Episode Summary
In this episode, we spoke with Sean Farrell, Chief Compliance Officer at Stream by AlphaSense, the market’s leading library of proprietary expert interview transcripts. Sean has extensive experience in the area, including work as an examiner in the New York office of the SEC, Chief Compliance Officer at large asset managers, as well as a compliance consultant.
Sean covers in detail the pre- and post-call reviews, meeting the highest standards of the world’s largest funds, client-level compliance workflows, compliance around direct calls with experts from the library, and how to screen out bad actors.
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Guest-at-a-Glance
💡 Name: Sean Farrell
💡 What he does: He’s the CCO of Stream by AlphaSense and MD of IQ-EQ.
💡 Company: Stream by AlphaSense
💡 Noteworthy: Sean has over 20 years of experience with the major US securities regulator, the SEC, some of the most well-known asset managers, and as a consultant.
💡 Where to find Sean: LinkedIn
Key Insights
⚡ Achieving “highest common denominator” compliance is of paramount importance. Because of the nature of expert interviews and unique insights into company details, highest level compliance is key. Sean says, “The scrutiny’s really very heavy as prospective subscribers complete very impressive due diligence processes on us, and it can be really tough to go through that crucible from time to time, but it’s very satisfying from a professional perspective when that prospective client achieves happiness with the robustness of our compliance program.”
⚡ Standardized, multi-layered processes are key. No single transcript is more important than the integrity of the entire library. Sean explains, “We have an automated workflow for this; so, no transcripts can move outside of the pre-designated workflow. The compliance review team is reviewing each recording and transcription. As I mentioned, nothing can make it to the library without affirmative compliance approval. So it’ll just sit in the queue until we approve it or kill it. It can’t move past that. We make compliance edits to remove information that doesn’t meet our compliance standards. And sometimes we do have to kill a transcript because it just can’t be cured no matter how much compliance editing you do.”
⚡ Bad actors tend to stay away from recorded calls. As the memories of the 2009-2013 period have faded, there are bad actors looking to monetize material non-public information. Sean says, “The intentional bad actors avoid platforms where their calls are being recorded. They don’t provide consent to have their calls recorded. And, of course, then a call won’t occur with them on our platform. The act of recording is such a significant and powerful deterrent to those bad actors; it just keeps them off the platform.”
Episode Highlights
Pre-consultation and post-consultation compliance reviews are both essential
“From day one, we recognize that, for each client, there are really two customers that we’re trying to make happy. There’s the research team. So they need to be able to consume useful and informative analysis, but also, we have to satisfy the highest common denominator for the compliance officers at those firms. Think of it this way: our addressable market includes the departments at investment advisors, and we have to meet their highest common denominator across the industry. And so, we do this by applying an industry-standard pre-consultation compliance process and an industry-leading post-consultation compliance review.”
One transcript is not more valuable than another
“Another item that’s important to point out is that, from a compliance perspective and from a business perspective, no individual transcript is more valuable than any other transcript. The value is in the library itself, so we don’t have pressure to push out questionable transcripts. In fact, the opposite is true. It’s better for us to kill a transcript if it’s going to take an inordinate amount of time to review and edit from a compliance perspective because there’s a cleaner transcript just on the other side of the queue, and we can just deal with it with them.”
Compliance officers can give input on the compliance user experience
“What I’d like to point out is that when we’re meeting with prospective subscribers and we’re talking to their compliance departments, we walk through the system from a compliance user perspective; they can have trial logins and can play with the system as a compliance officer. And then, if there’s functionality that’s not in the system that they want, they can communicate it to us. We track and monitor that. We put it on a development schedule. We prioritize it, and we can, at some point in the future, roll out those enhancements. Much of the compliance user experience has been driven by the feedback we get from our compliance officers.”
Top quotes:
[08:24] “But from a compliance officer perspective, I place greater value on the post-consultation compliance review. So this is where our team does a review of each and every transcript before it can be published.”
[11:51] “Every transcript has to be reviewed from a compliance perspective; nearly all transcripts receive some form of compliance editing.”
[20:09] “Some good-intentioned people make mistakes. They disclose information that they shouldn’t. But that’s what our compliance review process is designed to detect in remedy. But the bad actors — the ones who have nefarious intent — don’t want their voices recorded. They stay far away from a transcript.”
