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SEC Taps Big Data for Enforcement

November 23, 2020

The SEC is increasingly relying on advanced technology and big data to examine firms and enforce its rules, according to news reports.

Earlier this month, the SEC settled with five wealth management firms for $3 million over the sales of complex exchange-traded products — and said that it was the first action resulting from an initiative that taps trading data analytics for finding potentially unsuitable sales, as reported.

The SEC, along with Finra, also now uses cloud computing, which gives the regulators “unlimited computer capacity, memory and speed,” far exceeding the capacity they had just a few years ago, FA-IQ sister publication Ignites writes, citing Carlo Di Florio, global chief services officer at ACA Compliance and a former director of the SEC’s Office of Compliance Inspections and Examinations.

Di Florio, who was with the SEC from 2010 to 2013, also tells Ignites that Finra started trying out machine-learning technology.

The SEC also likely relied on “data analytics and sophisticated technology” for its share class disclosure initiative, he says, according to the publication.

The regulator’s Division of Economic and Risk Analysis has also formed an Office of Data Science and Innovation and last week appointed former PwC partner Mike Willis to head it, Ignites writes.

Such tools have “revolutionized” what regulators can do, as adopting them makes regulators far more effective at detecting rule violations, Di Florio says, according to the publication.

Di Florio says the SEC’s increased reliance on technology dates back to the financial crisis and scandals such as the Bernie Madoff Ponzi scam, when the commission was criticized for its failures in detecting such problems, according to the publication.

But there’s still room for improvement. Last week, speaking during the XBRL U.S. Investor Forum, SEC commissioner Allison Herren Lee said regulators “must keep pace with the sophisticated technology and data produced and used by financial market participants worldwide,” including through targeted use of structured data, according to Ignites. The SEC’s budget, however — largely frozen for years — may prevent it from hiring the right people to use the tools and interpret the data, the publication writes.

The SEC declined comment to Ignites.

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By Alex Padalka
  • To read the Ignites article cited in this story, click here if you have a paid subscription.
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Tags:  Technology , Regulatory/legal issues , PwC

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