In March 2013, the Securities and Exchange Commission (SEC) proposed new rules designed to strengthen the technology infrastructure of certain participants in U.S. securities markets. Citing the heavy reliance on technology and automated systems in todays markets, the SEC noted that a technology infrastructure failure could have significant and even devastating implications for investors and financial markets. Those risks were highlighted by various technology issues that arose prior to the 2013 proposals. Now the new regulations have been approved for implementation.
The new rules are known as Regulation Systems Compliance and Integrity (Regulation SCI) and are intended to reduce the likelihood of systems glitches and to improve system resiliency when technological problems occur. The entities governed by Regulation SCI will be required to have comprehensive policies and procedures in place for their technological systems as well as a framework for taking appropriate corrective action when systems issues occur. The regulation also requires notifications and reports to the SEC regarding systems problems as well as systems changes. There is also a requirement to inform members and participants in the event that systems issues occur. Testing and review provisions mandate business continuity testing and annual reviews of automated systems.
Regulation SCI applies to certain key market participants referred to as SCI entities, which include: self-regulatory organizations (SROs), plan processors, clearing agencies and alternative trading systems (ATSs) that exceed certain volume thresholds. Such entities are required to “ensure their core technology meets certain standards, conduct business continuity testing, and provide certain notifications in the event of systems disruptions and other events” by way of designing, developing, testing, maintaining and monitoring systems that are integral to their operations.
New Controls for New Technology
In a statement released by SEC Chair Mary Jo White, the importance of notification to the SEC was underscored:
The rules adopted today mark an historic shift in the Commissions regulation of the U.S. securities markets that will better protect investors by requiring comprehensive new controls for the technological systems that form the core of our current market. The rules provide greater accountability for those responsible for our critical market systems, helping ensure that such systems operate effectively and that any issues are promptly corrected and communicated to market participants and the Commission.
Regulation SCI becomes effective 60 days after publication in the Federal Register, and SCI entities will have nine months from such effective date to come into compliance with its rules. An ATS that becomes newly subject to Regulation SCI due to achieving the thresholds for the first time will have an additional six months from the time that the ATS first meets the applicable thresholds to comply.
David draws on 20+ years’ experience in both legal practice and in business services delivery since his own call to the Bar in 1989. With several years in the startup environment, including as a co-founder in the legal tech space specifically, he brings a unique and timely perspective on the role of data, automation and artificial intelligence in the modern and efficient delivery of services for legal consumers. Having been both a corporate buyer of legal services and a services provider, he identifies the greater efficiency and value that can be achieved in legal operations for corporate buyers especially.
An attorney, David worked for law firms Pinsent Masons and Linklaters in London before moving to New York to join Credit Suisse. As CAO, he helped negotiate & execute the relocation of Credit Suisse into its new NYC global HQ. Subsequently, David directed major global outsourcing, shared sourcing, HR operations & process efficiency initiatives including the digitization of records, the global roll-out of PeopleSoft HRMS & Y2K. David has worked extensively in the UK, US, Philippines, India and China markets in the areas of data management, human resources and business process outsourcing.
Most recently, David has been successfully investing in and serving as an advisory board member of several legal services start-ups including a cloud-based solution for legal process automation and e-filing; and a technology solution for large-scale capture of court and other public data used for litigation analysis, among others.
David graduated from the University of Manchester with Honors in Law and Bar School (College of Legal Education) in London, and has been a member of Middle Temple since 1989. He is the founder and former Chairman of The Global Sourcing Council.
Member: Bar of England & Wales, ABA, NYCBA, ACC, DRI