Full Transcript
[00:00:00] Sean Farrell: The Scrutiny’s really very heavy. As perspective subscribers complete very impressive due diligence processes on us, and it can be really tough to go through that crucible from time to time, but it’s, it’s very satisfying from a professional perspective when that perspective client
[00:00:15] achieves happiness with the robustness of our, our compliance program. You know, from day one, Nick, we recognize that for each client, there’s really two customers that we’re trying to make happy, right? There’s the, the research team, so they need to be able to consume useful and informative analysis, but also, we have to satisfy the highest common denominator for the compliance officers at those firms.
[00:00:36] We think of it this way. Our addressable market includes the compliance departments at investment advisors and we have to meet their highest common denominator across the industry.
[00:00:47] Intro: Hello and welcome to Signals by AlphaSense, where we hear thoughtful insights from business leaders, investors and experts.
[00:00:58] Nick Mazing: Hello and welcome, you’re listening to Signals by AlphaSense, and I’m your host, Nick Mazing. Today, we’re going to discuss Expert Transcript Libraries from a compliance perspective. Now, if you know the old Expert Network world, which is the traditional calls, you’d recall the major scandals about 10 years ago, which led to numerous insider trading convictions. The industry has
[00:01:22] evolved considerably since then, especially after the rollout of the Expert Interview Transcript Libraries. These are professionally conducted and transcribed interviews that are then available to subscribers. In the case of Stream by AlphaSense, our clients use the best search technology to look for themes in over 25,000 interview transcripts from a variety of viewpoints such as former employees,
[00:01:48] suppliers, physicians, surgeons, and so on. Obviously, this is a better and more cost-effective model to access expertise, but there is another angle that we’re going to focus on today, and that is the dramatically reduced compliance risks. Our guest today, Sean Farrell, is a legend in the compliance world, so welcome, and can you tell us a little bit more about who you are and what you do?
[00:02:13] Sean Farrell: Thanks, Nick. It’s really great to be here, and many thanks to all of your listeners for sharing their time with us too. I appreciate you calling me a legend, but I’m not sure I, I live up to that yet, but I’ll work really hard to get there. I started my compliance career over 20 years ago in 2003.
[00:02:28] This was at the SEC in the New York office. I was an examiner doing exams of investment advisors and mutual funds, and as you can imagine, the New York office examines most of the largest asset managers in the world and, and not only are they preeminent themselves, but they work with preeminent law firms too.
[00:02:45] Sean Farrell: It was an incredible place for, for me to be, and I learned an amazing amount of information about regulatory compliance there. After the SEC passed the compliance program rules for investment advisors and mutual funds, which are compliance officers who are listening in here are intimately familiar with,
[00:03:01] I left the SEC to become a regulatory consultant, and that was another great learning experience. I worked with the very largest hedge fund advisors in the world who were just first stepping into SEC registration, and, and regulation, around that time, too, we experienced a financial crisis which had a very enduring and profound impact on financial services and regulatory compliance.
[00:03:21] I left regulatory consulting in 2009 and went in-house and became a chief compliance officer. Over the course of the next 10 years, I was a CCO for three different asset managers. Each of those perform deep research, including primary research as well as fundamental analysis, and, you know, as you reference in your intro, those were groundbreaking years from a regulatory perspective.
[00:03:43] The SEC and the DOJ allocated massive resources to their investigations, and those investigations led to many settlements, trials, convictions, and, and also, quite a few overturned convictions as well. In 2019, I returned to regulatory consulting, and today, I serve as CCO for Stream, and I am a managing director within the regulatory
[00:04:01] consulting group at IQ-EQ. For Stream, I was involved since day one, having built a compliance program and process there when the transcript library was in its infancy. Over time I’ve managed a growth there to a compliance team of 16 personnel, and the reception by asset managers has been tremendous for this product.
[00:04:20] Nick Mazing: Now, you work directly with the Chief Compliance Officers or CCOs at the world’s largest asset managers with the big multi-strat, multi-manager funds, and so on. Obviously, at these institutions, all vendors are scrutinized very carefully, but you are really under the microscope, and what is important to understand is that there are two parallel compliance processes going on. On one hand, and we, we’ll come back to that in, in the next question is what the funds or asset managers themselves do, and then, on the streamside, on the library side, you have very extensive structural protections for compliance reasons. So, for example, an employee must be at least six months out of their role in order to actually be interviewed for, you know, the relevant topic. Then, there are after, after through, there are numerous
[00:05:20] compliance reviews and other steps before the transcript, even since the light of day. So, can you walk us through what goes on kind of demystify it for us a little bit?
