CognoLink Compliance Update - 15 October 2011

Massachusetts Regulations Regarding the Use of Expert Networks

In the wake of the federal insider trading probe in the US, the Massachusetts securities regulator has adopted regulations which impose specific requirements on investment firms which use expert networks (“Regulations”). Massachusetts is the first US State to regulate the use of expert networks.

With effect from 1 December 2011, firms which are subject to the Regulations and which use expert networks must obtain confirmation from the consultants with which they engage:

1. Of any relevant confidentiality obligations to which they are subject; and
2. That they will not disclose any confidential information to the firm.

CognoLink has applied equivalent rules as part of its rigorous compliance procedures since establishment in 2007, one of the first expert networks to do so. Before any specialist on the CognoLink network is permitted to consult with a client, they must have first accepted CognoLink’s standard terms and conditions. These terms and conditions include undertakings by the specialist that they will not:

1. Disclose any non-public information in respect of a publicly traded company;
2. Disclose any other confidential information; or
3. Breach any obligation owed to a third party (for example, to their employer) by consulting.

The undertakings are given by the specialist both for the benefit of CognoLink and the clients for which they consult.

Notwithstanding CognoLink’s standard terms and conditions, at the request of a number of clients CognoLink has implemented further specific certifications/acknowledgements from specialists addressing the requirements of the Regulations.

The Regulations, and the approach being adopted by CognoLink’s clients, reflects the general sentiment in the US that there is nothing fundamentally wrong with investment firms using expert networks, which are a valuable part of the information gathering process for investment decisions, but that users of expert networks should carry out due diligence to ensure that appropriate compliance procedures are in place.

If you would like more information in respect of this, or any other aspect of CognoLink’s compliance policies and procedures, please contact Matthew Mace, CognoLink’s General Counsel:
t: +44 (0)20 7268 6677
e: matthew.mace@cognolink.com