ACA Compliance Report: Overseeing Risk of Alternative Data

The virtual environment and the development of artificial intelligence and learning have led more asset managers to use alternative data in their investment strategies, according to a new report from ACA Compliance. The article defines alternative data as non-traditional sources of investment research. However, with more widespread use of alternative data regulators are taking notice. The report notes that since 2019 the SEC has launched exam initial requests inquiring about firms’ processes and procedures for identifying, vetting, testing, implementing, and monitoring entities or individuals that provide investment research such as data aggregators, business exhaust data providers, survey sponsors, supply chain data providers, and flight tracking data resources. Additionally, alternative data was named an examination priority in the SEC’s examination priorities for 2020. The report describes the primary risks related to using alternative data sources, including violation of anti-hacking federal and state laws, breach of contract and terms of use, copyright infringement, and regulatory risks such as inadequate policies and procedures in the monitoring and vetting of acquiring material nonpublic information. The report also addresses how firms can mitigate these risks through targeted policies and procedures. Experts from ACA Compliance will present a MFDF webinar on the topic, including how compliance departments can design and implement  policies and procedures around the management and oversight of alternative data.