MFA Submits Letter and White Paper on Protection of Non-Public, Sensitive, and Proprietary Information by FSOC Members

May 22, 2013

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Topics: Adam Clark-Joseph adviser registration, Andrei Kirilenko, Board of Governors of the Federal Reserve System, broker-dealer, CFTC, CIGFO, clearinghouses, Commodity Futures Trading Commission, commodity pool operator, commodity trading advisor, confidentiality, Consumer Financial Protection Bureau, Council of Inspectors General on Financial Oversight, CPO, CTA, data collection, data repositories, DCO, Department of the Treasury, Designated Clearing Organizations, Dodd-Frank Act, FCM, FDIC, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, Federal Insurance Office, financial stability, Financial Stability Oversight Council, Form CPO-PQR, Form CTA-PR, Form PF, front running, FSOC, futures commission merchants, harmonization, high frequency trading, information security program, inspector general reports, intermediary, investment advisers, Jaksa Cvitanic, legal entity identifiers, liquidation, Managed Funds Association, market participants, market structure, National Credit Union Administration, National Institute of Standards and Technology, NIST, Office of Financial Research, Office of the Comptroller of the Currency, President Obama, registered investment adviser, reporting, research, Reverse Engineered, Richard A. Shilts, Richard H. Baker, Rulemaking, SBSDR, SDR, SEC, SEC Office of Inspector General, Securities and Exchange Commission, Security-Based Swap Data Repositories, self-regulatory organization, SRO, substituted compliance, swap data repository, systemic risk, Trade Secrets, trade sectrets, Trading Activities, U.S. House of Representatives Committee on Financial Services, U.S. securities law,
From: MFA, Richard H. Baker


Jacob J. Lew, Secretary of the Treasury and Chair, Financial Stability Oversight Council

MFA submitted a cover letter and white paper to each member of the Financial Stability Oversight Council (FSOC) on the protection of non-public, sensitive and proprietary information.  MFA has become concerned over recent inspector general and press reports describing the improper use of private, sensitive data that certain regulators have collected for regulatory purposes and the gaps in internal controls at regulators to protect non-public information.

MFA strongly supports intelligent, well-informed and data-driven regulation of the U.S. securities and derivatives markets.  MFA also consistently has endorsed the notion that regulators need appropriate levels of information about markets and their participants to make thoughtful policy decisions.  In light of new Dodd-Frank Act authorities and information-sharing duties and obligations, MFA believes it is appropriate and necessary for regulators to review their existing policies, practices, and controls and to coordinate with fellow FSOC members now before an inadvertent leak occurs or a malicious attack is carried out.

MFA developed and submitted a white paper that provides a series of recommendations for increasing the robustness of policies and controls over sensitive, non-public information collected or shared as part of a regulator’s oversight of financial market participants and/or financial stability.  While some of the specific recommendations are addressed to the Securities and Exchange Commission and the Commodity Futures Trading Commission – as the primary regulators of investment advisers, commodity pool operators and commodity trading advisors – the recommendations are broadly applicable and may be relevant for all members of FSOC.  In the paper, MFA makes the following recommendations:

  1. MFA recommends that the Commissions review and harmonize policies and controls concerning the treatment of sensitive and proprietary information.
  2. MFA recommends that Regulators review the robustness of their policies, practices, and controls relating to their use and treatment of sensitive and proprietary information, and adopt such enhancements as are necessary.
  3. MFA recommends that Regulators heighten staff sensitivity and awareness on the handling of non-public, sensitive, and proprietary information through annual trainings and certifications, as well as regular reminders.
  4. MFA recommends that FSOC Member Agencies implement a uniform system for sharing and protecting non-public information; the uniform system should include detailed controls and procedures around the access, documentation, and use of non-public information, and be tailored appropriately for the level of sensitivity of the information.
  5. MFA recommends that the Commissions require and confirm that Data Repositories and other regulated entities maintain robust policies, practices, and controls to protect the confidentiality of sensitive and proprietary information, including the identity of traders and the nature of their trading activities.

The cover letter to Treasury Secretary Jacob J. Lew accompanying the MFA white paper is available for reading and download.  The cover letter sent to SEC Chairman Mary Jo White and CFTC Chairman Gary Gensler (copies were provided to each SEC and CFTC Commissioner) accompanying the white paper are also available for reading and download.

MFA sent similar cover letters to the other members of FSOC with the white paper.