A new white paper by SEI tells fund shops that they should be prepared for the SEC to raise the bar for compliance programs. The paper's authors believe that the SEC is sending a clear message to the industry that they expect an improvement in compliance programs. Among the recommendations the paper makes is that fund companies be aware of so called "hot button issues" close to the Chris Cox's heart. These include the listed use of non-public information for investment decision-making; undisclosed fee arrangements; soft dollar brokerage arrangements; adherence to 'best execution' rules; and risk management, pricing, and
valuation methods among funds using derivatives.
According to an SEI (Nasdaq: SEIC - News) white paper released today, funds and investment advisers should be prepared for the SEC to raise the bar for compliance programs. The paper's guidance reflects a landscape in which SEC examiners found that 40 percent of compliance programs reviewed in 2006 were deficient.
While major new rules have not been enacted this year, senior SEC officials have clearly indicated that they expect their massive outreach and educational program over the 18 months to pay off in the form of substantial compliance program improvements.
"The SEC's message to the industry is clear: it expects to see significant improvement in compliance programs," said Jim Volk, Chief Compliance Officer for SEI's Investment Manager Services division. "The bottom line is that senior management must be more involved with compliance and CCOs have to be more alert than ever before. We're in a new era of compliance that requires heightened awareness."
In the paper entitled What's Next from the SEC? SEI recommends several key compliance insights for CCOs. The recommendations include:
- Be aware that the list of SEC hot-button issues is constantly changing.
Among current compliance issues publicly highlighted by SEC Staff, SEI
listed use of non-public information for investment decision-making;
undisclosed fee arrangements; soft dollar brokerage arrangements;
adherence to 'best execution' rules; and risk management, pricing, and
valuation methods among funds using derivatives.
- Prepare for more intensive SEC exams. Of 52 CCOs and fund executives
surveyed by SEI, 84% said the SEC has been making more onerous requests
for data in advance of an exam and is also asking tougher questions on
- Document in writing the compliance-related steps being taken to create
a firm-wide culture of compliance.
- Work to improve risk assessment and program testing. A forthcoming
white paper by SEI examines tactics for making assessments and testing
- Conduct a formal "gap analysis" to identify missing compliance program
policies and procedures as part of each compliance program annual
review. Commonly neglected areas include guidelines for side-by-side
investing, political and charitable reviews, and dissemination of
annual compliance program reviews
This week SEI will host its CCO Forum, an annual conference for the company's investment manager client CCOs and their staff. Featuring SEI's compliance experts and industry professionals, the conference will review emerging compliance best practices and share insights into strengthening compliance programs.
What's Next from the SEC? is jointly published by the SEI Knowledge Partnership, which provides ongoing business intelligence to SEI's investment manager clients, and ComplianceAdvantage, which provides compliance support and a range of services supporting the efforts of SEI's client CCOs. Excerpts of the paper can be found at http://www.seic.com/ims/General_WhatsNext.asp .
About SEI's Investment Manager Services Division
SEI's Investment Manager Services division provides total operations outsourcing solutions to investment managers focused on mutual funds, hedge and private equity funds, separately managed accounts and institutional client services. The division applies operating services, technologies, and business and regulatory knowledge to each client's business objectives. Its resources enable clients to meet the demands of the marketplace and sharpen business strategies by focusing on their core competencies.
SEI (Nasdaq: SEIC - News) is a leading global provider of outsourced asset management, investment processing and investment operations solutions. The company's innovative solutions help corporations, financial institutions, financial advisors, and affluent families create and manage wealth. As of June 30, 2007, through its subsidiaries and partnerships in which the company has a significant interest, SEI administers $407 billion in mutual fund and pooled assets and manages $199 billion in assets. SEI serves clients, conducts or is registered to conduct business and/or operations, from more than 20 offices in over a dozen countries. For more information, visit http://www.seic.com .
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