On Tuesday, the US Securities and Exchange Commission published the results of an enforcement action that concerned an alternative data vendor. In the settlement, App Annie agreed to pay a $10m fine for engaging in what the SEC said were “deceptive practices” and for making “material misrepresentations” about how its data was derived between 2014 and 2018.

The judgement was the first-ever enforcement action against an alternative data vendor, which may leave many of our data provider partners wondering what the decision means for their businesses moving forward.

Below, we’ve put together a brief Q&A with Don D’Amico, Neudata’s general counsel and head of Sentry, that may help clarify how things currently stand.

Q: What types of alternative data are on the SEC’s radar?
A: In the filing, the SEC provided its most robust definition of alternative data to date, noting it contains data that is “compiled from mobile devices, financial transactions, satellites, public records and the internet, among other sources.” The SEC suggests that these broad categories of alternative data (along with app data) might often be considered ‘material information’ with respect to a company’s financial performance. So many vendors need to consider these issues now, even if you provide data in a category that’s unrelated to app data, which was mentioned in the SEC’s case.

Q: Should I be reviewing the terms and contracts I have with my underlying data suppliers and my data buyer clients?
A: This case is an important reminder for data providers that the contracts that they have with their underlying data suppliers are important. We anticipate that fund clients will be rereading their vendor contracts closely over the next few days, and that you may find yourselves entering a period of heightened scrutiny for your contracts. So it’s probably a good idea to take a look now and anticipate any questions you may receive about how your data is sourced and whether you have the right to sell it onwards.

Q: How much information do I need to disclose to data buyers about my data collection methods?
A: In this case, the regulator took issue with the fact that App Annie said that its data was aggregated and anonymised (and estimated via a model), but the SEC alleges that the vendor nevertheless used underlying data inappropriately in producing its data product. Vendors that don’t properly disclose their data collection and distribution methods could find themselves in trouble in the future. Vendors should also be careful to accurately disclose this type of information.

Q: How can I continue to monitor my data offering while taking into account the advice of the SEC?
A: Working with alternative data specialists in the financial services space, like Neudata, can help vendors understand the risks associated with their datasets. In providing Neudata documents like the Due Diligence Questionnaire, you demonstrate to data buyers that you believe your data offering to be compliant. In future iterations of the Neudata Provider product, we will be offering more visibility into upcoming regulatory ‘red flags’ and offering advice on how to mitigate them within your own data.

We will continue to provide guidance to our Neudata Provider Premium clients as we have conversations about this topic with data buyers and sellers. In the meantime, we'd encourage you to pre-emptively update your Neudata profile and DDQ with any additional information you think data buyers may request from you in the coming weeks