On May 23, the Securities and Exchange Commission charged Institutional Shareholder Services Inc. (ISS), a Maryland-based proxy adviser, with failure to safeguard its advisory clients’ confidential proxy voting information. The services provided by ISS include assisting investment advisers in voting proxies of publicly traded companies held in the investment advisers’ client accounts. The SEC found that an ISS employee revealed to a proxy solicitor the voting information of more than 100 ISS investment advisory clients in exchange for substantial gifts and entertainment. The SEC order (Order) concludes that ISS failed to establish adequate policies and procedures to prevent the misuse of such material, nonpublic voting information, and requires ISS, among other things, to pay a $300,000 penalty and retain an independent compliance consultant.
The Order does not address the responsibility that the investment advisory clients of ISS may have had in protecting their client proxy voting information. Investment advisers, however, should consider instituting safeguards to protect their material, nonpublic information when they engage proxy advisers or other third party service providers. As a best practice, investment advisers should include confidentiality provisions in their service provider agreements. Such confidentiality provisions should require the service provider to safeguard an investment adviser’s material, nonpublic information, such as proxy voting information, and limit access to that information to need-to-know employees of the service provider.
For additional information about the Order, read more.