[00:05:31] Sean Farrell: Oh yes, the Scrutiny’s really very heavy. As perspective subscribers complete very impressive due diligence processes on us and it can be really tough to go through that crucible from time to time, but it’s, it’s very satisfying from a professional perspective, when that perspective client
[00:05:47] achieves happiness with the robustness of our, our compliance program. You know, from day one, Nick, we recognize that for each client, there’s really two customers that we’re trying to make happy, right? There’s the, the research team. So, they need to be able to consume useful and informative analysis, but also we have to satisfy the highest common denominator for the compliance officers at those firms.
[00:06:08] We think of it this way. Our addressable market includes the compliance departments at investment advisors, and we have to meet their highest common denominator across the industry. And so, we do this by applying an industry-standard pre-consultation compliance process and an industry-leading post-consultation compliance review.
[00:06:30] Sean Farrell: That compliance process on the front end, the, the pre-consultation process is very familiar to most people in the industry today, it’s pretty standardized across the industry because the industry learns some really, really harsh lessons from those SEC and DOJ investigations between 2009 and 2013. For example, we don’t permit consultations with experts who work for the target company or as you mentioned, they have to have separated for greater than six months.
[00:06:57] We don’t allow consultations with experts who work for material supplier or distributor or customer of the target company, and, of course, we, we don’t do consultations with individuals who would otherwise have information that’s both material and non-public. Further, we don’t permit consultations with individuals who are involved with active clinical trials or have unpublished results from, from completed clinical trials.
[00:07:20] We don’t do consultations with employees of federal state, or foreign governments or officers of publicly traded companies. That’s just a handful of some of the, the prohibitions we have. It’s really to make sure that the, the calls are a very safe environment for both, the participants and for the readers of the transcript.
[00:07:36] Sean Farrell: In order to screen out experts before the call, the, the ones that aren’t gonna meet our compliance standards, we train our recruiting managers and the onboarding specialists to, to proactively identify potentially problematic roles. You know, from a business perspective, that just prevents inefficiencies, right?
[00:07:51] There’s a compliance benefit to it, but from a business perspective, we’re, we’re not wasting resources trying to recruit individuals who ultimately won’t make it through the process and, of course, though, from a compliance perspective, we do administer detailed screening questionnaires that have to be completed prior to a, to a call.
[00:08:07] We have written consulting agreements that have to be executed, and we do provide verbal reminders of obligations when the expert is being bridged into the call. Again, all the sorts of things that our listeners would expect there to be on a pre-call basis, and that’s really important, but from a compliance officer perspective,
[00:08:25] I place greater value on the post-consultation compliance review. So, this is where our team does a review of each and every transcript before it can be published. Our team consists of, as I mentioned, 16 folks. We have two compliance directors, Brett and Collins, we have an individual who is the learning and development manager, Rebecca, and she also tackles all sorts of challenging special projects for us.
[00:08:52] We have a dozen compliance reviewers. A few of those compliance reviewers have been with us since we first launched a commercial product a few years ago, so they have a lot of experience as well. Anyway, after that call is concluded, the recording is transcribed. That recording and transcription is then cleaned, normalized and, and turned into a consumable product by a, a quality control personnel.
[00:09:13] As you know, Nick, sometimes these calls, there’s people stepping over each other, tech problems happen, so this individual’s cleaning all that up. After that’s completed, the recording and transcription is then routed to our compliance reviewers. We have an automated workflow for this, so no transcripts can, can move outside of the pre-designated workflow.
[00:09:35] Sean Farrell: The compliance review team is reviewing each recording in, in transcription. As I mentioned, nothing can, can make it to the library without affirmative compliance approval. So, it’ll just sit in queue until we approve it or kill it. It, it can’t move past that. We make compliance edits to remove information that doesn’t meet our compliance standards.
[00:09:53] And sometimes we do have to kill a transcript because it just can’t be cured no matter how much compliance editing you do. You know, when I go through due diligence, compliance officers spend a bulk of their time going through this compliance review process with me. I’ll share with you some of the data points that I think are probably most of interest to them because we, we get lots of questions on it.
[00:10:12] So, compliance officers tend to ask, you know, what are the reviewers looking for? And I break that up into a few different buckets for simplification. So, first they’re, they’re looking to see or listening to see the expert impeaches their representations to us. So, when we were recruiting this expert, when we onboarded them, we gathered lots of information about their employment history, what types of NDAs and com fees they might have.
[00:10:35] What we can then do now is when we listen to what they’re talking about, we can identify if they say anything that contradicts that. An example that I give will be if the consultant, you know, affirms to us that they haven’t been at that target company for over 12 months, but then on the call reveal that they still do consulting work with the target company,
[00:10:55] Sean Farrell: then the, the compliance reviewers are gonna escalate that, right? That transcript is gonna be a kill. We can’t fix it if, it doesn’t meet our standards. So, that one we’ll end up killing. They’re also listening to identify where the expert talks about their own employer and I’m gonna talk about that in a minute.
