SEC And NASD Officials Reiterate VA Oversight And Compliance Warnings
Insurance companies should do all they can to instill a culture of compliance in their organizations, says a top Securities and Exchange Commission staffer.
Paul F. Roye, director of the SECs Division of Investment Management, says that effective oversight of investment activities depends on the efforts of insurance companies to ensure compliance with the law.
Roye spoke at the Regulatory Affairs Conference sponsored by the Reston, Va.-based National Association for Variable Annuities.
It is in the industrys own best interest, Roye says, to police practices that are not in the best interest of investors.
“Sales abuse is a high enforcement priority for the Commission,” he adds.
Roye notes that the growth in the variable annuity industry has created a challenge for the SEC. Indeed, he says, the growth in the industry has exceeded the growth in the SECs resources.
There are, he adds, a lot of demands on the SECs resources, and the SEC must figure out how to leverage those resources more effectively. That is why, he says, the SEC hopes to see investment companies establish internal procedures and controls designed to ensure compliance.
He does not believe, he adds, that the SEC will be asking for anything more than what a well-managed company should have in place.
VA companies, Roye says, should have an annual review procedure designed to prevent violations of federal securities laws.
These procedures need not follow a specific set of elements, he says, and can be flexible enough to be tailored to the organization.
But the procedures must be in place and must be reasonably designed to detect violations, he says.
Roye notes that the SEC itself is coming under a great deal of congressional scrutiny. The Commission received two letters from the House Financial Services Committee asking for information on such key issues as mutual fund fees and charges and conflicts of interest, he says.
On fees and charges, Roye says that while sales load information is transparent, ongoing fees and expenses data are less so.
The SEC is examining whether more can be done to help investors understand fees and expenses, Roye says.
In addition, he says, the SEC is looking at the compensation structure for mutual fund portfolio managers.
This includes, Roye says, whether they are compensated based on short-term or long-term results and on a pre-tax or after-tax basis.