The SEC is using the conference circuit to get the word out that it is serious about fund firms taking compliance more seriously. SEC officials started talking tough last month at the ICI's annual Mutual Funds Conference in Palm Springs. This week, SEC officials provided more detail about what they are seeking from fund firms at the Money Management Institute conference in Boston.
"Bad things." That's the succinct answer Robert Colby
, deputy director of the SEC's Division of Market Regulations, gave when asked what would happen to fund firms that fail to bring a chief compliance officer on board by October 6.
Under rules proposed in December, fund firms have until that date to hire and have in place a chief compliance officer (CCO) reporting to the fund board rather than the fund advisor.
Speaking to the MMI conference Tuesday, Gene Gohlke
, associate director of the SEC's Office of Compliance Inspection told some 400 money management industry executives that just going through the motions by hiring a CCO and producing a compliance manual is not enough. Rather, a firm's compliance practices need to be followed throughout the firm, he warned.
"Come October 6, during all of our inspections we will be very interested in what a firm's written procedures are, how they are being implemented ... and tested," Gohlke told the audience.
He warned that hiring a consultant to develop the written standards and then not implementing them throughout the firm will not be good enough. He also warned that firms must perform a periodic and systemic review of their compliance practices, and keep the written records to prove it, to remain on the SEC's good side.
"If the firm has not paid attention to this, they will hear back from us," said Gohlke. "If they relied on a consultant and put the report on the shelf ... there is a good chance we will refer them to enforcement."
Not implementing the written compliance standards may not be the only way a firm gets in water with the SEC. Another potential problem are is for firm's to not follow all of the procedures they create. That makes it especially important to ensure that the written policies are realistic and not the subject of senior management's fantasies.
"They have to be reasonable and things that you can implement in day-to-day practices," said Alan Sislen
, president of Managed Account Perspectives, a Bethesda Maryland-based consulting firm to the separately managed account industry. "Take the time now to make sure that what is being put down in writing is something you can live with," he advised.
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