The Cloud Is Still An Area Unregulated By The SEC--Or Anyone; Fiduciary Duty Mandates Advisor Due Diligence

Thursday, July 12, 2012 09:58
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The Cloud Is Still An Area Unregulated By The SEC--Or Anyone; Fiduciary Duty Mandates Advisor Due Diligence

Tags: cloud | FINRA | regulation | sec

Cloud computing is one area where regulatory entities seem to have no reach—at least, for now. Fund and asset managers employ the cloud to reduce costs and increase ease of access. Back-office operations are migrating to the cloud and the provider landscape is becoming more competitive.

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The SEC views the cloud as an outsourcing resource. This means that advisors are basically on their own to perform necessary due diligence, realizing that they can be held responsible for the actions of cloud back-office operational actions.
 
A cottage industry has developed around helping private funds vet vendors and collect data needed to file Form PFs. The fiduciary obligation comes into play when utilizing cloud-based vendors for advisors’ back-office functions. With the SEC’s currently limited ability to police the industry, it certainly has few to no resources to dedicate to policing the cloud.
 
This is another area the SEC may delegate to FINRA’s oversight. It’s also another area where advisors are unsure exactly what regulation will look like and how it may affect them.

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