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Tuesday, January 28, 2003

Pitt-bull Will Not Let Go

by: Sean Hanna, Editor in Chief

Harvey Pitt may no longer have anything to lose, and that may not be a good thing for the fund industry. Rather than step down as an industry lapdog, Pitt is trying to ensure that his final weeks or months will transform his reputation into that of a Pitt-bull. While the Washington media and public may not initially notice the efforts, the fund industry is likely to.

Next up on the Securities and Exchange Commission's agenda is a new rule that would require fund firms to appoint a chief compliance officer. They would also require investment advisors to adopt written policies and procedures to ensure they do not run afoul of securities laws. The rules are likely to be proposed at a public meeting next Tuesday, according to a report on Dow Jones Newswires.

The SEC would also require that fund firms review their internal controls at least once a year. The proposed rules are part of a wave of new regulation and oversight cresting over the industry. Just last week the SEC approved final rules that require funds to reveal proxy votes starting in 2004. The Commission is also preparing to hire hundreds of new examiners and increase the frequency with which it examines the largest fund complexes.

Staffers at the SEC are also kicking around other ideas for increased oversight of the fund industry and the investment advisory industry, according to the report. The grandest idea is for the creation of self-regulatory organizations. That organization would presumable be modeled on the National Association of Securities Dealers.

Other ideas include a mandate that firm's purchase fidelity bond insurance, more extensive reviews of firms by independent auditors, or periodic inspections and compliance reviews by third-party firms, according to the report.

While the very largest fund complexes are likely to be able to handle new regulations, if the rules make it into final form they are likely to squeeze smaller fund shops and the bulk of independent investment advisors.  

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