To wrap up and round out our 6-week Risk Outlook Webinar Series, we spoke with John Cotronis, Executive Director at JP Morgan, about hedge fund risk management and governance. Specifically, he addressed the following questions:
What have you observed in recent years in terms of changes affecting hedge funds – particularly at the startup phase?
Have you noticed a marked shift in the importance managers are placing on risk?
Do the firms you typically engage with have staff on hand to manage risk – compliance officers, etc.?
In terms of corporate governance, where do you see investment firms excelling when it comes to implementing risk management controls and also fostering a culture of risk management across the firm?
Let’s talk a little bit about counterparty risk. What kind of criteria are you looking for that indicates to you a provider has the right risk management framework and best practice structure to support your clients?
A lot has gotten tougher for firms, particularly on the investment side with capital raising, also with regulatory reporting, etc. What areas of operations do you think have gotten easier for hedge funds over the years?
What is your assessment of outsourcing risk – is it higher or lower than managing various functions in-house?
As our Risk Outlook Series continues, we recently spoke with John Araneo, Partner at Cole-Frieman & Mallon LLP in New York, about many of the regulatory risks facing hedge funds today, including compliance, expense allocations and cybersecurity. Continue reading for a brief synopsis or scroll down to watch our webinar replay below.
How would you describe the current regulatory climate for fund managers and investment advisers?
For hedge fund managers and investment advisers, the regulatory expectations have never been higher. Looking ahead to 2017, managers and advisers should expect the challenge of having to navigate potentially seismic regulatory changes - each of which has the potential to complicate business practices and add to the cost and complexity of compliance.
How should clients prepare to react to these changes?
It’s a top-down approach that all comes down to compliance. A culture of compliance is no longer a lofty goal or a cliché; it is now a regulatory expectation. There needs to be a robust compliance program, actual implementation, and accountability. Clients should be prepared and able to effectively manage the SEC examinations. Managers need to take time to understand regulatory priorities and expectations before an exam.
What is the current regulatory regime's appetite for outsourcing the compliance function?
There is no requirement for firms to employ a full-time person to service compliance. However, the worries about outsourcing certain functions, particularly the compliance officer function, may lead to weakened compliance culture. The opportunity of outsourcing creates a gap between the compliance function and the operations, decision makers and day-to-day activities. Outsourcing can be effective and sufficient, but management needs to resist setting it and forgetting it.
In honor of October being National Cyber Security Awareness Month, we’ll be bringing helpful articles on a range of topics starting with this one on understanding malware.
We’re also debuting our first interactive game, FreEze!, where your challenge is to hit malware before it hits you (à la Space Invaders). Play the game below or keep reading for more on malware -- or do both!
Play FreEze and be a Malware Fighter
In Part Three of our Risk Outlook Webinar Series, Michael Corcione, Managing Director of Cordium, spoke about compliance and cybersecurity trends in the investment industry. Although cybersecurity risks and struggles can vary from firm to firm, it is important to address a number of key areas.
Continue reading for quick takeaways or scroll down to watch the 30 minute video replay.
Good security can be achieved as firms move from reactive to proactive strategies. Firms usually start with the goal of checking the box for regulators, but they need to get beyond the 'check-the-box' exercises and test controls. The SEC’s 2015 cybersecurity guidance update provided more specific insights on cybersecurity focus areas for investment firms - governance and risk assessments, training and awareness, incident response, data loss prevention, access rights controls, and vendor risk management. Hedge funds and investment firms should use this as a framework, understand how they have addressed these areas and where they need to improve.
A good cybersecurity program starts with the leadership team, and they need to set the tone from the top down. This way everybody understands the impact of risk and its effects on the firm. Leaders should acknowledge risk, understand risk, and lead ongoing discussions firm-wide.
During Part 2 of our Risk Outlook Webinar Series we spoke with Eze Castle Integration Director Dan Long about how investment firms should address evolving cybersecurity risks, third party service provider oversight and employee training and education. Many of the points Dan addressed highlight questions hedge funds and private equity firms should be asking themselves.
Read on or scroll to the bottom to watch the full, 30-minute replay.
What is our commitment to cybersecurity and what is our outlook on the future?
