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Monday: Robo Regulators, Cloud carelessness, SEC settlements

It’s launch day here at Private Funds CFO, and as it’s Monday we are all about compliance. Here’s your daily round-up

Hello. Welcome to Private Funds CFO, which replaces private funds management and aims to connect you to the information CFOs need to be more effective in their job. Each day this email will bring you a combination of comment, insight and links to intel on compliance, tax, accounting, investor reporting, tech, outsourcing and the business of being a private fund CFO. We look forward to your feedback: toby.m@peimedia.com.

How robots are changing private equity forever

Survey data from KPMG suggest around one firm in five is already implementing robotic process automation (RPA). Our first cover stories goes deep into how RPA and artificial intelligence are changing the private equity industry forever. One area in which AI will have a major impact is compliance. Given that AI lends itself to digesting oceans of data and recognizing patterns and anomalies, it will certainly transform the way regulators detect malfeasance. The Securities and Exchange Commission is already using AI to review public companies and detect potential misconduct. Will the commission deploy similar tools to monitor GP behavior in the future? You have to assume so.

Storing data in the cloud?

Of course you are; it’s 2019. This risk alert the SEC issued in May outlines what you should and shouldn’t be doing to remain compliant with Regulation S-P and S-ID. In a nutshell;

– make sure the security settings are configured correctly (examiners observed instances in which they weren’t);

– make sure you have appropriate oversight of third-party providers and the right contractual provisions in place;

– classify the data that you store and have a written policy in place.

Consulting firm Frontline Compliance told clients in a note: “Registered firms should not wait to adopt the best practice methods described and should ensure that firm Reg S-P and Reg S-ID policies meet the SEC’s requirements upon examination.”

Privacy law: PE’s next battleground

On the subject of sensitive data: Brian Bonilla is currently taking a deep dive into how firms are dealing with privacy laws coming at them from all sides. First Europe, now California…where next? Drop him a note in confidence to let him know how your firm is getting a handle on the data it holds.

Fine old mess

There are lessons to be learned from various settlements paid to the SEC by NYC-based Corinthian Capital Group, says our sister publication Regulatory Compliance Watch. As well as the all-too-familiar fees and expense issue (LPs overpaid $588,394 in organizational expenses), the firm also had a complicated “deemed contribution” provision in its LPA, which allowed LPs to skip up to 80 percent of a capital call. Other investors would make up the difference and get a fee offset in exchange for it. However, a $1.2 million fee offset was not applied. More complex LPAs call for more careful math, says RCW.

Who’s the biggest?

Elsewhere – sister publication Private Equity International (which like our other publications is sporting a fresh new look) publishes its list of the biggest firms in private equity today: the PEI 300. This 60-second video tells you more.

Today’s round-up was prepared by Toby Mitchenall.