Firms' recordkeeping confidence builds

A major compliance challenge for private equity firms and others has been the proliferation of laptops, smartphones and web-based platforms used by employees and partners to discuss work-related activity. The risk in not being able to store these communications for regulatory review has led some GPs to outright ban their use at the office. 

However, it seems firms that allow staff to use social media and other non-email electronic communications channels (such as LinkedIn and Facebook) have developed a greater sense of confidence about their compliance programs. 

Over a three month period beginning in January, electronic recordkeeping provider Smarsh surveyed nearly 300 compliance professionals, over half of which (59 percent) represented registered investment advisors such as private equity firms. 

“Respondents who allowed and governed usage were far more confident in their ability to provide specifically requested messages within a reasonable time frame than ‘prohibitors’ were in their ability to prove that the policy of prohibition is working,” according to the Smarsh 2013 Electronic Communications Compliance Survey. 

For example, around half (48 percent) of respondents that allow employees to use Facebook were for the most part confident in their ability to provide specifically requested messages within a few days if examined or audited. In comparison only 32 percent of firms that prohibit staff from using the social networking site feel confident in their ability to demonstrate the prohibition policy is working. 

The same confidence gap was discovered across every type of communication, including both public and enterprise social media and text messaging. 

“Demonstrating prohibition becomes a much more complex task when it comes to communication tools that are either used for personal communications (i.e. Facebook, Twitter) or where adoption is driven by end-users rather than system administrators (i.e. some instant messaging or enterprise social media applications),” commented Smarsh in its survey. 

The report went on to say that firms that allow employees to use these channels likely have developed and rolled out governance policies and usage procedures that help them feel more informed and in control of where and how communications happen.

The findings may have an influence on how firms registered with the US Securities and Exchange Commission develop electronic communications policies. Last year the regulator reminded private equity firms of their recordkeeping responsibilities as registered investment advisors. Firms must be able to provide inspectors a five year window into their business-related emails, instant messages and other internet or web-based communications.   

Indeed earlier this month delegates at the PEI Private Fund Compliance Forum in New York heard that regularly scanning employees’ emails to detect rule violations is a sensitive, albeit necessary, exercise for compliance officers.