New York (July 28, 2004) -- With an October deadline looming, mutual fund company executives identified service provider oversight and ensuring that securities trading and brokerage practices are compliant as their biggest compliance challenges, according to a survey by PricewaterhouseCoopers' Investment Management Industry Group.
Thirty percent of the more than 200 fund industry executives polled said that service provider oversight will be the most time-consuming aspect of fund operations for which to assess compliance, while nearly as many (28 percent) said that securities trading and brokerage practices would be most challenging. Others cited conflicts of interest and related-party transactions (16 percent); portfolio management (9 percent); shareholder servicing and transaction processing (9 percent); and portfolio valuation and fund pricing (8 percent).
In December 2003, the Securities and Exchange Commission adopted a requirement that mutual funds implement comprehensive compliance policies and procedures and name a chief compliance officer who would report directly to and be approved by the fund's independent directors. Funds have until Oct. 5, 2004, to adopt the policies and procedures and designate the compliance officer.
"The survey results confirm that service provider and brokerage practice compliance will be the most difficult and complex elements of the compliance program to monitor," said Tony Evangelista, PwC partner and leader of the regulatory compliance practice for the firm's Investment Management Industry Group. "This will help to guide fund complexes and service providers alike as they set priorities and allocate resources to fulfil their compliance responsibilities."
Seven in 10 fund complexes already have identified a chief compliance officer, although only 38 percent have had their choices approved by their fund's board. Most of the rest expect to select a compliance officer and have the designee approved as soon as reasonably possible, PwC said.
Initially, many funds appear to be looking to experienced insiders to fill the chief compliance officer role. Nearly half of respondents (46 percent) said that knowledge of the fund family, its advisors and service providers was the most essential attribute for a chief compliance officer. Three in 10 (29 percent) identified relative past experience as a compliance officer as the most important attribute, with fewer citing operational experience (14 percent) and legal experience (11 percent).
Fund executives were almost evenly split over who would pay for the costs of the funds' CCO -- 31 percent said that the funds will bear all of the costs, 29 percent said that the advisor will bear the costs, and 37 percent said that a combination of the fund and advisor will pay for the compliance officer.
-- WebCPA staff
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