[00:11:10] They’re paying attention to where an expert reveals they have a source at the target company. This does come up with calls with former employees, right? We all work at other places, and we keep in touch with former colleagues. Same thing happens with experts. They’re listening for that because when that happens, then that transcript needs to be escalated for, for a higher-level review, right?
[00:11:29] There’s, we, we have to determine that none of the information that’s been shared with us could have possibly come from a, a source at the target company. And, of course, they’re trained to, to identify information that could be considered confidential or material and non-public information. So I, I mentioned every transcript has to be reviewed from a compliance perspective, nearly all transcripts receive some form of compliance editing.
[00:11:54] The most common, most of luminous edits are where we remove information about the expert’s current employer. The focus of the call is not the expert’s employer. We train the participants not to ask about the expert’s employer. We train the experts not to talk about their employer, but they’re humans,
[00:12:11] we all identify with our own employers, and, and sometimes we just disclose information that, that we shouldn’t, right? And the same thing happens with experts. So, we cut that information out. We don’t wrestle with nuance. We don’t try to determine if the information’s, you know, not material or is it not confidential.
[00:12:26] If it’s not information that’s already been disclosed by the company in an about us webpage or in somebody’s work bio, we’re just gonna cut the information out of the transcript. Compliance officers take great comfort in that. And another item too that’s important to point out is that, from a compliance perspective and from a business perspective, no individual transcript is more valuable than any other transcript.
[00:12:50] The value is in the library itself, so we don’t have pressure to push out questionable transcripts. In fact, the opposite is true. It’s better for us to kill a transcript if it’s going to take an inordinate amount of time to review, and, and edit from a compliance perspective because there’s a cleaner transcript just on the other side of the queue, and we can just deal with it, with them.
[00:13:13] A lot of compliance officers like to know the status of the reviewers. They are full-time employees. Each of them has a cap on the number of transcripts they’re permitted to review each day. You know, as you can imagine, if you were to task saturate the compliance reviewers, the quality will go down
[00:13:28] Sean Farrell: and that’s not what we want, right? We need a process where vigilance is foremost. We need them to be as sharp at the end of the workday as they were at the beginning.
[00:13:37] Nick Mazing: Yeah, that’s quite a process. Very, very impressive, and I do appreciate all the detail that you shared with us. So, we, we’ve covered what happens at the library level, so to speak. And now, let’s talk about the clients. We said that it’s a parallel process and what are some of the fund-level, fund advisor, I should say, since I’m talking to, you know, a compliance celebrity, the fund-advisor level, what are some the, some of the fund-level steps that you see that the big funds taking to ensure compliance that is custom to their geographies, their individual needs, and so on?
[00:14:13] Sean Farrell: It’s changed over time. So, you know, when transcript libraries were new and novel to the industry, firms really weren’t sure how to apply their compliance procedures to, to them. In, in a lot of instances, the largest investment advisors who were applying their expert network platform procedures there,
[00:14:28] and, you know, we, we were okay with that, you know, three years ago, it wouldn’t be uncommon for a compliance officer to require pre-approval before an analyst could consume a transcript. So, that would require workflow where the, the analyst can’t see the detail of the transcript. They can just see kind of the header information.
[00:14:47] They would press a button, it would deliver a workflow to the compliance officer who would then be prompted to go review it, review that transcript. Well, over time, as compliance officers got familiar with the platform and with how transcript libraries work, not many firms do that anymore. They’ve developed new policies and procedures focused on the specific nature of the, the transcript library.
[00:15:08] So, you know, where they look now is they might have specific prohibitions that are very narrow. So, for example, they may not want their analysts to consume any transcript where the expert was an employee of a publicly traded company. Firms can implement that restriction. It, it’s automated, their employees won’t even see those transcripts,
[00:15:29] it’s, it’s not gonna be a problem. What I’d like to point out is that when we’re meeting with prospective subscribers and we’re talking to their compliance departments, I’ll walk through the, the system from, from a compliance user perspective, they can have trial logins and be, can play with the system as a compliance officer,
[00:15:46] and then if there’s functionality that’s not in the system that they want, they can communicate it to us. We track and monitor that. We, we put it on a, a development schedule. We prioritize it, and we can, at some point in the future, roll out those enhancements. Much of compliance user experience has been driven by the feedback we get from our compliance officers.
