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Hedge Fund Survey: Smarsh Report Reveals Challenges in Oversight of Electronic Communications

New York (HedgeCo.Net) – The survey of more than 200 compliance professionals in the hedge fund industry was conducted to better understand the attitudes and current practices for electronic communication compliance.

“This year’s survey findings illuminate the shifts underway related to electronic communications compliance,” said Stephen Marsh, CEO and founder of Smarsh. “The retention and oversight of electronic communications has becoming increasingly complicated as employees are presented with a growing number of options to communicate—from instant messages and mobile devices to websites and social collaboration tools—and compliance officers must adjust quickly and comprehensively to mitigate risks to their firms.”

Key findings include:

· Compliance burden increases: 60% of survey respondents reported an increase in resources spent on electronic message compliance in the past year.
· Social media communication remains a challenge, yet firms are beginning to adapt: nearly 80% of respondents indicated they have written policies to address the use of social media channels, a significant increase from the year prior.
· Mobile devices and communications are a top three concern: More than half of firms now allowing iPhones, iPads, Android phones and tablets, as well as Windows phones on the corporate network. While FINRA Regulatory Notice 07-59 sets forth principles that firms should develop supervisory systems and procedures for text messages, 65% of compliance officers have minimal to no confidence in their ability to produce text messages during examinations.

Last year, FINRA issued Regulatory Notice 11-39, stating that firms are required to retain, retrieve and supervise business communications regardless of whether they are conducted from a work-issued device or personal device. Archiving and supervision practices governing communication from these devices, however, lag behind those in place for laptops and desktop computers. Today, the majority of compliance professionals (65 percent) said they would have minimal to no confidence in their ability to produce text messages during examinations.

New communication channels remain the second biggest concern for firms. However, organizations are adapting and increasingly taking steps to formalize their position on social media use. Nearly eighty percent of respondents indicated they have written policies to address use of LinkedIn, Facebook, and Twitter, a significant increase from the year before, when less than half indicated they had a policy in place. However, the findings reveal that when it comes to putting archiving and supervision systems in place for social media, most firms (more than 60 percent) have not yet taken action.

Between January and April 2012, 209 individuals with compliance-related responsibilities participated in a 22-question survey to identify current trends in electronic message compliance policies and practices. Respondents were drawn from a wide range of firm sizes and job titles, from C-level management to chief compliance officers and compliance department staff. The full survey report is available for download at www.smarsh.com/compliancesurvey.

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