“Since 2021, preservation of Off-Channel Communications has become an enforcement priority of the SEC. On a number of occasions in 2021 and 2022, the SEC charged certain broker-dealers for failure to preserve such communications, imposing record-high penalties for such violations.”
– Tannenbaum Helpern Syracuse & Hirschtritt LLP
This week, we learn how artificial intelligence (AI) can empower and challenge compliance. We consider whether or not the ‘5 Whys’ method works for root cause analysis when it comes to compliance. We learn how the SEC’s recent enforcement has targeted off-channel communications of fund advisers. Finally, we examine the role of creativity in compliance and how one company aims to make compliance topics more accessible and engaging through entertainment devices.
AI Applied to Big Data Can Empower—and Challenge—Compliance
The increasing impact of AI technology has brought significant benefits to big data insights, daily life, and business strategy. However, as AI’s capabilities evolve, it poses several compliance and operational challenges, such as the ethical use of analytic models, security, and privacy controls. As a result, organizations must prioritize sophisticated efforts to support prevention and response by establishing strong data governance, policies, and procedures. AI presents promising solutions that allow the compliance function to leverage data proactively to avoid risk and spot problems. This technology can help navigate patchwork regulations, monitor compliance, and adopt different strategies in different regulatory environments. However, compliance leaders must prioritize alignment between compliance needs, business objectives, and company culture while embracing the role of AI.
Root Cause Analysis: Does ‘5 Whys’ Work for Compliance?
The Department of Justice (DOJ) requires corporate FCPA defendants to perform a root cause analysis and remediate the underlying conduct to receive declinations. While there are many methods for conducting root cause analyses, the Five Whys is a simple and popular technique that involves assembling a qualified team to repeatedly ask why something went wrong until they finally come to the root cause. The method is intended to avoid treating symptoms of problems and instead treat causes. The Five Whys has strengths and weaknesses and doesn’t always work, but it forces deeper thinking and, when done well, can lead to meaningful remediation that prevents scapegoating and hiding real causes.
SEC’s Recent Enforcement Sweeps Targeting Off-Channel Communications of Fund Advisers
Using personal devices and messaging apps for business communication raises compliance concerns, particularly from a legal and regulatory standpoint. Recently, the SEC conducted a sweep of private equity and hedge fund firms to review employees’ cell phone messages, specifically those on unauthorized or unpreserved platforms or devices, known as “Off-Channel Communications.” Since 2021, preserving such communications has become an enforcement priority for the SEC, with record-high penalties imposed on violators. Compliance with the Books and Records Rule and the Compliance Rule under the Advisers Act and the protection of confidential information and employee privacy are critical for fund advisers who allow their employees to use personal devices and messaging apps for business communication.
Creativity and Compliance – What the Heck Are We Doing?
The Creativity and Compliance podcast, hosted by Tom Fox and Ronnie Feldman, explores the role of creativity in compliance. Ronnie’s company, Learnings and Entertainment, aims to make compliance topics accessible and engaging through entertainment devices. The podcast discusses how corporate culture impacts compliance and argues that the primary goal of compliance is to stop people from doing bad things and to live up to company values. Listeners will learn how to create psychologically safe environments, train leaders to build trust, and use interesting and informative content to make communication and training more engaging. The podcast invites listeners to reach out for more information about their solutions.