More On Legal & Compliancefrom The Advisor's Professional Library
- Using Solicitors to Attract Clients Rule 206(4)-3 under the Investment Advisors Act establishes requirements governing cash payments to solicitors. The rule permits payment of cash referral fees to individuals and companies recommending clients to an RIA, but requires four conditions are first satisfied.
- Regulatory Oversight of Investment Advisors Although the regulatory environment is in a state of flux, it is imperative that RIAs adhere to their compliance obligations. To ensure compliance, RIAs and IARs must fully understand what those obligations are.
The Board of Governors of the Investment Company Institute endorsed March 17 recommendations from the Money Market Working Group to require new regulatory and oversight standards for money market funds.
The ICI called for prompt implementation by all money market fund complexes of those practices recommended in the Report of the Money Market Working Group that do not require prior regulatory action. Paul Stevens, ICI's president and CEO, told reporters on a conference call March 18 that he anticipates "prompt implementation" of the recommendations, and that ICI has "urged that they be implemented by all money market mutual funds." He said "substantial implementation of the recommendations" can be achieved prior to September 18 of this year, which is an important date because that when the U.S. Treasury Department's temporary guarantee program for the money market fund industry ceases. "We believe that substantial implementation of these recommendations coming in advance of any SEC rulemaking will then send a very positive signal to the market as we look forward to a transition away from the [Treasury] guaranteed program," Stevens said.
Here are the recommendations that the Money Market Working Group proposed and the ICI endorsed:
l Require for the first time that money market funds meet new mandated daily and weekly minimum liquidity standards.
l Tighten the portfolio maturity limits currently applicable to money market funds and raising credit quality standards.
l Raise the credit quality standards under which money market funds operate. This would be accomplished by requiring a "new products" or similar committee to review and approve new structures prior to investment, encouraging advisers to follow "best practices" for determining minimal credit risks, requiring advisers to designate the credit rating agencies their funds will follow to encourage competition among the rating agencies to achieve this designation, and prohibiting investments in "Second Tier Securities."
l Address "client risk" by encouraging money market fund advisors to adopt "know your client" procedures and requiring them for the first time to disclose client concentrations and the potential risks, if any, posed by a fund with a strongly concentrated client base.
l Enhance risk disclosure for investors and the market and require monthly website disclosure of a money market fund's portfolio holdings.
l Assure that, when a money market fund proves unable to maintain a stable $1.00 NAV, all of its shareholders are treated fairly. For this purpose, a money market fund's board of directors would be authorized to temporarily suspend redemptions and purchases of fund shares under certain situations, and to permanently suspend redemptions for funds preparing to liquidate in order to ensure that all shareholders are treated fairly.
l Enhance government oversight of the money market by developing a reporting regime so that regulators will have access to better information about all institutional investors in the money market, including money market funds, and encouraging the SEC staff to monitor higher-than-peer performance of money market funds.
l Increase investor understanding of money market funds and address market confusion about money market participants that appear to be--but are not--money market funds.