[00:16:07] Nick Mazing: I mean, certainly collaboration given the enormous downside risks that we’ve seen with the industry in the, in, you know, decade ago now. Another question that I had is on the actual calls that can happen. So, I mean obviously, the transcript library is the primary problem, which you can just click and say, yeah, I want to connect with this expert and I want to talk about it.
[00:16:28] So, how do you ensure compliance with the actual calls that happens? It’s obviously very easy to facilitate it. Well, oh, you know, that’s interesting, you want to talk to this person. Click. What happens, then?
[00:16:40] Sean Farrell: Yeah, so, the click to talks and evolution in, in the transcript library and, and maybe I’ll just pause here for a moment and just point out to some of our listeners, they’re not familiar with this at all. This is a, an option that’s available if the client’s firm has subscribed to it and, and that process has a business process
[00:16:58] and then there’s a whole additional compliance process where we interact with their compliance team just like we would for due diligence for the library. But then there’s also additional due diligence related to essentially running an expert network platform. So, we have to obtain from them all of their prohibitions, all of their pre-qualification questionnaires so we can administer those.
[00:17:16] Again, some of our listeners aren’t familiar with that because their firms haven’t signed up, but with this, what happens here is if an analyst is consuming a transcript and they’d like to have a call themself with the expert, they can request that expert call by clicking the, Click to Talk to This Expert button within the platform. That creates or triggers a workflow on the backend that lets us know that we need to begin the process of arranging that call.
[00:17:41] There’s a whole business, you know, process for that, but from a compliance perspective, we then again execute all the pre-consultation procedures that I mentioned earlier. So, we’re refreshing the expert’s work history. We’re applying a, a new pre-consultation questionnaire, right? Because the, the stuff we may have collected earlier might be pretty stale at this point.
[00:18:00] So, so we go out there and refresh all that. We, we do the other procedures I mentioned as well. And then, for that analyst employer if they, if they have specific procedures, we execute those as well. So, so we’ll overlay their pre-qualification questionnaire. If they have other types of prohibitions, we administer those,
[00:18:18] so there’s a basically a, a double layer there that, that we, we implement. From a compliance perspective, this type of expert call comes with the benefit of those two pre-consultation compliance processes, but there’s also the post-call compliance review of the transcript. So, from a compliance officer’s perspective at a client, this call is similar to having a compliance chaperone without the compliance officer having to allocate resources to, to do that, right?
[00:18:43] Sean Farrell: So, if there’s an issue with the call that occurs, because we’re recording it and because we’re reviewing it, we’ll let the compliance officer know about the issue with, with the call.
[00:18:55] Nick Mazing: And I’ve heard there’s still bad actors, quote unquote, who might be actively looking to monetize insider information. And how do you avoid that?
[00:19:08] Sean Farrell: Hmm. Unfortunately, there’s still are a few out there, Nick. You know, 10 years ago, we had this strong memory of grand jury subpoenas and FBI search warrants, right, but that’s kind of receded with time and, and what, what I’ve seen both in my role at, at Stream and as a, a compliance consultant for, for some of the largest asset managers in the world,
[00:19:27] and over the, the process of doing about 30,000 or so consultations, the intentional bad actors avoid platforms where their calls are being recorded. They don’t provide consent to have their calls recorded, and, of course, then they can’t, like, a call won’t occur with them on our platform. The act of recording is such a significant and powerful deterrent to those bad actors,
[00:19:50] it just keeps ’em off the platform. Now, look, of course, occasionally, some, some good-intention people make mistakes. They disclose information that they shouldn’t, right? But that’s what our compliance review process is designed to detect in, in remedy. But the bad actors, the ones who have nefarious intent, they don’t want their voices recorded.
[00:20:07] Sean Farrell: They stay far away from, from a transcript.
[00:20:11] Nick Mazing: Sean, thank you for joining us.
[00:20:13] Sean Farrell: Nick, many thanks for having me on Signals by AlphaSense and, and it was great talking with you. Many thanks to your listeners for sharing their time with us too.
[00:20:20] Nick Mazing: Today, we learned about how Expert Transcript Libraries ensure compliance with Sean Farrell, Chief Compliance Officer at Stream. We’ll have all the relevant links in the show notes. My name is Nick Mazing. This is Singals by AlphaSense. You can subscribe to us on all the major platforms. Thank you for listening.
[00:20:37] Outro: Thank you for joining us. This was another episode of Signals by AlphaSense. Keep in mind that all views presented here are the views of the guests and hosts and do not represent the views of their employers or of AlphaSense. Nothing in this podcast constitutes investing, tax, legal or medical advice.
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