Insider Trading Remains Key Issue For Investors


Insider trading and social media use by employees are the top compliance concerns among SEC-registered investment advisers according to a recent survey.

Nearly three quarters (74%) of RIAs surveyed are conducting tests to detect insider trading, and more than 30% have increased testing for insider trading since last year.  68% of respondents check for personal trading.

Another hot topic is setting up policies for social medial usage by employees, with 80% of RIAs stating they have adopted formal written policies concerning social networking.  54% of firms prohibit the use of personal social media sites for business purposes, and 52% report that their social media testing has increased since 2010.

The survey was conducted by the Investment Adviser Association (IAA), ACA Compliance Group and Old Mutual Asset Management and incorporated responses from 555 compliance professionals from SEC-registered advisers.

Advisers have also implemented policies governing political contributions in reaction to the SEC’s pay-to-play rules which restrict advisers’ and their employees’ ability to make political contributions to government officials to influence the selection of advisers to public pension funds and other government entities.  About 60% of surveyed firms require pre-clearance of any political contributions and 7% ban all political contributions.

Oversight of third-party service providers is also a growing concern, according to the survey.  Last year’s survey offered insights into how RIAs monitor their third-party research providers.  47% prohibit the use of third-party research providers altogether.  80% of survey respondents claimed that they never used expert networks.  16% said that they had reduced expert network usage while 3% stopped using expert networks.

15% of survey participants request documentation from third-party research providers evidencing their insider trading prevention program and the controls that are in place to prevent the release of MNPI.  12% require employees to report calls and meetings with third-party research providers and information obtained.

Other compliance controls regarding third-party research include 1) requiring employees inform third-party research providers they do not want MNPI, 2) requiring all third-party research providers to certify that they will not provide MNPI, 3) requiring employees to pre-clear calls and meetings with third-party providers and 4) chaperoning calls and meetings.


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