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SEC Proposes to Tighten Compliance Rules for Fund

By Staff Writer

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Feb. 5, 2003 — The Securities and Exchange Commission voted to propose certain changes in the way investment advisory firms do their business, including the establishment of written compliance policies to assure that money managers do not violate federal securities laws.

The SEC is also seeking to require investment advisers to carry insurance to protect customers in case of theft or fraud. Louis Harvey, president of Dalbar Inc., a mutual fund consultant, thinks this is “much ado about nothing.

Fund companies already have `E&O Insurance’ [Errors & Omissions Insurance] for such purposes, Harvey explained, adding that the cost of this insurance to brokers and shareholders has been “pretty negligible.”

Harvey noted that, should the SEC’s proposals pass, their most positive result would be to have fund companies adopt “better record-keeping policies.”

The SEC will also seek public comments on their proposal to form a new self-regulatory body to oversee the mutual fund industry. The fund industry’s principal lobbying group, the Investment Company Institute, is skeptical about such a new regulatory body.

Matthew P. Fink, ICI’s president, stated in a press release: “We remain deeply skeptical that developing an organization requiring mutual funds to assume significant responsibility for regulating themselves is wise or necessary.”