ICI Comments on IOSCO Fund Governance Report

Washington, DC, October 12, 2006 - In a recent letter to the Technical Committee of the International Organization of Securities Commissions (IOSCO), the Institute supported the general goals and approach of IOSCO's report on the governance of collective investment schemes, such as mutual funds, around the world.

Background
In July 2006, the IOSCO's Technical Committee published a two-part report on the governance of collective investment schemes (CIS). Part I of the report examines the various forms of fund governance employed around the world, and Part II provides a more specific analysis of the concept of independence and the independent review and oversight mechanisms utilized in CIS structures.

ICI Position
The Institute generally supports IOSCO's work in this area, and strongly supports the consultation report's clear recognition of both the importance of independent oversight and the need for significant flexibility to adapt regulatory requirements on independent oversight to different CIS models. Despite that general support, however, ICI's letter expresses three main concerns.

First, the letter discusses a report recommendation that calls for independent oversight entities to report "material compliance failures" or irregularities to the regulatory authorities or CIS shareholders. The letter expresses ICI's concern that this recommendation suggests that an oversight entity's duty to disclose material failures should be mandatory, rather than discretionary, and recommends that IOSCO revise the principle so that these entities have the flexibility to determine when and how to publicly disclose such breaches or irregularities.

Second, ICI expresses a concern that the report in some respects may not fully recognize the important role played by internal CIS compliance mechanisms, such as the use of compliance officers and written compliance programs.

Third, the letter expresses a concern that the report in certain respects sets forth unrealistic standards or is overly prescriptive, and offers several suggestions for technical corrections that would help alleviate this problem.

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