The action underscores the need for investment advisers and broker-dealers to maintain robust policies and controls when utilizing third-party contractors.

On May 27, 2016, the Securities and Exchange Commission (SEC) announced a settlement with Federated Global Investment Management Corp. (FGIMC), a registered investment adviser, for failing to establish written policies and procedures reasonably designed to prevent the misuse of material, non-public information (MNPI) in FGIMC’s use of outside consultants.1 Specifically, the SEC found that FGIMC used a third-party consultant who — unbeknownst to FGIMC’s senior management and compliance department — also served on the boards of four public companies and at times had access to MNPI regarding those companies, as well as information about the holdings of funds FGIMC advised. While FGIMC did have written policies regarding the use of MNPI, none indicated a mechanism to identify potential conflicts among consultants, which, according to the SEC, resulted in a gap in FGIMC’s compliance program. As detailed below, the FGIMC Order highlights the SEC’s continued focus on ensuring investment advisers and other SEC-registered entities maintain appropriate policies and procedures to protect MNPI.