Written by Doug Austin, Editor of eDiscovery Today
There’s a case that is ubiquitous within eDiscovery circles. Its presence is everywhere when you look at eDiscovery solutions. Many people think of it as an energy industry case, but it’s actually a financial services case – one that helped inspire a new Federal law that enacted a comprehensive reform of business financial practices. It’s the literal “poster child” litigation case to illustrate what features an eDiscovery solution should provide.
Can you guess the case? You probably can, but if you can’t, read on and I’ll identify it at the end.
Financial Services is a Highly Regulated Industry
This probably comes as no surprise, but the financial services industry is probably the most regulated industry by far. Many of the regulatory agencies and laws in the US were necessary because of financial crises and fraudulent activities over the years that needed to be addressed and reformed. Money makes people do crazy things! Here are just four of the US financial regulatory agencies financial services companies are bound by:
- Securities and Exchange Commission (SEC): Created in the aftermath of the Wall Street Crash of 1929, the primary purpose of the SEC is to enforce the law against market manipulation.
- Financial Industry Regulatory Authority (FINRA): A private American corporation that regulates member brokerage firms and exchange markets, FINRA is the successor to the National Association of Securities Dealers, Inc. (NASD).
- Consumer Financial Protection Bureau (CFPB): An agency of the United States government responsible for consumer protection in the financial sector, CFPB’s jurisdiction includes banks, credit unions, and other financial companies operating in the US.
- Commodity Futures Trading Commission (CFTC): An independent agency of the US government created in 1974, the CFTC regulates the U.S. derivatives markets, which includes futures, swaps, and certain kinds of options.
And here are three examples of notable US financial legislation:
- Dodd-Frank Act: In the aftermath of the 2008 financial crisis, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) enhanced the CFTC’s regulatory authority to oversee the more than $400 trillion swaps market.
- Anti-Money Laundering Act of 2020: Included sweeping reforms aimed at strengthening protections against money laundering, terrorism financing, and other illegal activities.
- Sarbanes-Oxley Act: Passed by Congress in 2002 in response to multiple financial scandals involving large conglomerates (which provides a hint to the case above).
Those are just a few examples of each to illustrate the extent to which financial services organizations are regulated. Those regulations impact the types of use cases that are common for financial services companies and their requirements for data protection as well.
Typical Use Cases Involving Financial Services Companies
While any use case can apply to financial services companies, these are the most common:
- Audits: Because financial services are subject to more regulatory requirements, audits are a regular occurrence, so the ability to leverage eDiscovery technology is key to quickly identifying the documents needed to respond to audit requests.
- Investigations: Even with all the regulatory agencies and Federal laws setting parameters for financial services companies, fraud still occurs, so eDiscovery technology is used to support internal investigations as well as those initiated by regulatory agencies.
- Litigation: Many types of litigation can be applicable to financial services companies, but litigation stemming from regulatory investigations are more common with companies in the financial sector.
- Data Protection: Financial services companies are probably most scrutinized regarding data security and data privacy than any other type of organization (other than perhaps healthcare organizations). The value of financial data is high, making it a prime target for hackers. While all organizations need to maximize their focus on data protection, the stakes are particularly high for financial companies.
So, what’s the most famous eDiscovery case ever? It’s Enron, of course! People think of the Enron case as an energy industry case, but Enron’s downfall began because of their push into trading gas contracts, their revenue recognition approaches and their mark-to-market accounting practices. The Sarbanes-Oxley Act was enacted to keep financial scandals like Enron from happening again and Enron illustrates why the financial services industry is so highly regulated – because it needs to be.
Because of that and because Enron emails were made publicly available by the Federal Energy Regulatory Commission (FERC) years ago, the EDRM Enron Data Set has been a valuable resource for eDiscovery software demonstration and testing for many years now. After all these years, there still isn’t a better source of high-volume, real-world public data available to illustrate the capabilities of eDiscovery solutions today. Enron is a financial services case and the Enron data set illustrates how financial companies address the use cases discussed above.
And for more educational topics from me related to eDiscovery, information governance, cybersecurity and data privacy, feel free to follow my blog, eDiscovery Today!
IPRO solutions for Information Governance, Legal Hold, and eDiscovery help many financial services organizations keep up with compliance regulations set forth by the agencies mentioned in this blog, as well as finding data for pending litigation.