There are 10 core areas of risk that may affect EAG’s growth via acquisition in the IT Serveices and Cybersecurity arena. These are:
1: Navigating the Regulatory Waters in a Decentralized World
2: Ensuring Transparency in a New Era of Acquisitions
3: ESG: Meeting Investor Expectations in Sustainable Investing
4: Staying Ahead in an Evolving Regulatory Landscape
5: Navigating International Investment Risks
6: Safeguarding Data in the Digital Age
7: Strengthening Compliance in a Scrutinized Environment
8: Rising to Meet New Transparency Standards
9: Raising the Bar in Ethical Investment Practices
10: Managing Legal Risks in a Scrutinized Environment
1. Decentralized Finance (DeFi):
DeFi refers to the shift from traditional, centralized financial systems to peer-to-peer finance enabled by decentralized technologies built on the Ethereum blockchain. From borrowing and lending platforms to stablecoins and tokenized BTC, the DeFi ecosystem has launched an expansive network of integrated protocols and financial instruments. If the FCA/SEC increases its enforcement efforts in this area, it could mean more stringent compliance requirements, increased scrutiny, and potential penalties for non-compliance for EAG investing in DeFi.
2. SPAC Disclosure, Marketing, and Gatekeeping:
Special Purpose Acquisition Companies (SPACs) are companies with no commercial operations that are formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company. Increased scrutiny on SPACs means that EAG involved in these transactions must ensure they are meeting all disclosure and marketing requirements. This could involve transparency about the SPAC's management team, its acquisition strategy, and the target company's financials and prospects.
3. ESG Compliance:
ESG stands for Environmental, Social, and Governance. These are the three central factors in measuring the sustainability and societal impact of an investment in a company or business. ESG factors are becoming increasingly important to investors and can have a significant impact on a company's performance. EAG will need to ensure they are meeting all relevant ESG requirements and expectations, which could involve demonstrating sustainable practices, ethical business dealings, and effective corporate governance.
4. Regulatory Guidance on Digital Assets:
The regulatory landscape for digital assets like cryptocurrencies is still evolving. As regulators around the world grapple with how to classify and regulate these assets, EAG investing in digital assets will need to stay abreast of any new guidance or regulations. This could involve understanding how different jurisdictions classify and regulate digital assets, ensuring compliance with anti-money laundering and know your customer (KYC) requirements, and navigating the tax implications of digital asset transactions.
5. Economic Sanctions and Asset Seizures:
Economic sanctions are penalties applied by one country (or group of countries) on another for various reasons, often political. Asset seizures often occur when a government seizes assets held by individuals or companies that are believed to have been involved in illegal activity. The Biden Administration's focus on these areas could impact EAG with international investments, particularly if those investments are in countries subject to sanctions or if the EAG themselves are subject to asset seizures. EAG will need to ensure they are following all relevant sanctions and are not at risk of asset seizures.
6. Privacy and Cybersecurity:
With the increasing importance of data and digital assets, EAG will need to ensure they are meeting all privacy and cybersecurity requirements. This could involve implementing robust data protection measures, ensuring compliance with privacy laws such as the GDPR, and maintaining strong cybersecurity defences to protect against data breaches and cyber-attacks.
7. Insider Trading and MNPI Controls:
Both the FCA and SEC are renewing their interest on insider trading and misuse of material non-public information (MNPI), which could impact EAG' internal controls and compliance programs. EAG will need to ensure they have strong controls in place to prevent insider trading and misuse of MNPI, and that they are prepared for potential FCA scrutiny in this area.
8. Increasing Disclosure Obligations:
EAG are facing increasing disclosure obligations, both from regulators and from investors. This could involve providing more detailed and frequent disclosures about their financial performance, risk factors, business operations, and more. EAG will need to ensure they have the systems and processes in place to meet these increased disclosure obligations.
9. Conflicts of Interest:
The bar for managing conflicts of interest is being raised, and EAG will need to ensure they are meeting these higher standards. This could involve implementing stronger policies and procedures for identifying, managing, and disclosing conflicts of interest, and ensuring these policies and procedures are followed.
10. Portfolio Company Risk:
There is increasing scrutiny on the actions of portfolio companies, and EAG may face legal risks related to these companies. EAG will need to ensure they have strong oversight of their portfolio companies and that these companies are operating in compliance with all relevant laws and regulations.