Although regulators didn’t bring many cases against mutual fund companies in 2006, that doesn’t mean that their scrutiny is going to let up, according to a white paper from SEI.In fact, the Securities and Exchange Commission has indicated it will continue to crack down on abuses in the industry.
“With its recent activity, the SEC is clearly sending a message that the compliance bar will be raised in 2007,” said Jim Volk, chief accounting officer and chief compliance officer in SEI’s investment manager services division. “At SEI, we’re sending the message that the best regulatory defense is a good offense.”
To remain diligent, SEI recommends that CCOs ask tougher questions and senior managers get involved in compliance issues. Because the SEC has found that only 60% of firms perform “solid annual reviews,” firms need to beef up their annual examinations. Firms also need to assess risks more carefully, conduct more rigorous testing of their compliance policies and have a well-defined process for dealing with violations. Finally, firms must be sensitive to current SEC issues, which now include front running and identity theft.