SEC Adopts New Compliance Rules

Washington, DC, December 19, 2003 - The SEC recently adopted new rules to require all registered investment companies and investment advisers to adopt strong compliance controls administered by a chief compliance officer.

Background
Earlier this year the SEC proposed rules that would require funds and investment advisers to adopt written compliance procedures, review the adequacy of those procedures annually, and designate a chief compliance officer responsible for their administration. The proposed rules were designed to foster improved compliance by clarifying the compliance obligations of fund management and to strengthen the hand of fund boards and compliance personnel when dealing with them.

Funds and advisers must comply with the new rules by October 5, 2004. By that date all funds must have:

designated a Chief Compliance Officer (CCO);
had the CCO approved by the fund's board;
adopted compliance policies and procedures that satisfy the new rule's requirements; and
had the policies and procedures approved by the fund's board.

All investment advisers must have designated a CCO, and adopted compliance policies and procedures that satisfy the new rule's requirements.

In addition to the new rules, the SEC seeks comment on provisions added to Rule 38a-1 that were not included in the proposed rule, which are designed to promote the chief compliance officer's independence from fund management, by:

requiring the fund's board to approve the CCO's compensation;
providing the board sole power to remove the CCO from position;
requiring the CCO to report directly to the board and meet with the independent directors in executive session at least annually; and
prohibiting persons from coercing or fraudulently influencing her in the course of her responsibilities.

ICI Position
The Institute expressed support for the SEC's goal of ensuring that each registered investment company has a rigorous internal compliance program in an April comment letter, and recommended several revisions to the proposal.

Related Links

ICI Supports Measures to Improve Compliance with Securities Laws, April 2003

In addition, a section of this website is devoted to the Institute's support for reforms that provide uniform investor protection and functional regulation while ensuring competitive fairness within the financial services industry.