Regulators and investors continue to ask more questions about cybersecurity because they want to know that firms are effectively mitigating risk. To meet these growing expectations, firms must demonstrate that you take cybersecurity risk seriously and have implemented sound systems, policies and procedures to combat those risks. As the threat landscape and technology continue to evolve, investment management firms need to evolve accordingly and develop better ways to counteract threats. Firms don’t necessarily need to implement every available security technology, but they should be keenly aware of their options and have a plan to effectively mitigate as much risk as possible.
How are we addressing third party risk and oversight?
Investment management firms often rely on third party vendors to obtain functionality or capabilities that they need, want or can’t afford to produce on their own. But moving functions out of the firm's control can present challenges. With any outsourced function, the firm inherently takes on additional risks at the hands of the third party. But it's critical for investment managers to limit those risks through sufficient due diligence. To combat vendor risk, financial firms need to maintain strict oversight of all third party relationships and investigate security practices and protocols, particularly for those vendors who have access to the firm's confidential information. An outsourced vendor should be providing the same level of security (or better!) as your firm would if the function was under in-house control.
Risk. Across the financial services industry, it’s a buzzword right now, and rightfully so. Perpetuated by mounting regulatory change, growing cybersecurity threats and a challenging market climate, the focus on risk is one that grows with each passing day.
As such, we are hosting a 6-week webinar series, Risk Outlook, wherein we’re interviewing industry experts on a host of risk-related topics. To kick off the series, last week we interviewed Mark Strachan, chief operating officer and compliance officer for BBL Commodities, a New York hedge fund. Read on for a recap of my conversation with Mark or scroll to the bottom to watch the webinar replay.
Question (Q): The last 5-10 years have been challenging for the investment management industry, looking back to the 2008 financial crisis as well as with increasing regulatory initiatives and changes across the investor due diligence process. How have your views on risk and the risk landscape evolved during this time? Or have they evolved?
Mark Strachan (MS): I think they’ve certainly evolved. The core features of non-investment risk – such as operational, counterparty, regulatory, security and business risk – have been constant, but they have evolved in terms of their complexity, our experiences with them, the tools available to help mitigate exposure and the focus by investors through their due diligence process.
As we work with clients on completing due diligence questionnaires (DDQs), one increasingly common question is, “does your firm block access to data sharing sites such as DropBox or Google Drive?”
Generally the answer to this question should be ‘Yes,’ but that isn’t always the case because public file sharing services such as these are very convenient, and firms may overlook the security risk they pose. Additionally, employees accustomed to using Dropbox for personal use may be tempted to go for convenience over security when they need to share a large file or data set.
However, with security threats multiplying exponentially, hedge funds and alternative investment firms need to be proactive in protecting data and personally identifiable information (PII) from accidental and malicious insider risks. That’s why for secure file sharing Eze Castle Integration includes Varonis' DatAnywhere product as a standard feature within our Eze Managed Suite. Varonis' DatAnywhere offers users seamless and secure collaboration and file sharing across devices.
Beyond security, Varonis' DatAnywhere is easy to use. Users receive the same drag-n-drop experience as shared network drives or a cloud sync folder, which means no need for training on complex user interfaces and collaboration workflows. Additionally, data is automatically backed up and version controlled.
Cloud, Cyber Security and Managed Services: Putting Eze Castle Over the Top in Waters Rankings (Video)
We're thrilled to share that Eze Castle Integration has won the coveted awards for Best Cloud Infrastructure Provider and Best Cyber-Security Provider in the 2016 Waters Rankings. Vinod Paul, Managing Director of Eze Castle Integration, spoke with Dan DeFrancesco, Deputy Editor of Sell-Side Technology and Waters Technology about how Eze Castle Integration differentiates itself from other cloud and security providers.
Watch Vinod's video interview below or scroll down for some quick takeaways.
There's a lot to be mindful of when it comes to cybersecurity. Experienced and savvy hackers. Insider threats. Regulatory guidance updates and subsequent enforcement actions. The list goes on. So how do today's hedge fund and private equity firm managers navigate the changing landscape and stay above the fray? It all starts with planning.
If you missed it, our recent webinar with law firm Sadis & Goldberg explores the regulatory climate for investment firms, recaps recent SEC enforcement actions and the variance in how compliance is evaluted, and provides practical and actionable advice for fund managers looking to address insider threats, education awareness and policy gaps around information security.
If you have a free hour, this one's worth your time.
Watch below or read our joint whitepaper, A Fund Manager's Cyber Security Action Plan.
In today's Eze Castle Tech Tip: we're discussing myths about Voice over IP -- or hosted voice -- services.