Expert Network Chaperone: Best Practice Controls and Our Experience - Tani Tong
Overview
Expert network calls are one-on-one/one-to-many conversations where clients, such as hedge funds, mutual funds, or private equity firms, connect with industry experts typically via arranged conference calls. These calls provide unique insights that are typically unavailable from standard research sources. Research analysts and investment teams use expert networks to gather information about specific industries or companies, enhancing their conviction levels around investment cases.
Forms of Connection In addition to expert network calls, firms may use direct meetings, analyst briefings, or corporate video calls. These interactions are subject to firm policies and procedures regarding information access, which can create risks similar to or greater than those associated with expert networks. Expert networks offer controls over interactions, whereas direct communication outside investor relations can pose greater risks.
Risks and Concerns There are concerns about gathering insider, confidential, or material non-public information (“MNPI”) during expert network calls. MNPI is information that could affect the market value or trading of a listed security and has not been disseminated to the general public. Experts often work for key customers, suppliers, advisors, or consultants to listed companies, or even working at listed companies, therefore increasing the risk of MNPI disclosure. It is crucial to ensure experts and analysts are trained and educated to avoid MNPI and that reasonable controls are in place to prevent such disclosures.
Importance of Compliance As stock picking, screening and selection becomes even more critical in managing market risk, managing your corporate access and expert networks becomes increasingly more important. Cognitive GRC has been helping firms in APAC manage compliance risks in this area for over 10 years. We have seen a significant increase in the use of expert networks in the region and have helped firms maintain appropriate controls in this regard.
Technology and Human Oversight While online transcripts, translations, and Artificial Intelligence offer some assistance with compliance record-keeping, these solutions take time to become reliable. Simply recording conversations without human oversight can create more problems than they solve. Machines take time to learn what is worth raising and what is just noise, and false positives can be overly burdensome unless you have acquired expensive internal AI functionality that is not yet as cost effective as small to medium firms might be able to afford. Cognitive GRC specializes in live monitoring of calls and providing nuanced and well-educated oversight to stay ahead of potential issues. Just knowing that there is independent oversight is a major part of the deterrent that encourages participants from stepping towards the line that cannot be crossed.
Best Practices for Using Expert Networks
Expert Network Providers Onboarding
Conduct due diligence on expert network providers.
Ensure providers have policies and procedures for background checks and agreements with experts to avoid disclosing MNPI.
Verify that providers offer training to experts on compliance requirements.
Ideally, providers should have compliance policies tested by third parties.
Compliance Approval on Expert Network Call Requests
Review requests for expert network calls by Compliance or senior management.
Include details such as the expert’s name, employment history, and potential risks of MNPI disclosure.
Check if the expert’s recent employers are on any internal watch or restricted lists.
Consider the target company, the expert’s current consulting arrangements, and the nature of the transaction.
Make risk-based decisions on whether to chaperone interactions.
Ongoing Monitoring and Record Keeping
Maintain a log of expert network calls, including request and approval dates, expert details, and any issues.
Suggest staff to keep notes of calls, with periodic or sample reviews by Compliance or senior management.
Conduct chaperones on high-risk calls and provide training on call dos and don’ts.
Encourage escalation of potential MNPI issues to Compliance for evaluation.
Assess the usage of expert network platforms periodically from risk and service level perspectives.
Our Services We provide services including consulting on your policies and procedures for chaperoning expert network calls, reviewing call requests, notes and expert network work products and offering a market misconduct online course that discusses MNPI and relevant scenarios.
Cognitive GRC have been providing chaperone services to clients for calls in Mandarin, Cantonese, English and developing capabilities in Japanese. We also conduct training on practical matters around this process which includes timely reminders of the issues to avoid.
Please reach out if you wish to discuss our solutions.
By Tani Tong
Tani Tong is a Senior Compliance Analyst at Cognitive GRC who is experienced in providing live chaperones for expert network calls in various languages, monitoring potential issues, reviewing expert network requests, and expert network related work products for investment firms.