SEC Adopts Fund Custody Rule Changes, Proposes Fund and Adviser Compliance Rules, Solicits Comment on Increased Private Sector Compliance Role
FOR IMMEDIATE RELEASE
Washington, D.C., February 4, 2003 -- The Securities and Exchange Commission today voted to adopt changes in rules on ways investment companies maintain assets with U.S. securities depositories. The Commission also voted to propose new rules and rule amendments that would require investment companies and investment advisers to implement measures reasonably designed to prevent violations of applicable provisions of the securities laws. Finally, the Commission decided to solicit comment from the public concerning possible expansion of the role of the private sector in fostering investment company and investment adviser compliance with federal securities laws.
Custody of Investment Company Assets With U.S. Securities Depositories
The Commission voted to adopt amendments to Rule 17f-4 under the Investment Company Act of 1940. Rule 17f-4 permits registered investment companies (funds) to maintain assets with U.S. securities depositories. The rule amendments will update and simplify the rule in response to changes in business practices and commercial law that have occurred since the rule was adopted in 1978. The amendments will eliminate unnecessary restrictions in the rule to reduce compliance burdens on funds and fund boards without jeopardizing investor protections.
The rule amendments will take effect 30 days from the date of their publication in the Federal Register.
Compliance Programs of Investment Companies and Investment Advisers
The Commission voted to propose new Rule 38a-1 under the Investment Company Act of 1940, new Rule 206(4)-7 under the Investment Advisers Act of 1940 and amendments to Rule 204-2 under the Advisers Act.
The proposed rules would require investment companies and investment advisers registered with the Commission to
- adopt and implement compliance policies and procedures reasonably designed to prevent violations by funds of the federal securities laws and violations by advisers of the Advisers Act;
- review annually these policies and procedures; and
- designate a chief compliance officer to administer these policies and procedures.
The proposed rules would formalize the practical requirement that funds and advisers establish control systems designed to prevent violations of important investor protection provisions of the federal securities laws. The rules would provide funds and advisers the flexibility to tailor their compliance policies and procedures to fit the scope and nature of their operations.
Request for Comment
The Commission also decided to seek comment on additional ways in which it could expand the role of the private sector in fostering compliance by investment companies and investment advisers with the federal securities laws. In particular, the Commission will seek comment on the following possibilities to supplement Commission oversight of investment companies and investment advisers:
- a requirement that advisers and funds obtain periodic compliance audits from third party compliance experts;
- reliance on independent public accountants that audit fund financial statements to examine fund compliance controls in connection with the audit;
- the formation of one or more self-regulatory organizations to oversee the activities of funds and/or advisers; and
- a requirement that advisers obtain fidelity bonds.
Comments on the proposed rules and rule amendments as well as responses to the Commission's request for comment should be received by the agency within 60 days of publication in the Federal Register.
The full text of detailed releases concerning each of these items will be posted to the SEC Web site as soon as possible.