate of email reviews,” one CCO said during the conference. Others noted that considering the large size of their firm, they cannot technically find enough time to go through every single email, but that they instead do specific searches for keywords on a regular basis.

While monitoring employees’ emails, CCOs often find chatter they may refer to their human resources department, but generally speaking they seek more specific red flags such as potential conflicts of interest and indication of insider trading for example.

They also look for potential data loss, as the SEC has made data loss prevention a central part of its cybersecurity examination initiative.

In a risk alert from September, the SEC noted that examiners may assess how firms monitor the volume of content transferred outside of the firm by its employees or through third parties such as by email attachments or uploads.

With the sheer number of emails that people receive on a daily basis, monitoring emails from all employees at a fund advisor can quickly turn into a daunting task, the delegates said.